ABCs of Antitrust: What Apple Could Learn from Intel
Maybe Apple (AAPL) should have been paying more attention to Intel's antitrust case. According to The New York Times, Apple is getting the once-over from Department of Justice investigators, who are drilling down on whether the computer maker threatened to withhold iTunes marketing support to music studios that participated in rival Amazon.com's exclusive one-day music offer, "MP3 Daily Deal."
The allegations probably sound familiar to those who have followed the long, drawn-out antitrust battle between chipmakers AMD (AMD) and Intel (INTC). In that case, AMD accused Intel of providing sizable marketing rebates, allowances or market-development funds to persuade customers like Dell (DELL), Sony (SNE), NEC (NIPNF) and Acer (ACEIF) to severely limit or exclude competitor AMD's chips from their products.
The messy results, which are still playing out five years after the initial complaint, should have sounded a clear warning to Apple and others.
Five Years and Counting
For one thing, AMD took its case well beyond a simple U.S. lawsuit, also filing complaints with the European Commission and the Japan Fair Trade Commission. Intel and the Japan FTC later reached an agreement, and the company reached a $1.25 billion settlement with AMD last year. But the European Commission came down hard on the chip giant, issuing a $1.45 billion fine -- its largest ever -- which Intel is appealing before Europe's General Court. The U.S. Federal Trade Commission, meanwhile, filed its own lawsuit against Intel late last year and a hearing before an administrative law judge is scheduled for Sept. 15.
Apple, with its ties to European music labels, could conceivably also end up tangling with the European Commission if the allegations of quid-pro-quo marketing practices with music labels are proven out.
The lesson on the blackboard? Regulators tend to become inquisitive when dominant industry players engage in what appears to be exclusionary conduct, when they basically force customers or suppliers to avoid doing business with competitors. And make no mistake, marketing or promotional support can add up to big bucks, especially in a tough economic climate, meaning the threat of withdrawing that support could conceivably prevent suppliers or vendors suppliers from wandering over to the competition.
"The FTC complaint against Intel sets a strong framework, and the DOJ can build on this framework" in an Apple investigation, says David Balto, an antitrust lawyer and former policy director of the Bureau of Competition at the FTC.
Handcuffing Customers and Suppliers
The framework pulls in antitrust laws that aim to prevent companies from using exclusionary conduct to maintain and entrench their market dominance, an issue that software maker Microsoft (MSFT) has repeatedly revisited with antitrust regulators at home and abroad over the years. "There are a variety of ways a dominant firm can handcuff its customers and suppliers," Balto notes. Mostly, regulators look at whether consumers are harmed by such actions in terms of reduced innovation or paying higher prices.
While the allegations against Intel and Apple both involve using marketing and promotional support to keep business partners away from competitors, the two companies' situations aren't exactly alike. One difference is that Intel's use of marketing rebates have been viewed, by AMD and others, as a form of predatory pricing designed to drive AMD out of business or leave it severely crippled. Regulators in Apple's situation aren't likely to take it down a predatory pricing route, given the prevailing view that Apple doesn't necessarily want to put Amazon.com out of business. After all, the two companies are largely in different businesses.
However, there is at least one particularly striking similarity between the companies' circumstances: Bruce Sewell, Intel's former general counsel, is currently Apple's general counsel. Intel and Apple representatives both declined to comment for this story.