On May 4, it was reported that the Federal Trade Commission is investigating whether having two common directors on the boards of Apple Inc. and Google Inc. violates antitrust law. The statute at issue is Section 8 of the Clayton Act, 15 U.S.C. Section 19, known as the prohibition on “interlocking directorates.” It prohibits anyone from serving as a director or officer in any two corporations that are “by virtue of their business and location of operation, competitors, so that the elimination of competition by agreement between them would constitute a violation of any of the antitrust laws.” The prohibition does not apply if one corporation’s revenue from the products on which they compete is less than two percent of its annual revenue.
In other words, if the two corporations could reach an illegal agreement not to compete with each other in selling specific products or services, then those corporations may not share common directors. In the case of Apple and Google, both companies compete in the smartphone and smartphone operating system markets—Apple with the iPhone and iPhone OS, and Google with the G1 phone and its Android platform. The companies also compete in the web browser market (Apple’s Safari and Google’s Chrome) and in the video and music distribution markets (Apple’s iTunes and the Google-owned YouTube).
The government has rarely challenged interlocking directorates in the past. But the challenges it has brought typically result in a director stepping down, rather than a protracted legal battle. The current FTC challenge reminds businesses who share directors to be sensitive to whether they are potential competitors who offer any of the same products or services.
