Apple’s Map App Could Raise Antitrust Concerns

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The New York Times
Saturday, October 06, 2012

Apple’s Map App Could Raise Antitrust Concerns

By JAMES B. STEWART

Steven P. Jobs could hardly have hoped for a better legacy than the performance since his death of Apple, the company he co-founded and dominated. Its revenue, profit and share price have hit records. It’s the world’s largest company by market capitalization.

These milestones were reached with the steady hand of Timothy D. Cook at Apple’s helm, but they seem inseparable from Mr. Jobs. They are the result of initiatives begun during his tenure and, in many ways, reflect his personality — one that was perfectionist, competitive, driven and controlling.

Those qualities have remained on display at Apple in the year since his death, most recently in the decision to substitute Apple mapping software for rival Google’s in the iPhone 5 and the new iOS 6 operating system, as well as allegations that Apple and book producers conspired to control the price of e-books.

Apple hasn’t fully explained its decision to replace Google’s maps, but it probably reflects the evolution of the Apple-Google relationship from close allies to fierce competitors, a process that began well before Mr. Jobs’s death. Apple also hasn’t indicated whether it was carrying out Mr. Jobs’s wishes, but the decision seems consistent with his “compulsion for Apple to have end-to-end control of every product that it made,” as Walter Isaacson put it in his book “Steve Jobs.”

Apple’s use of its own mapping technology in the iPhone appears to be a textbook case of what’s known as a tying arrangement, sometimes referred to as “bundling.” In a tying arrangement, the purchase of one good or service (in this case the iPhone) is conditioned on the purchase or use of a second (Apple maps).

To the degree that tying arrangements extend the control of a dominant producer, they may violate antitrust laws. Probably the best-known example was Microsoft’s attempt to bundle its Internet Explorer browser on Windows software, to the disadvantage of Netscape, a rival browser, despite complaints that Explorer was initially an inferior product. This was the linchpin of the government’s 1998 antitrust case against Microsoft. E-mails were introduced as evidence in which Microsoft executives indiscreetly stated their intentions to “smother,” “extinguish” and “cut off Netscape’s air supply” by bundling Explorer with Windows.

Among other findings, the judge ruled that Microsoft had engaged in an illegal tying arrangement. The outcome of the case kept the door open to competition in the browser market. Today, the once-dominant Internet Explorer faces stiff competition from rivals like Mozilla Firefox and Google Chrome. Microsoft’s settlement came too late for Netscape’s browser, which was no longer being developed or supported after 2007. But Firefox traces its lineage to Netscape’s source code.

Could Apple’s map suffer a similar fate?

Early users searched for locations and got nonsensical results. Mad magazine ran a parody of the famous Saul Steinberg New Yorker cover of the world seen from Ninth Avenue “now using Apple Maps,” in which the Hudson was the Sea of Galilee and other landmarks were ludicrously misidentified.

Mr. Cook swiftly tried to contain the damage. “Everything we do at Apple is aimed at making our products the best in the world. We know that you expect that from us, and we will keep working nonstop until Maps lives up to the same incredibly high standard,” he said a week ago.

Would Mr. Jobs have been so quick to apologize? Perhaps not. He was famously resistant to the idea after complaints about the iPhone 4’s antenna, and the Apple “genius” manual instructs employees never to apologize for the quality of Apple technology.

Bundling its maps with the iPhone 5 may yet prove to be a strategic blunder for Apple, but it may nonetheless skirt the boundaries of the antitrust laws that tripped up Microsoft. “There’s no antitrust theory under which vertically integrating into an inferior component is considered anticompetitive,” Herbert Hovenkamp, an antitrust professor at the University of Iowa College of Law, told me. That’s because the problem is considered self-correcting by market forces.

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