Apple is currently reaping a large portion of its profits from the sales of its popular iPhone. Sales for the firm's notebooks are slowing along with the global economy. At the same time, Google is fighting a slowing advertising market and looking to break into mobile advertising via its Android mobile phone OS.
The two companies work closer together than some might imagine and even share a significant board member -- Google CEO Eric Schmidt. Schmidt sits on the board of both companies, which are increasingly competing against each other as Google broadens its offerings and Apple does the same.
Google now competes in the mobile phone market with Android-powered smart phones like the Samsung i7500 and T-Mobile G1. With Android being eyed as a possible OS for netbooks, Apple and Google could soon find themselves competing in the notebooks market as well. Another area where the two technology giants overlap is in web browsers with Google's Chrome and Apple's Safari.
With the increasing overlap between the two companies, the FTC has notified the firms that it has began an inquiry into whether the ties between the two company's boards amount to a violation of antitrust laws.
The New York Times reports that The Clayton Antitrust Act of 1914 prohibits a person's presence on the board of two rival companies when it could reduce competition between the two firms. Experts say that the provision causing the issue is Section 8 which prohibits interlocking directorates -- it is a rarely enforced provision.
The NYT cites sources close to the matter saying that the FTC has notified both firms of its inquiry.
Antitrust division head Christine A. Varney singled Google out last year as a possible source of future antitrust concerns for its near monopoly on internet search and advertising.
Sanford Litvack from Hogan & Hartson said, "I expect the administration to be aggressive, generally, on antitrust enforcement. I don’t expect Google to either be singled out or to receive a free pass because of Schmidt’s relationship with the administration."
The NYT reports that interlocking directorates rarely leads to major confrontations between the company and the government because the executives in question typically just resign from one of the boards to prevent proceedings.
Google does say that Schmidt carefully removes himself from any board meetings where talk of overlapping products like mobile phones will be a topic. Interlocking directorates are not considered a problem within companies that compete in categories as long as the revenue for the categories is less than 2% of the company's entire sales.
Andrew I. Gavil told the NYT, "Government actions under Section 8 are rare, but they are brought under circumstances when the presence of a common director on competing boards is likely to be anticompetitive."
Gavil says that regulators are probably not concerned that the Apple and Google have a common rival in Microsoft, even if the two companies were found to be talking about ways to compete with Microsoft.