Archive for the ‘New Economy Competition’ Category

This Week in Antitrust

Monday, April 12th, 2010

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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The Week in Antitrust – November 9th Edition

Monday, November 9th, 2009

Intel - Last week’s news was dominated by New York Attorney General Andrew Cuomo’s decision to file an antitrust lawsuit against Intel. As one reporter noted, the lawsuit reads like a script from the Sopranos, alleging that Intel used “bribery and coercion to maintain a stranglehold on the market” as part of a “worldwide, systematic campaign of illegal conduct.” The complaint is filled with similarly hyperbolic allegations of “robbery,” “payoffs,” and “cover ups” that make it a fun read by legal brief standards.

Yet, many experts, including us, are skeptical. While these charges are similar to the ones made by the European Commission, the New York Times reminds us that “Rebate payments and other incentives provided to customers fall into a murky area of the law, according to antitrust scholars. As John E. Lopatka, a professor and antitrust expert at Pennsylvania State University’s Dickinson School of Law, told the Times:

“A lot of what they are talking about here sounds nefarious, but others would look at it and say that is how markets work.”

The Times also suggests there might be a political angle that may be driving this lawsuit:

Antitrust experts following Mr. Cuomo’s actions said that both A.M.D. and I.B.M. — which is based in Armonk, N.Y., and competes against Intel in the server chip market — have invested billions of dollars in chip manufacturing plants in New York.

Keith N. Hylton, a professor at the Boston University School of Law, said that Mr. Cuomo could benefit politically by taking such a prominent stand on behalf of local workers and consumers. “An attorney general is understood to be an aspiring governor,” he said. “They are politicians, and they want to be on the gravy train for big cases.”

One area where the lawsuit definitely fails to impress is in its effort to show any actual harm from the allegedly nefarious actions. As Jonathan Zuck wrote in his statement about the lawsuit:

“The fact that the chip industry has delivered exponential innovation while decreasing prices faster than any other technology industry seems to be a significant hole in the case. From 2000 to 2008, computer chips have gotten 28x faster at the same time real prices have dropped by nearly 60 percent.”

Yet, Section IV.B. of the complaint, entitled “Harm to Consumers, Competition, and Innovation” offers a lot of broad assertions but no evidence to back them up. It will be interesting to see NY attempts to develop their theory of actual harm. Additionally, many experts are also interested to see what effect the NY AG’s lawsuit has on the ongoing FTC investigation. According to Center for American Progress fellow David Balto, the FTC is looking a different kind of case:

“The New York case is a case about the past,” Balto said. “The FTC case will be a case about the future. It will be focusing on dynamic competition, the impact on innovation, on how Intel’s conduct … is going to harm competition and consumers in the future, stifling the ability of new rivals to emerge…

Oracle – Across the Pond, Oracle appears to be hunkering in for a serious battle with the European Commission over its proposed takeover of Sun Microsystems (and the MySQL open source database product that Sun currently owns). According to the Financial Times, the Commission is preparing to launch a formal complaint after Oracle refused to offer any concessions to the Commission. The Commission has been threatening to scuttle the deal unless Oracle spins out the MySQL division of Sun, which is a significant competitor to Oracle in several markets. Essentially, the Commission seems to believe that the fact MySQL is open source is enough to ensure its long term survival as a competitor to Oracle’s database.

According to the New York Times, the Commission is now left its choice of bad options going forward.

By confronting Oracle, E.U. regulators risk ushering in a new era of trans-Atlantic tensions over antitrust law. Yet letting Oracle off the hook would smack of weakness after Neelie Kroes, the E.U.’s outgoing competition commissioner, spent the past weeks trying to goad some of Oracle’s top executives into making concessions.
The dilemma has prompted speculation that the best outcome for Ms. Kroes would be for Oracle to drop its interest in buying Sun, relieving the regulators of the need to make a choice.
“Neither path Ms. Kroes faces is a pretty one, and yet this is the decision she might end up being remembered by,” said Spyros Pappas of the law firm Pappas & Associates in Brussels. “Probably the best escape for her would be for Oracle to cancel the deal.”

Google - Last Thursday, Eric Schmidt sat down for an extensive interview with with Fox Business New’s Neil Cavuto. About halfway through the interview, Cavuto asks Schmidt about his company’s antitrust problems:

CAVUTO: Do you look at Google and what is happening right now? Everyone does mention the Microsoft comparison. They mention the IBM comparison, other behemoths in the day that got a little cocky, got a little super sure of themselves, and, then, boom, upstarts came along. And the reason why I mention it is, they say, people, kids today, they are on Twitter, they are on Facebook, and all, and that is their universe. And for many of them, you are not.

SCHMIDT: Well, everything we have seen indicates that Twitter and Facebook users are using Google even more, so we are very happy with that. But general question of leadership and sort of are you the next Microsoft is really a function of attitude. The companies that you mentioned made mistakes years ago that hopefully we are not making, and hopefully the mistakes we are making now won`t put us in those kinds of predicaments, that our sensitivity toward end users, our focus on consumers, our focuses on bringing costs down, not up, our focusing on letting people get out and take their information with them, is a much better model for the information age than these older models.

It is an interesting philosophy for Google to pursue, but it ignores the fundamental reality that Google is now a large company with a dominant market share, whose ambitions include rapid growth. Even moves that are clearly pro-competitive from Google’s perspective can have devastating consequences for smaller firms in those markets. Just look at how Google’s decision to offer its own satnav solution for free has affected firms like Tom Tom and Garmin.

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This Week In Antitrust

Monday, October 26th, 2009

Today, we’re kicking off a new feature on the blog, a weekly round up of the tech industry’s various antitrust cases and “potential” antitrust concerns. While last week’s antitrust news was dominated by competition concerns outside the technology industry (health insurers and the BCS), there were a few notable stories coming out of the world tech competition.

Amazon – Are Amazon, Wal-Mart, and Target Pricing Like Predators? | WSJ Blog

Apparently, the American Booksellers Association (representing small and independent booksellers) has written to the DOJ asking it to “investigate the book price war under way between those three retailing heavies to determine if it constitutes “illegal predatory pricing.”

In a letter dated Oct. 22, the ABA said it believes that the discount pricing—which has led to 10 of the most anticipated hardcover titles being priced as low as $8.98 on Walmart.com—amounts to such an act and that it is “damaging to the book industry and harmful to consumers.”

And a great quote from Gary Reback about why the case is unlikely to make it to court:

”Successful predatory-pricing cases are as rare as Bigfoot sightings.”

IBM – IBM Facing Double Legal Trouble | San Francisco Chronicle
The San Francisco Chronicle and IDG ask which is worse for IBM, the fact that the head of Big Blue’s Systems and Technology Group has been charged by the SEC with insider trading, or that the US Department of Justice is formally investigating alleged abuses of IBM’s mainframe monopoly. One key quote:

“Djurdjevic writes that IBM is dealing with “triple trouble,” referring to the two legal incidents and a beating taken by IBM stock. Out of the three, the insider trading allegation “probably hurt the most,” he writes… Oct. 16 may go down as a “Black Friday” in IBM history, he says.”

Google – Obama & Google (a love story) | Fortune

Fortune Deconstructs the Google Lobbying Strategy on Competition Issues and the Company’s Relationship with the Obama Administration. This article has some great insights into Google’s Washington operation and its strategy for overcoming potential competition issues. While it is clear that Google is trying to learn from Microsoft’s mistakes in the antitrust world, it hasn’t completely avoided them and is even creating some new problems. As the article suggests:

Google…likes to portray its Washington operation as a quasi-academic resource that’s above the political fray. Politicians and their staffers “are sometimes taken aback by the fact that we don’t always act the way that other companies act,” says Bob Boorstin, a former Clinton White House speechwriter who works on freedom of expression issues in Google’s Washington, D.C., office. “What we offer is technological expertise … It’s a company that’s a think tank, or a think tank that’s a company.”

To which the author suggests:

Either Google is very naive about the way Washington works, or it thinks everyone else is.

Cloaking corporate interests in the “public interest” is a long-time lobbying tactic that we recently warned about in the tech sector. While the interests of corporations and the public often intersect, any company that suggests is policy interests are a mirror image of the public interests is overstating at best.

This is particularly problematics given what the article calls the “Orwellian nature of Google’s power.”

“Google is in a position to pick the winners in just about every web-based market,” says antitrust lawyer Gary Reback, who is part of the charge against Google Book Search. And, he adds, “it can do it without anyone even knowing.”

And this power is creating real concern in Washington. Google has to do a lot more than say “trust us” if it wants to quell the growing concerns about its dominance.

Eric Schmidt recently suggested to a group of reporters that Google’s culture was the strong hand that kept it from engaging in anticompetitive behavior: “If somehow we went into a room with the evil light, and we announced an evil strategy, we would be destroyed,” he said. “There is a fundamental trust relationship between Google and its users.” He shared similar comments, according to Wired, with Varney’s predecessor at the Justice Department, who apparently was floored that “trust” was Schmidt’s legal justification for pushing through the Yahoo/Google deal.

Microsoft – Microsoft/ Yahoo! Search Deal Gets Support From Major US Advertising Agency Group | Marketwatch

The American Association of Advertising Agencies, representing some of the world’s largest advertising firms, wrote the Department of Justice in support the proposed partnership between Microsoft and Yahoo! on Search and search-based advertising. The partnership is currently being reviewed by the DOJ for any potential competition issues.

“We believe that Yahoo and Microsoft’s proposal to combine their technologies and search platforms is good for advertisers, marketing services agencies, Web site publishers and consumers,” the American Association of Advertising Agencies said in a statement.

Oracle/Sun – Oracle Fails to Convince MySQL Doubters | The Register

It appears that Oracle has not convinced FSF founder Richard Stallman, MySQL founder Michael Widenius, or, most importantly, European antitrust commissioner Neelie Kroes that its acquisition of Sun and MySQL poses no competitive problems. This is a really fascinating case when you start to think about open source licensing and business models.

A spokesman for Competition Commissioner ‘Steelie’ Neelie Kroes said the Commissioner had: “expressed disappointment that Oracle had failed to produce, despite repeated requests, either hard evidence that there were no competition problems or, alternatively, proposals for a remedy to the competition problems identified by the Commission”, according to the Beeb.

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