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By Ronald Fink
If anyone needs a wake-up call that President Barack Obama's approach to anti-trust enforcement will be a lot tougher than his predecessor's, the news this week regarding Apple and Google should be as loud as they come.
The inquiry that the Federal Trade Commission is making into interlocking board membership at the two companies, as reported in the Wall Street Journal and New York Times, represents about as bold a departure from the regulatory policy of the past few decades as anyone might expect.
Apple and Google share two directors, Eric Schmidt, CEO of Google, and Arthur Levinson, former CEO of Genentech. But the relevant anti-trust provision, Section 8 of the Sherman Act as amended by the Clayton Act of 1914, "has rarely been used over the years," noted a lawyer who asked for anonymity because he represents one of the companies involved.
The lawyer said the FTC will have a hard time prevailing, because courts in recent cases have decided that competitive harm must be shown for an anti-trust case of any kind to be decided in favor of the government.
To be sure, Section 8 doesn't require that competitive harm be demonstrated, written as it was in the early 20th century, when interlocking board memberships were commonly used for purposes of monopoly pricing by the myriad affiliates of Standard Oil.
"The titans used board directorships to pass on information and create horizontal monopolies," the lawyer explained.
But Apple and Google are hardly in the same league as John D. Rockefeller and friends, at least not yet. While the two tech giants are allies in some respects and competitors in others, Schmidt and Levinson are said to recuse themselves from matters affecting both companies.
"The real question is whether the provision is still valid," said the lawyer.
"A good shot across the bow may signal to corporate counsel that Section 8 remains the law and that the FTC will take this law seriously," said Albert Foer, president of the American Antitrust Institute in Washington, D.C.
But the FTC may be banking on the companies preferring to shun the publicity associated with a court battle, and that the directors will quietly resign and be replaced with individuals who don't serve on boards of competing companies.
While the Clayton Act specifies that the combined revenues from the competing products of the companies involved must represent at least 2% of their total for there to be an anti-trust concern, the lawyer said that determining the extent to which products compete is a daunting task.
"Who wants to fight that in the courts?" he said, noting that such a battle could drag on for the better part of a decade.
That alone suggests the FTC and the Department of Justice's anti-trust division are led by much more aggressive regulators than they were under President Bush. The DoJ's Christine Varney pushed to block what she saw as anti-competitive strategic alliances as well as mergers while an FTC commissioner under President Clinton, and FTC chairman-designate Jon Liebowitz, a commissioner under Mr. Bush nominated to the top post by Mr. Obama in March, is said to have made a strong impression during a speech at an American Bar Association meeting later that month that he would be tough on anti-trust. (The speech has not been published.)
"You put those two together and you have a pretty aggressive team," said the lawyer who asked for anonymity. And the unusual nature of the Apple and Google inquiry suggests they are willing to take on the courts. "It serves to put people on notice that they want to push the envelope," the lawyer said.
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