Chrome OS Complicates Apple & Google Boards of Directors

July 9th, 2009 at 3:42 PM - Reports by Bryan Chaffin

Apple and Google could find themselves under increased FTC scrutiny now that they compete in yet another market, that of operating systems. With the announcement of Chrome OS this week by Google, the two companies have a more complicated relationship, at least from an antitrust standpoint.

At issue are two board members shared between the two companies -- Google CEO Eric Schmidt and Genentech CEO Arthur D. Levinson -- and Section 8 of the Clayton Antitrust Act. That Section limits the amount of information that can be shared by directors of two competing companies in an effort to keep companies from colluding.

In the case of Apple and Google, the two companies compete in the smartphone market (iPhone and Android), have competing Web browsers (Safari and Chrome), and now have competing operating systems (Chrome OS and Mac OS X)...depending on how you define competing.

Chrome OS was announced earlier this week as an Open Source operating system based around the Chrome Web browser. Google's intent is to offer Chrome OS to netbook manufacturers for free under an Open Source license. Depending on one's viewpoint, that could be seen as competing with Mac OS X, according to antitrust experts in a New York Times article.

"The circle of sensitive competitive information between Apple and Google seems to be widening," Andrew I. Gavil, an antitrust specialist and a professor at Howard University School of Law, told the Times. "The more you have potential overlap in products and marketing strategy, the more the FTC might get concerned about a violation of Section 8."

James F. Rill, an antitrust lawyer with Howrey LLC added, "Section 8 is there for a reason. It's an attempt to apply a prophylactic safeguard against possible collusive action. It's an easy statute to comply with, and one may question why Google hasn't complied with it."

Then again, Mr. Schmidt has publicly said he recuses himself from board meetings, or those sections of board meetings, at Apple that deal with iPhone-related issues. Mr. Levinson has not publicly gone on record about the issue, and the Chrome OS is so new that neither company has yet to publicly address the issue.

The issue is two-fold, however, for if Messrs. Schmidt and Levinson were to start avoiding discussions of Mac OS X during Apple board meetings, shareholders could begin to question his value as a board member.

Apple and Google have long maintained that the two companies are not competitors, and the 2% rule could bear that out. According to the Times, shared directors are not considered problematic if revenue from the products in which the companies compete is less than 2 percent of either company's sales.

With Google's revenue tied to advertising, a free OS could certainly not cross that threshold, and the same could possibly be said for Android, at least for now.

accordingly, the issue is not cut and dry, and neither company is definitely violating Section 8, which is why the FTC has been investigating the issue for some time, as opposed to directly bringing action.

Apple and AT&T may also be in the sights of another federal antitrust regulator, the Department of Justice, for their exclusive deal for the iPhone.