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The revolutionary Apple Inc. iPhone has become entangled in antitrust problems on both sides of the Atlantic over allegations that the company improperly tied its sought-after multimedia phone to specific telephone service providers. The early legal skirmishing has antitrust lawyers watching. At issue is the practice of “product tying,” which means that a consumer must buy a less desirable product to get the desired one. The practice is considered a serious antitrust problem in the European Union, though it is less of a concern to the U.S. Department of Justice’s antitrust division. “Phone companies are going to be the focus of a lot more antitrust activity,” predicted Carole Handler, an antitrust and intellectual property specialist in the Los Angeles office of Foley & Lardner. “I think lawyers are watching because there is concern that a subsequent administration [in Washington] might be more stringent with antitrust enforcement of exclusive agreements in technology,” Handler said. “And second, law firms are global and clients are global. They have to advise global clients on the difficult task of how to behave in the U.S., but also in relations with other countries.” European action Last week, Vodafone, the second largest mobile phone service provider in Germany, sought and won and injunction against Deutsche Telekom A.G.’s T-Mobile, temporarily forcing the unbundling of Apple’s iPhone with service contracts through T-Mobile. And in France where product tying is not allowed, Apple debuted the phone without mandatory service contracts. But the price of an individual phone was far higher. “France and Apple are at war,” Handler said. The French have been very active in challenging the AT&T Inc. and Apple relationship. The question becomes: Is the agreement an exclusive agreement, which is allowed in the United States, or improper product tying, which is disallowed in Europe, she said. Apple spokeswoman Susan Lundgren declined to comment on the antitrust issues or the lawsuits over the iPhone. The transatlantic differences in antitrust treatment of product tying may not be as marked as some fear, according to Richard Steuer, antitrust lawyer in the New York office of Chicago’s Mayer Brown. U.S. law on product tying evolved from common law and strongly suggests that, unless a seller has a 30% market share, there are plenty of alternatives for consumers, thus the harm to competition is minimal, Steuer said. In Europe, product-tying law grows out of regulation, rather than common law. But in the end, Europeans have a safe harbor that is roughly 30% of the market. Once a product captures more of the market, the courts must conduct a review of the reasonableness of the relationship, he said. Handler countered that the difference is not just the safe harbor for market power. The EU looks at product tying as a restraint on competition, while the U.S. philosophy has been that tying, also called “vertical constraints,” can enhance competition, she said. Antitrust lawyer Max Folkenflik, of Folkenflik & McGerity in New York, said that the difficulty of showing a restraint of trade under American law has made pursuing antitrust claims tough for private lawyers. That was so until a 2006 exemption to the Digital Millennium Copyright Act allowed consumers to “unlock” their cellphones to switch from one service provider to another, Folkenflik said. Now American consumers may be getting restless for the broader choices Europeans enjoy. Last month, Folkenflik filed a federal class action in San Francisco accusing Apple and AT&T Mobility LLC of antitrust violations because iPhone buyers were forced to use AT&T as their wireless carrier. Holman v. Apple Inc., C07-5152RS. A separate state court suit in San Jose, Calif., made similar antitrust claims. Smith v. Apple Inc. 1-07-CV-095781. “Apple wants people to be on AT&T, they have a revenue sharing agreement that they might not get if you switch carriers,” Folkenflik said. “The arc of history is moving against them. What is happening in Europe is more consumer choice rather than restriction,” he said.

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