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Last month, Google announced its plans to acquire Motorola Mobility Holdings, the cellphone company that recently split from Motorola. As the popularity and use of smartphones have both been growing rapidly of late, many speculated that Google intended to wed its Android operating system with Motorola’s celebrated–and large–collection of telecommunication and hardware patents to poise itself for direct competition with Apple in the cellphone manufacturing arena. (Although–as an aside–there has been recent speculation that the patents Google is buying may not be as valuable as some had imagined.)
However, as soon as Google made its announcement, onlookers predicted that the deal would run into antitrust barriers (or at least some stumbling blocks). And they were right: the FTC immediately began looking into whether Google’s control of both software and hardware would create for it an impermissible competitive advantage. Opinions diverged as to whether the deal would go through, but everyone agreed that it would not slide by without a fight from government regulators (especially because the FTC was already at the time looking into whether Google was using its dominant position in web-searching to promote its own products and services over those of competitors).
But now, the DOJ’s recent action to block a merger between AT&T and T-Mobile has cast some doubt on whether the government will be able to do the same to Google and Motorola by highlighting the legal and structural differences between the two transactions. The essential difference (and the most viable “out” for Google) lies in the nature of the two sets of merging companies and their relationships to each other: the merger between AT&T and T-Mobile is a “horizontal” one, while the merger between Google and Motorola is “vertical.” That is, AT&T and T-Mobile competed directly with each other–on the same horizontal “plane”–and, therefore, a merger between the two would truly reduce the competition for the products and services that they both provide. Google and Motorola, on the other hand, are not direct competitors, but rather occupy different positions in the “chain of production.” Theirs is considered a “vertical” merger. Because the DOJ tends to focus its antitrust efforts much more on horiontal mergers, it is starting to appear as if Google will get off much easier than people originally predicted. I guess we can’t be certain, though, until the DOJ officially throws in the towel.
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