Valley Firms to Face Heightened Antitrust Scrutiny

Elise Ackerman and Steve Johnson - Mercury News

Posted: 05/11/2009 05:37:47 AM PDT

 

The Obama administration Monday announced a significant shift in antitrust policy that will most likely lead to more scrutiny for Silicon Valley's tech giants, including Google, Intel and Oracle, according to experts in the field.

 

"As antitrust enforcers we cannot sit on the sidelines any longer," declared Christine Varney, assistant attorney general for antitrust, as she withdrew controversial guidelines put in place by the Bush administration in 2008 that she said had harmed consumers. In a speech to the Center for American Progress, Varney also made clear that technology companies would be a top focus.

 

"In the past, the antitrust division was a leader in enforcement efforts in technology industries, and I believe we will take this mantle again," she said.

 

The policy shift could have broad implications for dominant companies as well as their smaller competitors. Google and Intel already face antitrust inquiries, and those could accelerate. Companies such as Hewlett-Packard and Oracle could see more government interest in now-common practices such as loyalty discounts. And other companies that now feel unable to compete in certain technology markets where there is a single dominant player may see a more level playing field.

 

"There is great meaning in this speech for the tech sector," said Gary Reback, a Palo Alto attorney and author of "Free the Market! Why Only Government Can Keep the Marketplace Competitive."

 

Reback, who as Netscape's attorney assisted the Justice Department in its case against Microsoft, said the speech means that the scrutiny of Google is real. In recent weeks, both the Justice Department and the Federal Trade Commission, which share responsibility for enforcing antitrust laws, have launched inquiries into Google's close relationship with Apple and into a proposed settlement between the search giant and a group of authors and publishers that allows Google to sell digital copies of out-of-print books.

 

In a meeting with reporters last week, Google CEO Eric Schmidt said, "Information is incredibly important, and we should expect governments around the world to pay attention to what we do, and also to hold us to the principles that we've articulated."

 

He said Google has been working harder to anticipate concerns and is trying to strike a balance between doing the right things for its users and dealing "with very legitimate concerns about what we are doing."

 

Antitrust lawyers said Varney's speech could have almost immediate ramifications for Intel, which is widely expected to be slapped with a record-setting fine Wednesday from the European Commission in excess of $1 billion for anticompetitive practices, including illegal rebates and paying retailers not to sell PCs with chips from competitor AMD.

 

The Federal Trade Commission and New York attorney general launched separate investigations of Intel last year. Authorities in Japan and South Korea also have accused Intel of wrongdoing. "The FTC has been investigating for a while, and I presume that it will be pushed to the point where it has to fish or cut bait," said Bert Foer, president of the American Antitrust Institute.

 

Intel has steadfastly denied hindering competition. Monday, company spokesman Chuck Mulloy said he had heard only media speculation about what the European Commission might do and added that he didn't foresee Varney's comments having a major impact on the FTC's investigation.

 

But Foer, who has argued for harmonization of U.S. and European antitrust laws, and other experts say the new antitrust policy more closely aligns the United States with the approach taken by the European Commission. Under the Bush administration, the harm caused by anticompetitive practices had to be weighed against the benefit brought to consumers. Varney said this led to an "overly lenient" approach and allowed "all but the most bold and predatory conduct" to go unpunished.

 

R. Hewitt Pate, the assistant attorney general for antitrust from 2003 to 2005, said Varney's action was expected and that interpretation of Section 2 of the Sherman Act, the part of the antitrust laws addressed by Varney in her speech, always shifts when administrations change. "It is important to remember that the Bush administration's positions on Section 2 were accepted by a broad consensus at the Supreme Court," Pate said in an e-mail.

 

Foer said the new policy could benefit companies big and small. He said "household names" have told him they could not effectively compete in the United States because a dominant firm could exclude them from the market.

 

Now-common strategies could also come under scrutiny. San Francisco antitrust attorney Dan Wall, who has represented Oracle and Apple, said the new administration could challenge the tech-industry practice of offering discounts on product bundles or loyalty discounts. This could affect the behavior of giants like Hewlett-Packard and Oracle in market segments where they are the dominant player.

"A lot of things that might have been shrugged off as inconsequential will get a very hard look and maybe an enforcement action from this administration," Wall said.

 

Source: http://www.siliconvalley.com/news/ci_12342433

 

 

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