Apple, Steve Jobs and the threat of Antitrust Probe

Background : Apple has been growing from strength to strength, with the last quarter financial performance far exceeding expectations.  However, success has been accompanied with controversy, with Apple being accused of adopting unfair trade practices, bringing it in antitrust crosshairs. Please note that though Apple, as of now, is facing allegations of creating a digital music monopoly with its iPod players and iTunes store, there are several other anti-trust charges that can be brought against it. This post looks at all these charges.

Objective : of this blog post is to

·        Understand what the US Antitrust Law is all about (using the now famous Microsoft lawsuit as an example)
·        See how Apple has attracted attention of the US Antitrust establishment
·      Evaluate if an Antitrust lawsuit filed against Apple will stand in the court of law

The US Antitrust Law

Fight (2)

The US Antitrust Law has three main elements :

·        Prohibiting practices that stifle competition between businesses (especially cartels)
·        Banning abusive behavior of a firm dominating a market
·        Supervising mergers and acquisitions of large firms to avoid monopoly

Objective of the law is to

·        Protect the interests of consumers
·        Ensure that entrepreneurs have an opportunity to compete in the market economy

The Microsoft Case : An Example

To put things in perspective, let us briefly analyze the antitrust litigation against Microsoft in the late 90s. Questions before the antitrust authorities were :

·        Did Microsoft bundle its Internet Explorer Web Browser software with its Microsoft Windows Operating System?
·        Did this unfairly restrict the competing web browsers, as Microsoft already dominated the PC market?
·        Did Microsoft deliberately create a situation wherein its operating system worked slowly when using a competing web browser?

Microsoft of course contended that the Internet Explorer was inextricably linked to the Microsoft Windows Operating System and was a result of innovation and competition. With the objective of preventing Microsoft from ‘predatory behavior’, the lawsuit resulted in a settlement in 2001 on the following terms :

·        No need to break up Microsoft
·        Microsoft would share its application programming with third party companies
·        Appointment of a powerful three party panel to oversee compliance

Why Apple is in antitrust crosshairs

steve_jobs-jpeg-scaled500

Having studied the Microsoft case, understanding why Apple might invite the ire of the antitrust authorities should be easy.

·        Mobile Advertising (iAd) : Google has accused Apple o
f issuing rules that would prohibit developers from using Google advertising solutions on Apple’s iPhone.

·        Application Exclusivity : Applications by developers can be used only on Apple gizmos and cannot be used on competing devices from Google and RIM.
·        Dispute with Adobe : Adobe wished to use its Flash Player on competing hand held devices (like Google’s Android). Apple has shunned Flash citing it as a sub standard app producer, a reason not many are willing to buy!
·        Domination by iTunes : iTunes from Apple has a dominant 70% market share in the US retail digital music download market while the likes of Amazon and WalMart account for barely 12%! Also, iTunes has been tied to Apple products exclusively, which means one has to use an Apple product to use iTunes. This clearly has parallels to the Microsoft case.
·        E-Book Pricing : There is speculation that Apple has reached agreements with the largest e-book publishers to receive the best prices for e-books over any competitor.

Can Steve Jobs stave off the antitrust threat?

Steve Jobs is a smart CEO, and he will try to stave off the antitrust threat by  

·        Proving that Apple is not a dominant player in the smartphone market as yet, with market share of barely 24.4%.
·        Citing the fact that consumers have ample choices, and no action of Apple’s is adversely affecting competition. No harm has been caused to consumers as well.
·        Establishing the point that Adobe is a sub standard developer and Apple, by no means, has any intention of harming other developers

However, considering the controversy around the developer agreement and the domination of iTunes, there is a real possibility of Apple being dragged into an antitrust lawsuit. The US government might simply not wait for Apple to become a complete monopoly before it acts!

Do you feel the antitrust threat to Apple is for real? How strong will the government’s case be? Does Steve Jobs have a strong case to defend his company? Or will Apple be another Microsoft in the annals of the antitrust history? Would appreciate your comments!

References

·        Wikipedia http://en.wikipedia.org/wiki/Competition_law
·        United States antitrust law Wikipedia http://en.wikipedia.org/wiki/United_States_antitrust_law
·        United States v. Microsoft Wikipedia http://en.wikipedia.org/wiki/United_States_v._Microsoft
·        Apple in antitrust crosshairs? http://news.cnet.com/8301-13579_3-20003966-37.html
·        Apple, the App Store, and antitrust (FAQ) http://news.cnet.com/8301-31021_3-20004138-260.html
·        Apple faces antitrust probe over mobile ad restrictions: Report http://business.rediff.com/report/2010/jun/11/apple-faces-antitrust-probe.htm
·        Antitrust move against Apple would ‘sink,’ says expert http://www.computerworld.com/s/article/9176274/Antitrust_move_against_Apple_would_sink_says_expert
·        Apple to Dodge Antitrust Bullet, Report Says http://www.pcworld.com/article/195527/apple_to_dodge_antitrust_bullet_report_says.html
·        10 Things you should know about Apple and antitrust http://www.betanews.com/joewilcox/article/10-Things-you-should-know-about-Apple-and-antitrust/1273081311
·        Microsoft, Apple, IBM – Antitrust and Pirates of Silicon Valley http://www.techmynd.com/microsoft-apple-ibm-antitrust-and-pirates-of-silicon-valley/

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About Aman Sharma

Management Professional.
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2 Responses to Apple, Steve Jobs and the threat of Antitrust Probe

  1. ashwinkgopal says:

    Aman,Although there’re multiple ways of looking at this, I feel this attempt of taking them to court in the US would fail. On the other hand, if the same is challenged in EU, Apple would most likely be slapped with hefty fines.Most Si Valley companies find themselves being beaten up by the EU because they take anti trust and restrictive trade practices way too seriously. This is one reason why such an OPEN Google and not so open Microsoft find themselves paying a visit and often, some fines at the EU.The Microsoft Internet Explorer issue was perhaps the landmark case of all. But in this case, I doubt if Apple would be sued in the US or even if it did, Its unlikely to lose.Thought provoking stuff nonetheless!

  2. Anonymous says:

    Thanks Ashwin for the comments!Yes, even I feel that Apple has a very strong case against any antitrust probe. There might be threats from the authorities every now and then just to keep Apple under check, but no real action, at least for now. But the iTunes and the e-Book aspects are worth keeping at the back of the mind for Steve Jobs. There I feel lies the catch!I agree with you over the EU antitrust views. But I wonder how lethal an action by the EU will really be, if it does happen. Based out of the US, and having seen what happened to Microsoft, Steve Jobs needs to be careful with the US antitrust probe reports that emanate in the media every alternate month!

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