Apple 2.0

Covering the business that Steve Jobs built

Probing the Apple antitrust probes

June 11, 2010: 10:15 AM ET

Apple is likely to duck these bullets, say two analysts, but every case increases its risk

Apple's share of the smartphone app market may be large enough to qualify as a monopoly. Source: Stifel Nicolas

Absent a "smoking gun," neither the Federal Trade Commission nor the Department of Justice is likely to take Apple (AAPL) to court for antitrust violations, according to a note to clients issued Friday by Stifel Nicolas's Rebecca Arbogast and George Askew.

Apple has credible justifications, they write, for both complaints that have been lodged against it: its decision to exclude Adobe (ADBE) Flash from its mobile devices and, just this week, the change in its developers agreement that effectively restricts Google's (GOOG) AdMob from advertising on Apple's new ad platform.

"The core issue for whichever agency takes a look at Apple's exclusionary practices is whether they operate as part of the rough and tumble of competition to differentiate Apple from its competitors.... Or whether, instead, these exclusionary practices function to put a wall around a dominant (or soon to be dominant) company in a way that reduces competition."

Moreover, Apple's share of the smartphone market is nowhere near the 70% cutoff that is the government's rough cut for determining whether a company dominates a market. (Its share of the mobile app market, however, is large enough to raise concerns; see chart.)

But Arbogast and Askew argue that even if they go nowhere, government inquiries like these are a "negative" for Apple for three reasons:

  1. "First, every time a company comes before DOJ or the FTC, staff get to 'peek under the hood' and acquire information that they can later connect with additional information to develop a theory of harm.
  2. Second, Apple will likely engage in additional [merger and acquisition] activity, which will require DOJ or FTC approval. This provides an opportunity for the government to shape conditions to address behavior that they might find problematic but that falls short of the basis for an antitrust suit.
  3. Third, the existence of an inquiry or investigation can lead to a company modifying (or "clarifying") their practices to deflect the government (and any negative press)."

By way of background, the authors explain that Apple's cases are still at the first of the three general phases of an antitrust investigation.

"In the first, agency staff does an informal inquiry, talking to people, reading reports, and analyzing data, to get a sense of whether there's a basis for concern. This goes on all the time, and typically does not move to the next level of an investigation. At this second level, which must be authorized by high-level officials, the agency has authority to subpoena documents and interview witnesses under oath. When this has concluded, the agency heads will determine whether there is a basis for filing an antitrust suit."

We've got a ways to go.

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[Follow Philip Elmer-DeWitt on Twitter @philiped]

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About This Author
Philip Elmer-Dewitt
Philip Elmer-DeWitt
Editor, Apple 2.0, Fortune

Philip Elmer-DeWitt has been following Apple since 1982, first for Time Magazine, and now on the Web for Fortune.com.

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