Tuesday, May 04, 2010

DOJ-FTC Mulling An Apple Antitrust Probe

According to the New York Post, two heavy hitting government regulators are mulling over which agency will handle an antitrust inquiry into Apple's new iPhone 4.0 SDK policy, which blocks software developers from using cross-platform compilers such as the one Adobe offers to Flash programmers when they build programs for the iPhone, iPod Touch and iPad.

The Department of Justice and the Federal Trade Commission (FTC) which both are capable of handling antitrust issues here in the US are said to be only "days away from making a decision about which agency will launch the inquiry."

Similar reports on Reuters.com quote David Balto, a former FTC policy director as saying, "What they're (Apple) doing is clearly anticompetitive ... They want one superhighway and they're the tollkeeper on that superhighway."

At this time neither government agency will officially acknowledge an inquiry but several industry insiders believe that it might be inevitable. An inquiry doesn't necessarily mean action will be taken against Apple, which argues the rule is in place to ensure the quality of the apps it sells to customers. Typically, regulators initiate inquiries to determine whether a full-fledged investigation ought to be launched. If the inquiry escalates to an investigation, the agency handling the matter would issue Apple a subpoena seeking information about the policy.

At the foundation of the inquiry is the issue of whether or not Apple's new iPhone 4.0 developer TOS, which took effect last month, discourages competition by forcing programmers to create apps that run only on Apple's mobile devices the iPhone, iPod and iPad or across "platform neutral" mobile operating systems like Google's Android and Microsoft's Windows Mobile software. Analysts say the restrictions set forth by Apple may cause many programmers with limited funds to have to choose one platform and foregoing another, effectively hampering competition.

Apple's stance has been that allowing third-party tools would result in "sub-standard" apps. But many developers and critics (including myself) feel that the company is abusing its position.

"For us and the whole developers community, it really locks us into a single platform," said Michael Chang, chief executive of mobile ad network Greystripe, of Apple's rules.

Chang said a basic iPhone app might cost $75,000 to build on Flash, and a few thousand dollars more to convert it to work on Google Inc's Android mobile platform. But with the new restrictions, a developer may be forced to spend another $75,000 to build the app from the ground up for a non-Apple platform.

"For a small or medium-sized company, it becomes a real financial issue, and that's how it becomes anticompetitive," he said.

Most reports suggest that Apple could avoid a possible FTC antitrust investigation by changing the strict terms of the iPhone 4.0 SDK. The FTC may choose to leave Apple alone if it let developers write iPhone apps using other tools, such as Adobe's Flash CS5 or MonoTouch.

Given the heated argument and recent statements from Apple CEO Steve Jobs over the inclusion of flash and the reliance of third party development tools it seems unlikely that Apple would change the iPhone SDK TOS, even if the company faced a little pressure from the DOJ or FTC.

Until now Apple has enjoyed the ability to play the role of the underdog, calling for inquiries into the monopolistic behavior of its competitors. With the success of the iPhone, however, Apple is now the giant in question, with its actions subject to review.

The iPhone has generated huge interest from app developers, who have created more than 200,000 programs, or apps, for the platform. Having sold more than 50 million iPhones since its debut in 2007, and 1 million iPads since its April 3 debut the companies new found popularity means extra scrutiny about every Apple move related to the smartphone platform and the very popular App Store.

My Thoughts:

It really should be interesting to see where this goes. On one hand I agree that Apple should be allowed to regulate the quality of apps it allows in the App Store but I don't think they should be allowed to rule out apps just based on platform development or based on some of the other ridiculous reasons they have given for disallowing apps. ("duplicating" standard features, objectionable content ect)

Reading some thoughts written in an article on ComputerWorld last night kind of made me wonder if there really is a case here or not.

Hillard Sterling, an antitrust attorney at Chicago-based law firm Freeborn & Peters LLP said, "The government has to show that Apple's conduct is adversely affecting competition for consumers, and that requires that it show the absence of choice."

Well clearly when you are talking about a single platform, Apple's, then yes you are talking about an adverse reaction for developers and consumers. However when you look at the greater scope and the total number or percentage of users affected then the numbers are a bit skewed. Apple may only hold a 16% market share world wide but they hold a greater number of the US and AT&T market, how much I don't know for sure but the number is much higher than 16%. When you take those numbers into account then yes they, at least in my eyes, are acting an in antitrust/anti-competitive nature!

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