Antitrust Enforcers Reportedly Set to Probe Apple’s License Agreement

This posting was written by John W. Arden.

According to published reports, the Federal Trade Commission and Department of Justice are negotiating to determine which agency will pursue an antitrust inquiry of Apple Computer Inc.’s new license agreement, which requires software developers to use Apple programming tools to create applications for the iPhone and iPad.

Apple’s license agreement would prevent developers from employing other tools—such as Adobe Systems Inc.’s Flash format—used to create web videos, games, and other interactive features.

Antitrust enforcers will address the issue of whether this policy injures competition by forcing developers to choose between designing applications that can run only on the iPhone and iPad and creating applications that are “platform neutral” and can run on operating systems produced by Google, Microsoft, and others.

A story ("An antitrust app") in Monday’s New York Post said that federal antitrust enforcers are “days away from making a decision about which agency will launch the inquiry,” which could lead to a full fledged investigation.

None of the players in the scenario—the FTC, the Department of Justice, or Apple Computer Inc.—has publicly commented on the news reports. However, Apple CEO Steve Jobs posted a piece (“Thoughts on Flash”) on the company website, explaining “why we do not allow Flash on iPhones, iPods and iPads.”

Rather than being “primarily business driven,” the decision was “based on technology issues,” according to Jobs. Contrary to Adobe’s claims, Flash is actually “a closed system,” while Apple has adopted “open standards” like HTML5, CSS and JavaScript, Jobs wrote.

While Adobe contends that Apple mobile devices cannot access “the full web” because 75% of the video on the web is in Flash, Jobs maintained that “almost all this video is also available in a more modern format, H.264, and viewable on iPhones, iPods and iPads.”

Jobs further cited reliability, security, and performance issues, arguing that Flash has a poor security record, causes Macs to crash, and does not perform well on mobile devices. In addition, Jobs criticized Flash for using too much battery power, for not being designed for “touch” screens, and for having “major technical drawbacks.”

The Wall Street Journal (“Apple Attracts Scrutiny From Regulators”) pointed out that the “growing interest in Apple’s activities by antitrust authorities shows the extent to which the Cupertino, Calif., company has become a powerful player in mobile devices like smartphones, which many people see as the next dominant computing platform after personal computers.”

The article compares Apple’s conduct with the tactics by Microsoft Corp. that drew attention from antitrust enforcers in the 1990s.

“Apple is playing right out of Microsoft’s playbook—and it’s one they complained about a lot,” said David Balto, a senior fellow at the Center for American Progress and former attorney for the FTC and Department of Justice.