Legal Eagles Ponder Why Google CEO Eric Schmidt Lingers On Apple's Board

Despite the threat of Google Chrome OS as another competitive front versus Apple, and in the face of multiple protests from bloggers and pundits, Google CEO Eric Schmidt refuses to step down from Apple's board of directors. Antitrust experts Gary Reback and law professor Eric Goldman express surprise at Schmidt's staunch refusal, which may have to do with differences in how Google and Apple make money.

The digital ink barely dried on Google's blog post to announce the coming of Chrome operating system July 7, when journalists and bloggers ran stories suggesting Google CEO Eric Schmidt should remove himself from Apple's board of directors for violating U.S. antitrust rules.

The argument renewed a debate that began in earnest in May when The New York Times said the Federal Trade Commission was looking into whether Schmidt's place on Apple's board violates Clayton Antitrust Act of 1914.

Specifically, Section 8 of the act prohibits "interlocking directorates," or an individual's presence on the board of two rival companies when it would reduce competition between those two companies.

Apple has been a stalwart in computers for two decades and an undeniable force in the smartphone sector for the last two years. But Google's quest to organize the world's information online has driven it into greater competition with Apple.

In the last two years, Google has developed the Android mobile operating system, a platform for manufacturers to build smartphones that compete with Apple's iPhone, the Chrome Web browser, which competes with Apple's own Safari browser; and now Chrome OS, which Google hopes becomes a speedier, more friendly OS than Apple's Mac OS X and Microsoft's Windows operating system.

Throw in competing Web services in productivity and Google and Apple look more like competitors than cohorts against common enemy Microsoft, whose desktop software domination is notorious. So why is Schmidt still on Apple's board, when the consensus is that the companies have become too competitive for him to be bosom board buddies with Apple?

Gary Reback, of counsel in the litigation practice group of Carr & Ferrell, said he doesn't understand why Schmidt remains on Apple's board considering the scrutiny. Reback, credited with spearheading the efforts leading to the Justice Department's prosecution of Microsoft, knows a little bit about what constitutes antitrust violations.

Reback did say that section 8 of the Clayton Act is intended as a prophylactic provision intended to keep people from getting in a situation where they'd be tempted to do something wrong, or where it might look bad. "The antitrust law puts up a wall, and you kind of observe the wall and that's the end of it."

The hardest thing for me to understand is why there is resistance on Eric's part. This is a real law, it has a very sound purpose, it's been on the books for a long time. I never heard of anybody fight over it. I'm kind of amazed by the resistance, to just acknowledge it, resign and move on. Why would you fight them, why would you push on that? If the government goes so far as to say they're investigating it, you'd normally expect an executive to say, 'I'm not doing anything wrong' but why let anybody raise the issue?

Reback noted that under the Clayton Act, interlocking directorates are not considered an issue if the sales from products over which the companies compete is less than 2 percent of either company's total sales. "[Google's] point was that their product was given away free, so it doesn't come over the 2 percent threshold as it applies" to the companies' sales," Reback said.