September 18, 2007 -- With Microsoft Corp.'s antitrust appeal now decided, the next U.S. technology company to get a place on the European Union (EU)'s regulatory hot seat may be Apple, an antitrust expert said today.
"The decision by the Court of First Instance is a clear signal to the European [Competition] Commission that it has the leeway to go ahead," said Herbert Hovenkamp, a professor at the University of Iowa College of Law and a noted antitrust scholar. "[The commission] now has a license to go ahead, and they have a pretty aggressive posture. I think this bodes ill for some companies."
Among those already facing investigations or accusations from the EU antitrust agency, which is led by Neelie Kroes of the Netherlands, are chip makers Rambus Inc. and Intel Corp.; Qualcomm Inc., a wireless technology vendor; and Apple Inc.
Apple, in fact, will face two days of hearings before the commission starting Wednesday to answer charges that it and its four music label partners are violating EU laws with the pricing structure and purchase restrictions of the iTunes music store. In early April, the commission confirmed that it had sent a Statement of Objections (SO), the agency's term for an official complaint, to Apple and partners EMI, Sony BMG, Warner Music Group and Universal Music.
The SO claimed consumers are restricted in their choice of where to buy music -- because each country's version of iTunes only accepts orders from customers who live in that country -- and at what price. ITunes tracks sales for varying amounts, depending on the country.
But the commission steered clear of calling Apple another Microsoft in April. "The Statement of Objections does not allege that Apple is in a dominant market position," the group said in a statement at the time.
Yesterday, Kroes downplayed any link between the court's rejection of Microsoft's appeal and possible action against other U.S. technology companies. "You may hear scare stories about the supposed negative consequences of this ruling for other companies," she said during a news conference Monday afternoon. "Let me be clear. There is one company that will have to change its illegal behavior as a result of this ruling: Microsoft."
Microsoft, however, thought different.
During his own news conference yesterday, Brad Smith, Microsoft's general counsel, repeatedly pointed to Apple. "Apple has something like a 70% market share for digital music," said Smith. "ITunes is far and away the leading source for music on the Internet; the iPod is far and away the leading hardware device for digital music."
Even the U.S. Department of Justice weighed in. Thomas Barnett, the assistant attorney general for antitrust, yesterday said: "We are concerned that the standard applied to unilateral conduct by the CFI [Court of First Instance], rather than helping consumers, may have the unfortunate consequence of harming consumers by chilling innovation and discouraging competition."
Hovenkamp was confident that yesterday's decision would embolden the commission. "This was a landmark decision, and a landmark case," he said. "It stands for a couple of important things. First, it's a declaration of independence, a statement that their anticompetitive policy is not going to be dictated by U.S. policy. Second, it clears the way for the commission to pursue new cases.
"You're going to see a more aggressive commission that will go after high technology companies, especially those that are involved with networks or standard setting," Hovenkamp said.
"Rambus and Qualcom, certainly," he said, are among the companies at risk from a combative commission. "Intel? Perhaps. As for Apple, there are some undeveloped issues there."
In Apple's favor, he said, are European antitrust traditions that may let the iTunes operator and iPod maker off the hook. Europe's antitrust agency has typically looked differently at two kinds of pricing discrimination. The one where a company prices products differently in different countries in order to squash competition -- pricing products lower in nations where rivals exist, higher where competitors are lacking -- is usually treated harshly, said Hovenkamp. The other type of pricing discrimination, where a seller prices products based on what it thinks a particular country's buyers can bear -- more in Germany, for example, less in Portugal -- are not generally considered a competition problem.
"If Apple is pricing differentially because of economies and consumer buying power," said Hovenkamp, "it is probably safe. But if [it is] doing this to suppress competition, the commission may act."
Among the possible results of the hearings: fines levied to the tune of 10% of global net revenues. Kroes' agency could also dismiss the SO after the hearing.
"Europeans are much more comfortable with regulation," said Hovenkamp.
Apple did not reply to a request for comment on the court ruling yesterday or on the hearings that kick off tomorrow in Brussels.
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