Apple's Mobile Rules To Get FTC Scrutiny

JUNE 12, 2010
By THOMAS CATAN

WASHINGTON—The U.S. Federal Trade Commission will investigate whether Apple Inc.'s business practices harm competition in the market for software used on mobile devices, people familiar with the situation said.

For weeks, the FTC has been engaged in negotiations with the Department of Justice over which agency would review allegations by companies that say they're being shut-out of one of the most important emerging computing platforms.

Adobe Systems Inc. has been engaged in a public feud with Apple over its decision to ban Adobe's Flash video technology from Apple devices. This week, Google Inc. complained Apple's new rules on developers could bar Google and other rivals from selling ads inside iPhone and iPad applications, such as games.

Apple has also banned software developers from using other companies' tools to develop software for its devices.

Both Apple and the FTC declined to comment. The decision was reported earlier by Bloomberg News.

This may not be the only antitrust investigation Apple faces. Justice Department lawyers recently contacted companies about Apple's practices in the music business. The Justice Department could forge ahead with that inquiry independent of the FTC's investigation, said people familiar with the matter.

The Justice Department is already investigating whether Apple and a range of other tech companies improperly agreed not to poach each other's employees.

As it transforms from a niche player in the market for personal computers into a media and consumer electronics giant, Apple has drawn increasing scrutiny from antitrust enforcers. Apple recently surpassed Microsoft Corp.'s market value, a sign of its growing power in the technology industry.

Apple also has clout in the media world: It controls around 70% of online music sales and has more of the overall music market than Wal-Mart Stores Inc., according to market research NPD Group.

Some industry representatives are coming to Apple's defense.

"The iPhone was just introduced three years ago, and all of a sudden (Apple is) being accused of being a monopolist? To me, it's absurd," said Gary Shapiro, president of the Consumer Electronics Association, in an interview. "They don't even have a dominant position in smart phones—that's Blackberry."

However, some antitrust enforcers say that if they wait until a tech company has cornered a market it may be too late. The technology sector has powerful "network effects" that, some say grant outsize advantages to first movers and make it particularly difficult for competitors to break in.

The FTC will have a wealth of information to mine for its probe. It recently completed a six-month investigation of Google's $750 million acquisition of AdMob Inc., giving its lawyers knowledge of the mobile-ad market that Apple has also entered.

Despite initial reservations about the deal, the FTC cleared the acquisition last month, in large part because of Apple's entry into the mobile ad market in the latter stages of the probe. The move focused the FTC's attention on the ways in which Apple might give its own ad network advantages on its mobile devices. The concerns about Apple's potential market power helped sway the five commissioners against blocking Google's deal.

"The Commission has reason to believe that Apple quickly will become a strong mobile advertising network competitor," the FTC said last month. "Apple not only has extensive relationships with application developers and users, but also is able to offer targeted ads…by leveraging proprietary user data gleaned from users of Apple mobile devices."

It added that Apple's ownership of the iPhone software development tools, and its control over the developers' license agreement, "gives Apple the unique ability to define how competition among ad networks on the iPhone will occur and evolve."