Google Inc Chief Executive Officer Eric Schmidt’s resignation as an Apple Inc director shows that antitrust regulators may be gaining sway in Silicon Valley, threatening the way companies hire staff and run their boards.
Schmidt stepped down from Apple’s board on Monday as the US Federal Trade Commission investigated whether Google and Apple were breaking antitrust law by sharing board members. The Justice Department also is probing Silicon Valley companies, looking at whether they’re colluding in hiring, two people familiar with the investigation said in June.
Schmidt’s decision may be a symptom of broader pressure, said Samuel Miller, an antitrust lawyer at Sidley Austin LLP in San Francisco. Google’s Android phone software and Chrome operating system are becoming direct competitors to Apple’s products, increasing scrutiny of the companies.
“This is just one piece of a bigger puzzle, but it clearly reflects increased focus on technology companies by the antitrust authorities,” said Miller, who represented the Justice Department in a monopoly case against Microsoft Corp in 1994. “It reflects recognition both in Washington and in Silicon Valley that the antitrust laws need to be followed.”
In announcing the resignation on Monday, Apple CEO Steve Jobs cited Schmidt’s potential for conflicts of interest. The decision was mutual, Jobs said. Steve Dowling, a spokesman for the company, had no additional comment beyond the statement.
“We’ve agreed it makes sense for me to step down now,” Schmidt said on Monday in a statement. Matt Furman, a spokesman for Google, declined to comment on the FTC’s investigation.
Schmidt’s decision to leave Apple is a reversal from three months ago, when he said the idea of resigning hadn’t even crossed his mind.The Federal Trade Commission said on Monday it would continue the probe.
While Schmidt’s move may soothe the concerns, another board member — Genentech Inc Chairman Art Levinson — serves on the boards of both Google and Apple.
Google’s board also includes Paul Otellini, CEO of Intel Corp, the world’s biggest chipmaker. Apple’s board, meanwhile, includes Intuit Inc Chairman Bill Campbell. He also serves as an adviser to Google. Campbell didn’t respond to a request for comment. Intel spokesman Chuck Mulloy declined to comment.
Levinson, 59, has been at Google since 2004 and at Apple since 2000. He declined to comment as well, Genentech spokesman Geoff Teeter said.
Silicon Valley is a “small area, geographically, with a high concentration of companies in that particular business,” said Charles Elson, director of the John L Weinberg Center for Corporate Governance at the University of Delaware in Newark. “The best advice is to stay away from boards that may compete with the company on which you serve. The issue is, you can’t share two masters.”
The departure of Schmidt, 54, was probably seen as the quickest way to resolve the matter, said Greg Neppl, an antitrust lawyer at Foley & Lardner LLP in Washington.
“The inquiry by itself probably motivated the decision,” said Neppl, a former trial attorney with the Justice Department’s Antitrust Division. “This kind of government investigation is not the kind of hassle that any business wants to endure.” Schmidt’s decision spotlights the Obama administration’s scrutiny of Google and its peers. Google, the most popular Internet search engine, is attracting attention for its dominant share of Internet searches and its efforts to expand into other markets, such as operating software for computers and mobile phones.
“These problems would not have emerged a couple of years ago because Google was so unidimensional,” said Joe Angland, an antitrust lawyer at White & Case LLP in New York, who has defended aimlerChrysler Corp and others in antitrust cases. “Google was great at what it did, but it didn’t do that many things.”
Technology companies also had freer rein under the previous administration, said Miller, who isn’t involved in any of the investigations.
“There had been lax antitrust enforcement under the Bush administration and a more hands-off attitude,” he said. “The new head of the FTC and the new head of the antitrust division clearly announced there was going to be increased antitrust enforcement and I think that this is the first example of that.”
Even if Google can defuse the investigation, the company faces at least two other government probes. Google said in June that the Justice Department has asked the company and publishers for information about the settlement of a book-scanning dispute.
Google is also part of the Justice Department probe into hiring practices, according to the people familiar with the investigation. Microsoft and Yahoo! Inc were said to be part of that inquiry as well.
David Bowermaster, a spokesman for Redmond, Washington- based Microsoft, declined to comment. May Petry, a spokeswoman for Sunnyvale, California-based Yahoo, also declined to comment.
Google, based in Mountain View, California, rose $9.16 to $452.21 on Monday in Nasdaq Stock Market trading. Apple, located in Cupertino, California, climbed $3.04 to $166.43.
Microsoft and Yahoo are merging their search-engine efforts, a partnership that also will be reviewed by regulators, Miller said. In that case, the combination provides a bigger competitor to Google, so it’s likely to pass scrutiny, he said.
“The issue will be looked at,” he said. “But I think it is pro-competitive because the Microsoft-Yahoo arrangement will actually give advertisers and the public a real and significant choice to Google that should increase competition.”
Google had about 65 per cent of the US Web-search market in June, according to Reston, Virginia-based research firm ComScore Inc Yahoo and Microsoft had 28 per cent combined.
Last week, Google said that Apple rejected its Voice programme for the iPhone, which would have let people make US calls, send text messages and organise voice mails without charging fees. The US Federal Communications Commission began an inquiry into Apple’s rejection of the programme.
Schmidt’s resignation is “a validation of the fact that Apple and Google are getting more competitive,” said Gene Munster, an analyst with Piper Jaffray & Co in Minneapolis. “It just reached a point for Eric Schmidt to step aside.”
