antitrust — VOICES for REASON

The other day I blogged about an antitrust class action suit against Apple and AT&T, relating to Apple’s hugely successful iPhone. That post was based on press reports. I’ve now had a chance to read the plaintiffs’ complaint as filed in court, and a subsequent court decision. They provide interesting detail, but the basic injustice of this antitrust case remains.

As I mentioned in my earlier post, Apple sells “locked” iPhones. That means they work only on AT&T’s network. Consumers know the phones are locked into one network—there’s no mystery or fraud involved.

Okay, so what about the plaintiffs in this class action? They managed to scrape together enough money to buy iPhones and enter into two-year contracts with AT&T. They used their phones for the full two years. Then their contracts expired. Now they want to unlock their phones and use them on T-Mobile or some other network. There’s only one small problem with that—their individual software license agreements with Apple forbid such tampering. That’s not to mention violation of Apple’s software copyrights. But none of that bothers the plaintiffs and their class action lawyers.

Elsewhere, I have called antitrust laws a “war against contract,” and this case is a perfect illustration. These plaintiffs don’t want to be bothered with the contracts they signed. “I promise” means nothing to them. Instead, they assert what amounts to a divine right of hacking—to be achieved with the help of the infamous Sherman Act.

Here’s the plaintiffs’ legal theory: Apple and AT&T are monopolizing the so-called aftermarket for the iPhone. This “aftermarket” is not to be confused with the market for smartphones—that’s a huge market in which Apple is a significant but by no means dominant player (Blackberry, anyone?). No, the “aftermarket” amounts to the various ways of hacking the iPhone to make it work outside AT&T. Do you get this? Since the only way you can keep making calls on an iPhone after two years is sign up with AT&T for another two years, that’s evidence the companies are “monopolizing” the “aftermarket.”

Now you might say, wait: This “aftermarket” sounds more like an illegal enterprise than a market. If licensing agreements forbid unlocking, then why would the law protect an “aftermarket” devoted to unlocking? Well, in the wonderland of antitrust, anything is possible. If this class action is successful, Apple and AT&T may have to pay damages and abandon their policies against unlocking.

So much for sanctity of contract, which is but a distant memory in American law.

Image: WikiMedia Commons

In California, a federal judge has ruled that an antitrust class action suit can proceed against Apple and AT&T. What have those companies done to warrant being hauled into court? Basically, they agreed to sell only “locked” iPhones. A locked phone is one that works only on a specific mobile network—in this case, AT&T’s network.

So, let’s get this straight. Both Apple and AT&T want to make money. Apple makes money by creating cool mobile devices like the iPhone—creating, as in designing and manufacturing phones that didn’t exist before Apple’s brilliant designers and engineers thought of them. AT&T makes money by creating a mobile phone network–creating, as in erecting a complex array of electronic equipment capable of transmitting messages from handheld phones, a network that didn’t exist before AT&T created it.

Then Apple and AT&T decide to make money by working together. Although details of their deal aren’t public, it’s clear that AT&T saw an opportunity to increase its subscriber base by becoming the only retailer of iPhones. Apple, for its part, looked forward to receiving payments from AT&T based on a percentage of every iPhone subscriber’s monthly bill. Was this collaboration a good idea? You be the judge: consumers have bought 50 million iPhones in three years. Read the rest of this entry »

I originally started this post by writing: “Apple and Adobe are at war.” But they’re not—not yet, anyway. At this point—as long as antitrust authorities stay out of the way—Apple and Adobe are engaged in economic competition, not war.

The disagreement between the two companies centers on the place of Adobe’s Flash technology on Apple’s mobile products such as the iPhone, iPod, and iPad.

Much of the Internet’s video was created with Adobe’s proprietary Flash software, but those videos won’t play on Apple’s mobile products. Why? Because Apple refuses to allow Flash and has effectively barred developers from creating “apps” using Adobe’s software. CEO Steve Jobs has a 1,671-word explanation of Apple’s policy here. It’s filled with evidence that keeping Apple’s products Flash-free will enhance operational speed, battery life, security, and error-free functionality. Adobe disagrees.

Putting the technicalities aside, my point is this: It’s Apple’s prerogative to set the terms for software development on Apple’s own products. Disagreements among competitors are settled on the free market by persuading individual customers that a particular product will satisfy their own needs. Over time, technologies succeed or fail accordingly. Gasoline engines win, steam engines lose. VHS tape wins, Sony Betamax tape loses. CDs win, cassette tapes lose. Some businesses make money, others go bankrupt.

Now, however, news reports indicate that a real war is about to break out between Apple and Adobe—not with guns and bombs, but with the politer kinds of physical force that government regulators wield: fines, penalties, and jail terms. Adobe, it is rumored, wants to force its way into Apple’s devices by threat of prosecution for violating America’s antitrust laws.

Will antitrust enforcement give Adobe the revenues it couldn’t earn on a free market? Stay tuned …

Image: WikiMedia Commons

Commentators are aghast at the defense mounted by Intel, the leading manufacturer of computer chips, against the $1.45 billion fine levied by the European Union earlier this year for antitrust violations. The New York Times scoffed at Intel’s “bid … to raise sympathy among American antitrust regulators for a poor, abused American near-monopoly,” and one industry commentator sneered at “Intel’s ridiculous antitrust defense,” calling it a “novel—and frankly outrageous—stratagem.”

What is this legal strategy of Intel’s that is attracting such scorn? It is the assertion that Intel, a corporation, has a right to the same due process of law that individuals have. Intel’s argument, as summarized by the Times, is that corporations “are entitled to the due process rights that European human rights law grants in criminal cases to ensure that the accused—usually powerless individuals—are not steamrollered by the overwhelming power of the state.” Those due process rights were violated, Intel alleges, by the European Commission, which “unfairly plays the role of prosecutor, judge, and jury.” Read the rest of this entry »

The provocatively titled column “Munchausen Mommies of Antitrust,” by the Wall Street Journal’s Holman Jenkins, is a must-read. In fact, just about everything by Jenkins, who brings a rare combination of facts and insight to every week’s Business World column, is a must-read.

Read the rest of this entry »

Will Google follow in Microsoft’s footsteps and become the target of antitrust prosecution? In a recent article on the influential and popular blog TechCrunch, Wharton professor Eric Clemons argues that it could-and should.

Clemons’s argument, despite its considerable length and its use of multiple case studies and technical diagrams, can be summed up rather straightforwardly: Google is abusing the “market power” gained from its dominant search engine–by “overcharging” advertisers who want access to its search engine’s users. Clemons flatly asserts that “Google enjoys monopoly power over corporations that participate in its keyword auctions.” And: “Google is abusing its monopoly position by overcharging corporations for access to consumers.”

All of this talk of Google’s power makes Google sound like a menace to competition and customers. But let’s take a closer look at this power, to see where it comes from, and whether it’s good or bad Read the rest of this entry »

Last Thursday night, I delivered my talk “The Monopoly Myth: The Case of Standard Oil,” at USC. The theme of the talk was that John D. Rockefeller, the textbook example of the destructiveness of Big Business and market dominance, was in fact an incredible wealth creator who dominated simply because his company created better, cheaper, oil products than anyone else. I argued that Rockefeller’s 90% market share was just as earned as Michael Phelps’s eight gold medals.

The audience asked a lot of good questions after the talk, from whether “predatory pricing” is a problem, to how to properly define “monopoly,” to what a truly free market in health care would look like.

For anyone who’s in Southern California and interested, I’ll be delivering the same talk at the Hilton in Costa Mesa, CA on February 19, followed by a Q&A where I’ll be joined by Yaron Brook. For those of you outside Southern California, the talk should be available online at www.aynrandcenter.org soon after.

And for those of you who are particularly interested in economic and antitrust issues, you can find a detailed historical and economic analysis of the Standard Oil case in my essay “Vindicating Capitalism: The Real History of the Standard Oil Company” in the Summer 2008 issue of The Objective Standard.