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By Matthew Quinn
Score one for the Federal Trade Commission in promoting more competition.
Back in May, the regulator initiated an inquiry into the comfy board relationship between Silicon Valley's ultimate power couple, Apple and Google.
The FTC was interested in the two directors the companies shared: Eric Schmidt, CEO of Google, and Arthur Levinson, former CEO of Genentech. To justify the inquiry, the FTC cited a little used anti-trust provision -- Section 8 of the Sherman Act as amended by the Clayton Act of 1914 - that addresses interlocking board memberships.
In challenging the relationship, the FTC had a daunting legal task. The Clayton Act specifies that the combined revenues from the competing products of the companies involved must represent at least 2 percent of their total for there to be an anti-trust concern. Certainly, determining the extent to which products compete is a sticky issue. What's more, recent court decisions have held that competitive harm must be shown for an anti-trust case of any kind to be decided in favor of the government.
So, where exactly do Google and Apple compete? The most apparent area is smartphones. They also compete in web browsing, with Apple offering Safari and Google rolling out Chrome last year.
But while Apple derives a hefty chunk of its revenue from its iPhone, Google's Android phone bears only one mention in its most recent 10-Q. Not exactly a big business item for them.
But that might change -- and quickly, arguably in part because of the FTC's inquiry.
At the time the inquiry was initiated, Apple and Google scoffed at it. Schmidt said he recused himself from iPhone discussions and didn't think there was a problem.
But a mere three months later, Apple and Schmidt must have had a revelation about where their respective businesses were going.
"Unfortunately, as Google enters more of Apple's core businesses, with Android and now Chrome OS, Eric's effectiveness as an Apple Board member will be significantly diminished, since he will have to recuse himself from even larger portions of our meetings due to potential conflicts of interest," Apple CEO Steve Jobs said in a press release announcing Schmidt's resignation from the board in August.
Apparently freed from the shackles of anti-trust concerns, Google is escalating its involvement in the smartphone arena. The company announced on Tuesday that it will work with Verizon Wireless to develop mobile devices, services and software for the Android mobile operating system. Considering Verizon is the largest U.S. wireless provider, Google could really heat up its competition with Apple's iPhone, which is still available exclusively through AT&T.
One has to wonder if Google would have struck such a deal if Schmidt was still on Apple's board.
That may be impossible to figure out. And it must be noted that Arthur Levinson still sits on both boards -- and Schmidt argued just last week that he should continue to do so.
Schmidt said at a conference on Friday that Google and Apple easily passed an anti-trust test for overlapping board members relating to revenue overlap, according to Reuters.
Asked on Friday if Levinson would step down, Schmidt reportedly said: "I would hope not... because I don't think it's necessary."
Schmidt insisted he did not step down under any pressure.
Recent events suggest otherwise.
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