08/04/2009 03:24:00 PM EST
Interlocking Directors and Officers
by Maureen McGuirl
In May 2009, Google confirmed the FTC began an inquiry into an interlock between the boards of Google and Apple. Section 8 of the Clayton Act prohibits a person from serving as a director or officer in any two competing corporations of a certain size, unless certain "safe harbors" apply. In an enforcement action, the case typically is settled by the resignation of the interlocked director or officer from one of the posts. Which director will go?
Excerpt:
In May 2009, Google confirmed that the Federal Trade Commission (FTC) had begun an inquiry into an interlock between the boards of Google and Apple. The FTC inquiry arose out of the fact that two individuals, Eric E. Schmidt, the chief executive officer of Google, and Arthur D. Levinson, the former chief executive officer of Genentech, simultaneously serve on the boards of both Google and Apple. Section 8 of the Clayton Act, 15 U.S.C. § 19, prohibits a person from serving as a director or officer in any two competing corporations of a certain size, unless certain safe harbors apply. The widely-reported FTC inquiry has again focused attention on Section 8.
The Google-Apple Interlock: According to industry reports, Google and Apple, which have collaborated in the past, compete in several arenas. One of Apple's most significant products is the iPhone. Google makes an operating system for cell phones known as Android; that system powers the T-Mobile GT, as well as other cell phones that compete with the iPhone. The Android operating system also is being built into netbooks, lightweight portable computers which may compete with Apple laptops. Both companies make competing browsers: Apple makes the Safari Web browser while Google makes the Chrome browser. Apple's iTunes and Google's YouTube compete for the distribution of music and videos and both companies have photo-editing services.
In comments to the press following reports of the FTC inquiry, Mr. Schmidt effectively acknowledged that the two companies compete. Mr. Schmidt, who joined the Apple Board of Directors in 2006, before Apple unveiled the iPhone and before Google announced its plans for Android, has told the press that he recuses himself from Board discussions in areas where the two companies compete and typically recuses himself from discussions related to the iPhone. No such statements have been made by Mr. Levinson, who joined the Google board in 2004. Nothing in Section 8, however, excuses an interlock among directors because the interlocked directory recuses himself. It seems likely that unless the competitive overlap between the two firms falls within one of the safe harbors embodied in Section 8, both individuals will have to resign from one of the two boards. Google has stated that it did not believe the overlaps in the Google and Apple boards were a problem; presumably, Google believes that a safe harbor applies. [footnotes omitted]
Maureen McGuirl has provided antitrust advice to clients and litigated antitrust
cases for 30 years. She is a co-author of Antitrust Laws & Trade
Regulation, a leading ten-volume treatise on the antitrust laws, and a
contributing author to Antitrust Counseling and Litigation Techniques, a
six-volume practitioner based antitrust treatise. Ms McGuirl is in private
practice in New York. She also is a member of the California bar.