Why the AT&T T-Mobile Merger is Great for Apps Developers

March 21st, 2011 | Morgan Reed

Yesterday’s announced merger between AT&T and T-Mobile could bring increased access to more smartphone platforms throughout the US, and more spectrum for mobile apps that are becoming the backbone of a fully functional mobile web.

Despite apps being the dominant feature in smartphone ads, we’ve only begun to scratch the surface of growth in the mobile applications marketplace. The introduction of the iPhone and iPad blazed the way, creating entire new markets and devices for applications developers to write programs. With the addition of Windows Phone 7 and Android devices, the apps marketplace is a $5.6 billion industry, expected to grow to $38 billion by 2015.

To reach $38 billion in sales, apps developers will need access to as many customers as possible, people who will buy programs to run on their mobile phones and tablets. The merger fills in the gaps of AT&T’s phone network, expanding its network to 95% of the American population. The merger also allows T-Mobile customers to realize the full potential of their network, providing access to new products and services available at LTE speeds.

As we’ve reached this critical point of growth in the apps industry, the limiting factors moving forward are connection speeds and spectrum. Developers want mobiles devices to be able to manage the same type of programs that users are accustomed to working with on their desktops. Yet to date, the mobile web has been more promise than delivery. With AT&T rolling out a true 4G network over T-Mobile’s spectrum, the mobile web we’ve all been waiting for will now be here.

AT&T has long shown a commitment to the smartphone market, boldly investing in the iPhone when it was widely considered a mistake. Now the carrier also serves Android and Windows Phone 7 devices providing apps developers the widest range of platforms on the largest network in the country. Given this history, developers are willing to give AT&T the benefit of the doubt when it comes to support for smartphones.

For applications developers, this merger will expand the marketplace providing more opportunity for growth. Meanwhile the apps that consumers are clamoring for – that are the focus of smartphones ads these days – will now reach a wider audience. That’s something the apps developer community has no problem supporting.

Posted in AT&T, Blog | No Comments »

Google had it rough on antitrust last week; Is this a sign of things to come?

March 14th, 2011 | Jonathan Godfrey

First, Senate Antitrust Subcommittee Chairman Herb Kohl announced on Thursday that Google’s dominance in search and search advertising will headline his oversight agenda, an indication that hearings are likely.

“In recent years, the dominance over Internet search of the world’s largest search engine, Google, has increased and Google has increasingly sought to acquire e-commerce sites in myriad businesses. In this regard, we will closely examine allegations raised by e-commerce websites that compete with Google that they are being treated unfairly in search ranking, and in their ability to purchase search advertising.”

This shouldn’t really come as much of a surprise. The chairman sent a letter last December expressing his doubts about the proposed ITA merger, particularly concerned that Google would use its market dominance in search and search advertising to stifle competition in online travel. Since that shot cross the bow from Senator Kohl, the company has gotten headlines for:

Given this spate of revelations, it’s hardly surprising that Kohl highlights Google on his agenda. The search giant must be doubly concerned, however, that Kohl’s subcommittee counterpart Utah Senator Mike Lee has also come gunning for them. On Friday, the Senator called for hearings expressing concern about:

Serious questions concerning whether Google has acted to harm competition…

that Google may be using its position to harm specialized (or so-called “vertical”) search sites.

Google’s defense is one we’ve heard before, but we’ll include it for the record.

Google says that antitrust scrutiny is only to be expected given its growth and the sheer number of disgruntled incumbents it’s left in its wake.

This comes from one of the many press stories written by those whose interest was piqued by the double whammy of Congressional scrutiny.

What is meaningful in this latest call for hearings is that people are coming to Congress having experienced Google’s dismissive approach to competitors and oversight in their previous jobs. Lee, who was elected to the Senate this past November, provided legal representation to a Utah company suffering from Google’s promotion of copyright infringement. Also newly-elected, Senator Blumenthal of Connecticut locked horns with the search giant as state attorney general over the extent of its spy-fi eavesdropping program.

You would expect, with a ruling pending in the proposed ITA merger, that Google would be looking to put its best foot forward, especially having sparred recently with so many on Capitol Hill. Surprisingly, this does not seem to be a priority. And that’s a curious position to take when its recent actions seem to be encouraging even further antitrust attention from legislators and regulators.

Posted in Blog, Uncategorized | No Comments »

Google, Everywhere, Or How Privacy Is The Net’s Biggest Quagmire

October 15th, 2010 | Mark Blafkin

NPR’s All Tech Considered covers the efforts of a San Francisco-based artist to highlight Google’s growing ubiquity and the amount of information it collects on users every moment of every day.  The article and video do not suggest any immediate antitrust concerns, but they are illustrative of a growing sense of concern in the media about Google’s size and business practices.

Here is a quick excerpt

Google is everywhere.

That’s something we take for granted: The behemoth controls our e-mail and our searches; their tracking codes cover a great portion of the usable web.

Jamie Wilkinson, a technologist and artist based in San Francisco, has been trying to bring this issue into public discussion for a while now. Today, he released a plugin for Firefox and Google’s own Chrome that sounds an alarm whenever it finds that your browser is sending any information to Google.

“In effect,” he said, “it’s an exploration of how ubiquitous Google has become.”

Google Alarm from Jamie Dubs on Vimeo.

Posted in Blog, Google, Mobile Ad Market, News Item, Privacy, Search Advertising, privacy | No Comments »

This Week in Antitrust

July 26th, 2010 | Anthony Kuhn

This week’s antitrust roundup includes Google’s response to the FTC’s leanings on newspaper safeguards, drug maker AstraZeneca’s lost bid to quell a 2005 antitrust fine, Admob’s saber-rattling over Apple’s non-compliant ad restrictions, and Intel’s litigation settlement with its shareholders in hopes of staying on the good side of the law in the years to come.

Google/FTC – Google Calls Out Luddite Tendencies in FTC’s Newspaper Protection | Fast Company

Essentially Google is calling the FTC a bunch of Luddites. According to Google, this time the frame-breaking isn’t directed at textile mills which delivered cheaper, better, more ubiquitous material to the consumer, it’s aimed at the mechanisms being invented for timely, efficient and non-monopolistic news sharing … but it’s driven by the same irrational fear of the future.

Is Google accurate? It has 20 pages of analysis (about how journalism as a noble profession and newspapers should be decoupled in your thinking, given that journalism can also happen online, and should evolve rather than lay stagnant) to back up its arguments. We’ll just have to read them.. Read the rest of this entry »

Posted in Apple, Blog, European Commission, Google, Intel, US FTC | No Comments »

Industry Analyst Peter Kastner Reviews FTC Case Against Intel in The Portlander

July 25th, 2010 | Mark Blafkin

Industry analyst Peter S. Kastner wrote an op-ed for The Portlander newspaper that provides a pretty detailed analysis of the remedies proposed by the FTC in its lawsuit against Intel. Kastner argues that “The threat to Intel’s business by the FTC complaint is so great and the remedies so draconian that any outcome short of outright dismissal is likely to end up at the Supreme Court.”

He identifies a potentially key flaw in the GPU part of the FTC case: the entire industry is moving back toward integrated graphics:

The nub of the case is how Intel, AMD, and nVidia will compete in the increasingly integrated microprocessor and graphics processor (GPU) market. Both Intel and AMD are over the next year integrating the functions of the GPU into the microprocessor itself, eliminating the “chipset” that today runs integrated graphics in Core 2 and other Intel products.
That hurts nVidia, which makes chipsets with graphics, as well as making discrete graphics cards that compete with AMD’s ATI graphics unit. As in the childhood game of musical chairs, nVidia finds the music has stopped and it lacks a money-making chipset-technology chair to sit on. Meanwhile, AMD and Intel are, as usual, banging head to head bringing new microprocessor architectures to market in 2010 that will have better performance, energy savings, and new technology features.

He also identifies many problematic aspects of the FTC’s proposed remedies including this gem:

In Paragraph 8, the FTC seeks to prohibit Intel from manufacturing or distributing computer software, hardware, or other products that impair the performance, or apparent performance, of non-Intel microprocessors or GPUs. This remedy is game-changing, and with totally foreseeable consequences. First, more than half of all PCs lack discrete graphics cards with GPUs made by AMD and nVidia. These are mainstream PCs bought by the tens of millions by consumers and businesses. Those buyers do not need, or choose not to pay for, the added graphics capabilities from GPUs. All mainstream Intel PC designs today allow a buyer to add a non-Intel graphics card should they want to do so. However, AMD and nVidia each support multiple graphics cards in one, typically high-end, PC.

Second, to support multiple graphics cards requires a motherboard with considerably more robust electrical power, support chips, and circuit traces — all of which add to PC costs. Intel only supports multiple, full-speed (i.e., PCIe x16) graphics cards with products built around the X58 chipset and sold to enthusiasts. Mainstream and value market PCs cost less partly because they do not support multiple graphics cards running at full x16 speeds. The FTC’s Paragraph 8 would force Intel to the highest common denominator, adding approximately $100 retail to every desktop PC, in supporting multiple, full-speed graphics cards.

Click here to read the full article in The Portlander.

Posted in Analysis, Blog, CPU Market Competition, Discounting and Rebates, FTC Case Against Intel, GPU Market Competition, Innovation and IP, Intel | No Comments »

Senator Hatch Grills FTC’s Leibowitz on Antitrust Power Grab

July 11th, 2010 | Mark Blafkin

[Originally posted on the ACT Blog]

As we’ve discussed before, the FTC recently decided to dust off its Section 5 authority to go after “unfair methods of competition” in lieu of using its tradition antitrust authority (Section 2) to pursue some of its tougher cases. This has many antitrust experts concerned, most notably, Bob Litan, former Clinton administration Justice official. In a discussion of the FTC’s use of Section 5 authority in its Intel lawsuit, Litan argued that:

The FTC apparently seeks to avoid proving harm to competition under the established standards of Section 2 because the causal link between the conduct it challenges and any conceivable harm to competition is weak. At a minimum, therefore, the relief sought by the FTC should reflect the tenuous connection between the conduct it challenges and the potential for harm to competition.

Apparently, Senator Orrin Hatch (R-UT) is also concerned by the FTC’s use of Section 2

During June 9th Senate Judiciary Committee’s hearing on Antitrust, Senator Hatch asked FTC Chairman Jon Leibowitz some tough questions. Hatch asked (based on our unofficial but mostly accurate transcript of the event):

I have serious concerns about the FTC’s decision to bring what are essentially antitrust cases under Section 5 of the FTC Act rather than under the Sherman Act…My concern is that there is a breadth of case law under the Sherman Act that gives businesses clear guidance as to what types of conduct are lawful or unlawful… However, it does seem to me that, with the FTC’s decision to start bringing cases under Section 5 of the FTC Act, these companies may see themselves facing complaints for conduct that they had good reason to believe was allowable under the law…Should we not be concerned that the uncertainty inherent in the FTC’s use of Section 5 will prevent businesses from competing aggressively? Read the rest of this entry »

Posted in Blog, CPU Market Competition, FTC Case Against Intel, FTC Section 5, Intel, US FTC | No Comments »

This Week in Antitrust

July 11th, 2010 | Anthony Kuhn

This week’s collection of interesting antitrust pieces regarding technology include Google’s troubles abroad in China and the European Union, SAP’s recent defense against competitor Versata’s antitrust lawsuit, a look at the way changes to European Union anti-competition laws would affect the smartphone marketplace, and a lawyer/would-be politician who is the subject of a lawsuit by 23 lawyers claiming non-payment of attorney fees after a successful jointly-filed legal action against Microsoft.

Google/China – China Is Still Reviewing Google’s License | The Wall Street Journal

Google’s efforts to regain a foothold in China are meeting some resistance from Chinese licensing officials and the company is running into a different kind of trouble in Europe; that of the anticompetitive kind. Jason Dean and Peppi Kiviniemi provide additional information on the search engine/advertising giant’s on-going struggle to prove its business practices are fair and its policy on search results in China are benign and in keeping with Communist censorship regulations. They write:

Wang Lijian, spokesman for China’s Ministry of Industry and Information Technology, said Google’s application for annual renewal of its Internet content provider license came close to the end-of-June deadline, pushing back the approval process.

“As Google submitted the application in late June, it is impossible to finish the examination in such a short time,” Mr. Wang said.

Apparently, the Chinese government is still a little peeved about Google’s decision a few months ago to redirect its Chinese address, google.cn, to a site located in Hong Kong, which was uncensored and incensed Chinese information regulation authorities. In Europe the company is fighting to convince European Commission officials that its search function is not monopolistic and that companies such as Microsoft, who have been assisting the EC with legal legwork, aren’t acting altruistically. Here are the related passages from Dean and Kiviniemi’s article:

The commission began investigating Google in late February, spurred on by complaints from three competitors, including Microsoft Corp. The probe is concentrating on the company’s dominance in online searches and search advertising.

However, [Mr.Joaquin Almunia, the EU competition commissioner] noted that understanding the competitive landscape of online markets is a complex task with its innovative business models that are constantly evolving.

The real question remains the actual degree of barriers to entry to competitors, Mr. Almunia said. How easy is it for consumers to switch from one service to another, and can a company use its strong position in one area such as online search, to prevent competitors from advancing in a related market, are questions the commission is asking.

In their defense, Google claims it is doing its best to comply with informational requests from the EC:

Google said in a statement it was working with the commissioner and his team to answer their questions, “including how Google’s search ranking works to produce the most relevant and useful search results for users, and remains confident it operates within European competition law.”

SAP – EU anticompetition complaint lodged against SAP | Bloomberg Businessweek

Chris Kanaracus offers some coverage on a recent action by software company Versata against SAP for making it hard to inter-operate with their ERP (enterprise resource planning) products and who also have been accused of copying Versata’s software applications. Here’s the scoop:

Versata compared SAP’s actions to the ones that resulted in the landmark antitrust case against Microsoft. An E.U. ruling in Versata’s favor would open up the market for pricing software and give customers choice, it said.

“We are evaluating the complaint and offering no comment until that is complete,” SAP spokesman Andy Kendzie said in an e-mail.

Versata had previously filed a patent suit against SAP in connection with the alleged product cloning. A jury awarded the company roughly US$139 million in damages last year, although the case is not yet finalized.

It appears that SAP is looking down the barrel of another difficult legal battle, but there is still a chance that the company might squeak by with a little fancy footwork and maybe some kind of pre-trial licensing agreement.

Smartphones – The dangers of a “significant” change in EU AntiTrust Laws | all about symbian

A small change in the wording of European Union antitrust law could have some major and lasting effects. Ewan Spence takes a look at the proposed change from the point-of-view that free market factors should determine which software applications smartphone manufacturers decide to support and not be dictated by some restrictive law from on high. He writes:

Having a law that allows a regulatory body to force Company A to put Company B’s product on their platform is a very slippery slope. Having thought about the issue, it’s not one that I want to see on the statute books. What I would like to see is that Company A openly provides the documentation and information that would allow Company B to develop for the platform, and that the hardware (and software) of the platform would not put up a roadblock to the developed software.

In other words, the opportunity for any company should be there, but there should be no compulsion to force its inclusion on any hardware. That should be up to the market. If people want Flash, they can install it.

Spence also uses a Microsoft open-type product to make his point, none other than Windows Media Player:

Yes, it does mean that a closely tied competitive advantage (such as the symbiotic relationship of iPhone and iTunes) is minimised, but it opens up other areas of development and growth. Look at Microsoft’s Windows Media Player: by keeping it open to pretty much any hardware that follows the Media Device Protocol, it continues to prove useful, a consistent interface for users, and a standard that manufacturers and developers (including Symbian) can follow,  knowing that it provides the broadest reach for connectivity.

Increased market penetration and adoption sound like good reasons to leave a platform open to developers who stick to the rules of engagement and should *not* dictate any certain company to mandatorily include support for other companies’ applications, according to Spence. An argument could be made for either, or many, of the stances surrounding smartphone software developer environments but ultimately it will be consumers who make the choice by voting with their dollars and sense.

Microsoft – Lawsuit seeks arbitration for attorney fees in Microsoft settlement case | Simple Thoughts

A lawsuit filed by 23 states against Microsoft is causing much concern to the lawyers involved in the class-action case. According to Michael J. Crumb, the Iowa lawyer who initiated the action owes the other involved parties the payment of attorney fees. So much concern, in fact, that the group has filed a lawsuit against Roxanne Conlin of Des Moines for non-payment of the fees after winning a judgment against the Redmond, Washington software giant.

The lawsuit claims that attorneys in 23 states provided advice, pleadings, participation and prosecution in the class-action case in their states, and in the Iowa case against Microsoft.

The group formed The Microsoft Litigation Consortium. The lawsuit filed last month in Polk County District Court said the group signed an agreement with Conlin that called for the consortium to receive 20 percent of attorney fees awarded in the case. It also said disputes were to be resolved through arbitration.

“The attorney fees awarded to (Conlin) at the conclusion of litigation were not shared … in violation of the … agreement,” the lawsuit states.

The lawsuit said that Conlin has refused to comply with the agreement and that “on multiple occasions (the consortium) has requested that (Conlin) comply with the … agreement and arbitrate the dispute regarding the fees.”

Conlin claims that the ill-timed action by the group is unfounded and likely related to her current bid for Republican U.S. Sen. Charles Grassley’s seat in the fall. Be sure to read the rest of Crumb’s piece for more on this potentially unsettling kerfluffle.

Bonus antitrust piece o’ the week: A Practical Guide To Merger And Acquisition Antitrust Clearance by W. Joseph Price of Kelley Drye & Warren LLP via The Metropolitan Corporate Counsel.

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Posted in Blog, Cases, Companies, Current Affairs, Google, Innovation and IP, Microsoft | No Comments »

This Week in Antitrust – What do Bank CEOs and Antitrust Litigants Have in Common?

May 20th, 2010 | Mark Blafkin

This week we take a look at a common traits between NVIDIA executives and their compatriots at the big banks.  Also included in this week’s antitrust news items are the creation of an extended window for the FTC’s inquiry into Google’s proposed AdMod acquisition; Microsoft’s on-going efforts to get XML-intellectual property holder i4i’s bothersome patent re-examined, potentially by the US Supreme Court; Apple’s upcoming battle with US federal authorities over its tight control of the iPhone/iPad App store and the unlikely outcome of the first court case to review a merger under the auspices of the joint FTC/DOJ ’Upward Price Pressure’ test.

What Do Bank CEOs and Antitrust Litigants Have in Common? -  Q1 2010 Earnings Call | NVIDIA

Telling one story to regulators and a completely different one to the financial markets appears to be a common trait between antitrust litigants and bank CEOs these days. Only months after the Federal Trade Commission filed suit against Intel for allegedly harming competition in the graphics market, graphics chip leader and FTC-suit prompter, Nvidia reported better-than-expected earnings in last Thursday’s earnings call.

Touting a 51% increase in revenues since Q1 2009, Nvidia’s CEO and Co-Founder Jen-Hsun Huang commented in the company’s letter to investors that “demand for graphics processing units (GPUs) is growing strongly” and that “major trends are lining up with the investments [Nvidia has] made over the years, positioning us squarely at the center of key growth opportunities.” In short, the CEO believes Nvidia is “better poised for growth than ever.”

Huang’s comments counter the arguments both the company and now the FTC have raised in suits against Intel. Not only are consumers experiencing lower costs for better chips, but competitors are benefitting from the rise in demand and growing competition. As Nvidia explained in its earnings report, “the market for our products is intensely competitive and is characterized by rapid technological change, evolving industry standards and declining average selling prices.”

Also this week, PC Pro  reported that “major PC manufacturers are lining up to showcase laptops and desktops powered by AMD hardware, as the company’s antitrust settlement with Intel bears fruit.” The world’s second-largest PC manufacturer, Acer, announced 20 new PC models all based on AMD chips. HP has announced 14 new AMD products – and Dell, Asus, Toshiba and MSI are all also throwing more support behind AMD. Last month, AMD reported record Q1 2010 earnings.

As this market evolves and competition intensifies, the rationale for the FTC’s case against Intel becomes weaker each quarter.

Google-AdMob/FTC - Google-AdMob Deal Gets Extended Federal Review | The New York Times

After arranging for a two week extension to its initial review period of Google’s proposed acquisition of mobile advertisement firm AdMob, the US Federal Trade Commission (FTC) appears to be on the cusp of releasing the results of its preliminary inquiry. Brad Stone’s related piece offers some additional insights for the gentle reader on how Apple’s timely announcement to start a mobile ad service of its own has complicated the FTC’s job:

One factor that could be complicating the F.T.C.’s review, said a person briefed on the process, is Apple’s famous reluctance — even with federal regulators — to open up about its business plans. It is unclear what kind of effect that the iAds system, which Steven P. Jobs, Apple’s chief executive, unveiled last month along with new software for the iPhone, could have on the overall mobile ad market. Apple’s iAds, unlike mobile ads from Google and AdMob, will appear only on the iPhone, and the system will cater exclusively to high-end advertisers, at least at first.

Google is leading the way by helpfully pointing out Apple’s announcement as proof that their pending AdMob purchase will not lead to market segment monopolization but everyone’s not buying the argument. Stone quotes one expert who urges the FTC to be very diligent in its decision-making methodology:

On the other hand, Martin Sorrell, chief executive of WPP, one of the world’s largest advertising groups, told the news agency Reuters on Monday that the investigation “should be rigorous” and that the F.T.C.’s review of Google’s acquisition of DoubleClick in 2007 was not “deep enough or strong enough.”

As Google continues to inveigle its way into many new and unknown tech service areas there are bound to be valid concerns about its promise to “do no evil” as its book scanning program has proven. Should the FTC strike down Google’s purchase of AdMob it would send a strong signal to the Mountain View, California-based search behemoth that things are going to get more difficult going forward.

i4i v. Microsoft – Patent office upholds i4i claims against Microsoft| ZDnet/All About Microsoft

Mary Jo Foley reports on Microsoft’s repeated attempts to convince legal authoritie to re-examine i4i’s ‘449 patent that “infuses life into the use of Extensible Mark Up Language (XML)” and finds that even thought i4i continues to win each additional appeal, Microsoft isn’t throwing in the towel just yet:

In the patent-infringement case that seems to never end, i4i announced on May 11 that the U.S. Patent and Trademark Office rejected claims on an Office-related patent that Microsoft had requested be reexamined.

Is Microsoft throwing in the towel on i4i? It’s not, according to Director of Public Affairs Kevin Kutz.

“We are disappointed, but there still remain important matters of patent law at stake, and we are considering our options to get them addressed, including a petition to the Supreme Court,” said Kutz, via an e-mailed statement.

For their part, i4i has already caused Microsoft to drop its Custom XML technology from the latest version of their Office Suite, slated to be released in June of this year. If Microsoft can prevail on the members of the US Supreme Court, the Custom XML components would likely be re-introduced into the Office line of products and would provide “support for custom-designed schemas that is designed to integrate business data and processes with documents.”

Apple v. FTC – An antitrust app | The New York Post

Apple’s lawyers are likely girding their loins in preparation for a potential battle with the FTC concerning Steve Jobs’ recent announcement that software programs written for sale in the iPad/iPhone App marketplace will need to be developed under strict conditions. This change to Apple’s previous policy for applications destined for its mobile products is based on the company’s desire to maintain the good quality that has been one of it’s hallmarks for some time. Josh Kosman writes on why the one-time David is being view by some as now being worthy of a Goliath-sized investigation by the US government agencies responsible for ensuring fair play and competition amongst companies large and small:

The threat of Apple being the subject of an investigation would be a remarkable turnabout for a company that has long seen itself as being outside the establishment, and one that has egged on antitrust officials to blunt the momentum of larger rivals.

However, thanks to the popularity of the iPod and iPhone, Apple is having a tough time continuing to play the role of David fighting against Goliath. Indeed, its market cap of $237.6 billion exceeds that of the world’s largest retailer, Wal-Mart, whose market cap is $201.7 billion.

Holy money vault full of 1,000 dollar bills, Batman! A billion here, a billion there and soon we’re talking about real money. (Apologies to US Senator Everett Dirksen of Illinois.) Apple is attracting so much attention because it has been very successful at doing what it does best: market its innovative products and then sell them at a premium to an adoring consumer base. One might suspect that jealous competitors are looking at Apple’s increasing dominance in the smart device marketplace through green-colored lenses. Unfortunately such envious peering does not magically turn their own withering bank accounts into large bins full of fanboi admiration and concomitant profits. And, in Apple’s defense, cries of anti-competitive market share are simply not justified. “Indeed, though Apple has the most applications, it is a distant second in terms of operating system market share. According to comScore, RIM, which makes the BlackBerry, has a 42 percent share, while Apple’s take is 25 percent. Microsoft has 15 percent and Google’s Android software has 9 percent.” If Apple’s getting the FTC inquiry treatment, how has RIM managed to avoid the same fate?

Anticompetitive mergers – To Antitrust Agencies’ Chagrin, Federal Judge Not Down With ‘UPP’ | The Wall Street Journal

New federal guidelines on antitrust from the US Department of Justice and the Federal Trade Commission have judges weighing in with their opinions on the so-called Upward Pricing Pressure (UPP) test. Thomas Catan quotes the first judge to review a case questioning the merger of two businesses that gives an idea what the judiciary thinks of the antitrust agencies’ most-recent policy changes:

Phooey.

The case in question concerns two health care companies in New York state and there are some in the legal profession who see the UPP test as simply a policy that ”effectively removed a hurdle that had caused the government to stumble a number times in court” instead of a true measure of antitrust practices. One subject-matter expert sees the rebuttal to DOJ/FTC guidelines as a clear sign by the courts that the law is the foremost determining factor in deciding what is and isn’t considered to be an antitrust practice. “‘It’s a statement from a federal judge that the antitrust agencies can do what they want, but we’re bound by the law here,’ says Stephen Axinn, the lead defense attorney in the New York case, of Axinn Veltrop & Harkrider.”

Posted in Apple, Blog, Google, Microsoft | No Comments »

Antitrust Experts Engage Debate (Virtually) Merits of FTC’s Use of Section 5 Authority in Intel Case

April 19th, 2010 | Mark Blafkin

[originally published on the ACT Blog]

Over the past few weeks an online debate has been brewing between antitrust scholars over the FTC case against Intel. The focus of the debate has been the FTC’s decision to pursue most of its case using its Section 5 authority to prevent “unfair and deceptive” practices, rather than its Section 2 authority for combating anti-competitive behavior.

The discussion began with a piece by Bob Litan, former Deputy Assistant Attorney General in the Antitrust Division of the Justice Department in the Clinton Administration, entitled “The FTC’s Radical Application of Section 5.” As the title suggests, Litan has some serious concerns about the FTC’s case in general and its application of Section 5. It’s a pretty compelling piece that I recommend to all you antitrust geeks, but if you’re short on time/attention span I’ll try to summarize.

Litan believes (like we do) that the FTC has a pretty difficult case to make, given that:

  • The levels of innovation and price cutting from the semiconductor industry are unparalleled by any other industry (see our paper on Exponential Innovation)
  • The FTC seeks to prevent Intel’s above-cost discounting of chips, a practice that Supreme Court has regularly defended and cautioned against regulatory interference of such pro-competitive activities.

Therefore, he argues:

The FTC apparently seeks to avoid proving harm to competition under the established standards of Section 2 because the causal link between the conduct it challenges and any conceivable harm to competition is weak. At a minimum, therefore, the relief sought by the FTC should reflect the tenuous connection between the conduct it challenges and the potential for harm to competition.

Yet, the FTC is pursuing pretty heavy-handed remedies.

Litan then goes on to make make compelling cases for how the FTC’s proposed remedies transform Intel into a regulated utility, which could actually raise prices, reduce innovation, and create “a radical and sweeping re-interpretation of this nation’s antitrust laws, with potentially grave implications for private incentives to innovate and compete.”

Enter David Balto, former policy director of the FTC and current Senior Fellow at the Center for American Progress. Balto has been consistently supportive of the FTC’s case against Intel and took issue with the Litan’s reading http://www.americanprogress.org/issues/2010/04/balto_ftc_intel.html of the situation. He argues:

These predictions of doom are exaggerated and misplaced. The reality is far more straightforward.

Balto argues that three different foreign antitrust authorities have charged Intel with anticompetitive conduct, and Intel’s conduct effectively limited consumer choice through its “rebate schemes.” Balto goes on to cover familiar territory by summarizing the arguments made the FTC and other antitrust regulators, and suggesting that Litan’s fears are far outweighed by the potential damage Intel could inflict on competition in the future, especially in the GPU market. He summarizes his points with:

The FTC’s action is perhaps most important for its focus on dynamic competition. Innovation is central to the growth of the U.S. economy. Exclusionary conduct that dampens innovation extracts a significant cost on the economy.

However, Balto never really addresses Litan’s concerns about the application of Section 5 in this case, but argues that the use of Section 5 authority is not radical and is in fact warranted in this case. While he does say that the FTC’s Section 2 case could stand on its own, Balto actually confirms Litan’s thesis that the FTC pursued the Section 5 claim to free itself from the bar of demonstrable consumer harm.

Section 5 enables the FTC to go beyond narrow competition concerns. As the Supreme Court has held in FTC v. Sperry & Hutchinson Co., 405 U.S. 233 (1972), “like a court of equity, the Commission may consider public values beyond simply those enshrined in the letter or encompassed in the spirit of the antitrust laws.”

Perhaps his most compelling argument for the use of Section 5 authority is the speed at which the administrative courts can reach a decision, but that is a double-edged sword. Acting quickly can help the FTC address concerns before market opportunities are closed, but it can also magnify the cost of mistaken action as well. In the end, however, this was not one of Balto’s more compelling arguments for regulatory activism.

It wasn’t long before Geoff Manne of Lewis & Clark Law School offered his own rebuttal to the rebuttal. On the Truth on the Market blog, Manne posted an article entitled “David Balto (and the FTC) gets it woefully wrong on Intel <http://www.truthonthemarket.com/2010/04/14/david-balto-and-the-ftc-gets-it-woefully-wrong-on-intel/ .”

Manne highlights many of the failings of Balto’s piece.

  • He notes that Balto’s reliance on decisions by three foreign commission as evidence of Intel’s liability is misleading at best, given that “it is well-accepted that conviction by a party acting as judge, jury and prosecutor is less than decisive.” This is doubly true given that the FTC is pursuing conduct that the other jurisdictions never even looked at.
  • He also notes that, despite Balto’s assertion, none of the other Commission’s provided any evidence or specific conclusions that Intel’s conduct led to higher prices.

On Section 5, Manne provides his most effective rebuke of Balto, however. Manne notes that Balto is completely dismissive of error costs concerns (such as those made by Litan) because of his certainty that agencies “don’t err in the cases they bring-only in the cases they don’t bring.” He then takes on Balto’s argument that the use of Section 5 is critical to ensuring “dynamic competition”

Balto finishes by praising the FTC’s focus on dynamic competition and by comparing the case to the DOJ’s Microsoft case–as if to highlight how perfectly off-base his assessment is. The DOJ and the courts in Microsoft were so forward looking that they dismissed the threat to Microsoft from Linux and didn’t even realize that there was a threat from Google. Larry Lessig has announced that he “Blew It on Microsoft <http://webmonkey.wired.com/wired/archive/15.01/posts.html?pg=6> ” for failing to appreciate the dynamic market. This case by the FTC is built on theoretical models of speculative harms and against copious evidence of present-day benefits to consumers. If this is how the agency focuses on “dynamic” competition, count me out.

The debate (online and offline) over the FTC’s case and the use of Section 5 will certainly rage on, but it’s becoming increasingly clear that the FTC’s case is anything but a slam dunk.

Posted in Blog, CPU Market Competition, Compulsory Licensing, Discounting and Rebates, FTC Case Against Intel, FTC Section 5, GPU Market Competition, Innovation and IP, Intel, US FTC | No Comments »

This Week in Antitrust

April 12th, 2010 | Anthony Kuhn

We’re running a few days behind, but this week’s selected antitrust-related pieces include a look at the groundswell of anger from the open source community in light of IBM’s thinly-veiled threat to sue the makers of TurboHercules for patent infringement, Apple’s bid to more closely control the development of its Application store software, and Google’s closely-watched acquisition of mobile advertising player AdMob.

IBM/TurboHercules – IBM breaks the taboo and betrays its promise to the FOSS community | FOSS Patents

Already under investigation by European and American antitrust authorities for allegedly anticompetitive behavior in the mainframe market, IBM does not appear worried and continues to aggressively protect its near-monopoly share of the market. This time, however, IBM risks alienating one of its greatest assets: its cozy relationship with the open source community.

IBM’s recent move to enumerate the patents it believes are being infringed by the maker of an open source software package is a 180 degree course reversal from previous promises to “pledge” to protect the open source community using its patent portfolio, particularly the 500 patents it supposedly donated the community.  TurboHercules, the software accused of violating various IBM patents, allows Big Blue mainframe users to interface with other brands of hardware, which cuts into corporate profits and caused IBM to react swiftly to Roger Bowler’s request for a bit of FOSS largess with a thinly-veiled threat of impending legal action. Florian Mueller has more:

This proves that IBM’s love for free and open source software ends where its business interests begin. In market segments where IBM has nothing to lose, open source comes in handy and the developer community is courted and cherished. In an area in which IBM generates massive revenues (an estimated $25 billion annually just on mainframe software sales!), any weapon will be brought into position against open source. Even patents, which represent to open source what nuclear arms are in the physical world.

Mueller is definitely not on board IBM’s policy reversal from its previous bid to play nice with open source and neither are a number of other very vocal opponents of this escalation of patent warfare by one of the largest holders of intellectual property in the world.

Kelly Fiveash at The Register weighs in on the issue in her related piece, IBM tears up open source patent pledge, claims FOSS:

“This is so appalling that I felt compelled to show to the FOSS community what IBM is doing: IBM is using patent warfare in order to protect its highly lucrative mainframe monopoly against Free and Open Source Software.”

As does Glyn Moody with his piece, IBM: Open Source’s Friend? Not So Much Now at ComputerworldUK:

IBM certainly has some explaining to do. It needs to make clear where it stands on open source, and where on software patents. It needs to understand that the two are not compatible, and that it cannot truly be a friend of the former while deploying the latter as weapons against free software, even when the victims sit on the latter’s fringe rather than at its heart. After such a long and mutually beneficial relationship, it would be sad if IBM decides that it prefers software patents to open source – and ultimately to its detriment.

The basic sentiment among the FOSS cognoscenti is that of betrayal, or as Maureen O’Gara puts it: “IBM is an Indian Giver!” TurboHercules’ founder Roger Bowler has gone so far as to file a formal complaint with European Union authorities accusing “IBM of tying the use of its dominant mainframe operating systems to its own mainframe hardware.” A lawsuit might be what what IBM had in mind when it sent Bowler its long “non-exhaustive” list of infringed patents but not one against them. This developing case is worthy of future attention and one that will set the tone for open source/IBM relations for years to come.

Apple - Why Apple Changed Section 3.3.1 | Daring Fireball

As Apple’s iPhone/iPad operating system edges closer to being a defacto standard for the mobile space, the company is faced with some of the same issues that Microsoft faced with the introduction of the Java middleware technology back in the 1990’s.

John Gruber’s suggestion for Apple to tie users closely to proprietary services is exactly what Microsoft did back in the halcyon days of the Windows operating system and the large number of hardware and software products that interfaced with the platform. Developers latched onto the well-established base of PC hardware and set up kind of a self-feeding loop of writing more software because more people were jumping on the PC hardware bandwagon because there were more software applications available. Apple needs to leverage this same kind of self-referencing effect by establishing their Applications store as a standardized, and proprietary, platform for software development. Gruber comments:

We’re still in the early days of the transition from the PC era to the mobile era. Right now, Apple is winning. There are other winners right now too — RIM is still growing, and Android has grown a ton in the past year.

The App Store platform could turn into a long-term de facto standard platform. That’s how Microsoft became Microsoft. At a certain point developers wrote apps for Windows because so many users were on Windows and users bought Windows PCs because all the software was being written for Windows. That’s the sort of situation that creates a license to print money.

And with Apple’s recent announcement that they will absolutely not have Adobe Flash compatibility in their software development kit for iPhone/iPad developers, they are making a move in the right direction. Again, Gruber offers his thoughts on the downside of cross-platform apps and Flash integration:

Adobe’s goal isn’t to help developers write iPhone apps. Adobe’s goal is to encourage developers to write Flash apps that run on the iPhone (and elsewhere) instead of writing iPhone-specific apps. Apple isn’t just ambivalent about Adobe’s goals in this regard — it is in Apple’s direct interest to thwart them.

Acting in one’s own direct interests sometimes involves being more selective and careful about just who you’re partnering with, and in Apple’s case, they’ve laid down strict guidelines for admission to the iPhone/iPad development club and can leverage this control into large quantities of money if developers continue to buy into a non-Flash environment. Adobe, on the other hand, will have to suck it up, despite having spent a fortune making sure their Flash product will integrate with Apple’s platform, which they have since been banned from. I can almost hear Adobe pinging their legal team to see if there’s some way to sue their way back into Apple’s Application store…

Google/AdMob – FTC circling the lawyers on Google-AdMob deal | cnet news

Tom Kravitz has a few thoughts on what’s been plaguing Google lately, among them a closely-scrutinized bid to purchase a major mobile advertising company with the FTC leading the charge:

Staff members inside the regulatory group have been asked to start preparing for the possibility of action against Google, according to a report from The Wall Street Journal. That doesn’t mean they are necessarily planning to take action, but the move–coming weeks after reports that AdMob competitors were being asked to weigh in on the deal–shows that the FTC clearly hasn’t decided against it, either.

Google has already fired up the PR machine and put up a web-page dedicated to defending its purchase of AdMob and is doing its best to “rebut arguments that the deal would hurt competition by marrying the leading desktop-Web-advertising company with the leading mobile-Web-advertising company.”  Steve Jobs’ announcement that Apple will be entering the mobile Web advertising business with their iAds service is certainly good news for Google , but it’s unclear whether the FTC will be persuaded enough to give the AdMob purchase the green light.

Google – Google: The Next Evil Empire? | NetworkWorld

In other Google news, the Mountain View, California-based search/advertising giant might be coming under additional, unwanted scrutiny from another Federal agency, this time the very pro-privacy Christine Varney, who was nominated by President Barack Obama to be assistant attorney general for antitrust at the Justice Department. Preston Gralla has more details for the gentle reader:

On June 19, 2008, well before the election, Varney participated in a panel discussion sponsored by the American Antitrust Institute. According to the Bloomberg news service, she warned that Google, not Microsoft, presents the greatest antitrust danger in the 21st century.

“For me, Microsoft is so last century. They are not the problem,” she said, adding that our economy will “continually see a problem — potentially with Google,” because it “has acquired a monopoly in Internet online advertising.”

Varney warned that Google may present other dangers as well, particularly in cloud computing. The company is “quickly gathering market power in what I would call an online computing environment in the clouds,” she said.

Lest anyone miss her point about Google, Varney added, “When all our enterprises move to computing in the clouds and there is a single firm that is offering a comprehensive solution, you are going to see the same repeat of Microsoft.”

Oh my. A “repeat of Microsoft” seems to imply an anti-trust lawsuit by the DOJ with resulting fines and reduced market share. Gralla wraps up his thoughts with this closing, and cautionary, quote: “…if I were a Google executive, there’s one place where I’d be hiring instead of cutting back: the legal department.” Solid advice in light of Varney’s very vocal opposition to “dangerous” companies like Google.

Bonus anti-trust piece o’ the week: Google adjusts to life with trustbusters at The-Reference.com blog.

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Posted in Blog, New Economy Competition | No Comments »

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