The Federal Trade Commission (FTC) has vowed to increasingly scrutinize companies that share common board members. FTC Chairman Jon Leibowitz made the pronouncement in October shortly after Apple board of director’s member Arthur Levinson resigned from Google, Inc.’s board without providing an explanation. In a statement released by the FTC, Leibowitz hinted that Levinson’s resignation was the result of a well-publicized inquiry by the FTC into potential antitrust violations under Section 8 of the Clayton Act by Apple and Google. Section 8 of the Clayton Act prohibits a person from serving as a director or officer of two competing companies, with certain exceptions.
Google’s chief executive officer, Eric E. Schmidt, stepped down from Google’s board in August, several months after news of the FTC’s inquiry surfaced, under similar pressure from the FTC to avoid litigation. Apple initially resisted the FTC’s accusations and insisted that the two companies had acted well within the law. The Clayton Act allows competing companies to share board members if revenue from competitive products between the companies is less than 2 percent of each company’s sales.
The FTC’s actions toward Apple and Google are the tip of the iceberg. The FTC will look at companies with common board members and threaten to bring litigation. Companies with common board members should take upfront steps to examine whether Section 8 of the Clayton act may apply and conduct an audit of the potential for FTC action against the company.