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Toby Flenderson Needs an Antitrust Lawyer

September 24, 2010

The antitrust takeover of the technology sector is proceeding at a brisk pace. Today the Justice Department’s Antitrust Division anointed itself the overlord of human resources for six prominent companies — Apple, Pixar, Adobe, Intel, Intuit, and Google — and declared there was insufficient competition for “highly skilled employees” among these firms:

According to the complaint, the six companies entered into agreements that restrained competition between them for highly skilled employees. The agreements between Apple and Google, Apple and Adobe, Apple and Pixar and Google and Intel prevented the companies from directly soliciting each other’s employees. An agreement between Google and Intuit prevented Google from directly soliciting Intuit employees.

“The agreements challenged here restrained competition for affected employees without any procompetitive justification and distorted the competitive process,” said Molly S. Boast, Deputy Assistant Attorney General in the Department of Justice’s Antitrust Division. “The proposed settlement resolves the department’s antitrust concerns with regard to these no solicitation agreements.”

In the high technology sector, there is a strong demand for employees with advanced or specialized skills, the department said. One of the principal means by which high tech companies recruit these types of employees is to solicit them directly from other companies in a process referred to as, “cold calling.” This form of competition, when unrestrained, results in better career opportunities, the department said.

According to the complaint, the companies engaged in a practice of agreeing not to cold call any employee at the other company. The complaint indicates that the agreements were formed and actively managed by senior executives of these companies.

The complaint alleges that the companies’ actions reduced their ability to compete for high tech workers and interfered with the proper functioning of the price-setting mechanism that otherwise would have prevailed in competition for employees.

Funny how the Antitrust Division (and the Federal Trade Commission) has no qualms about interfering “with the proper functioning of the price-setting mechanism” when it issues orders in merger cases openly forbidding companies from competing for “highly skilled” employees. In those instances, the antitrust authorities forbid companies from offering certain workers better employment opportunities to facilitate the regulatory demand to create “viable” competitors.

More to the point, the DOJ misunderstands, once again, the concept of market “price mechanisms.” Based on the Antitrust Division’s recitation of the facts, the six companies voluntarily agreed not to “cold call” one another’s employees. There was no force or aggression, so we must presume the companies acted out of self-interest. The companies therefore believed the benefit of cooperating with one another outweighed the potential benefits of “cold calling” one another’s employees.

This is hardly an unknown practice. Every single professional sports league bans “tampering” with players under contract to one team. But since those rules are blessed by federal labor law — through government-sanctioned unions — the antitrust regulators have no jurisdiction. Still, one cannot say that a voluntary agreement not to solicit one another’s employees destroys the “market price mechanism,” because such agreements are themselves part of the price mechanism. Individual firms decide what is in their best interest, not a mathematical model of what “competition” should look like to attorneys in Washington, DC.

The DOJ has not published its actual complaint yet, but the press release’s claim that its actions will “result[] in better career opportunities” seems dubious. Did the DOJ actually find specific employees who were denied a better opportunity because of these agreements? And how exactly does a third party define what constitutes a “better” opportunity for a given employee?

The press release, in fact, does not state that any of the six companies refused to hire employees from one another — the firms only agreed not to “cold call.” There’s no reason to believe any individual was unable to move from one company to another if that was her wish. Again, maybe the DOJ’s complaint offers more detail, but as a matter of antitrust practice, the government is not required to prove any victims existed in a “per se” antitrust conspiracy.

The net-net of this order, as always, is to reinforce the need for hi-tech companies to divert resources away from production and towards hiring more antitrust lawyers. Company HR practices may now be the subject of a federal antitrust investigation — and that means exposing personnel records to government scrutiny (and let’s not forget the Antitrust Division now has wiretap authority).

UPDATE: The Antitrust Division has published its complaint and supporting documents. As I suspected, the Division could not identify a single employee who was actually harmed. The Division insisted that since the challenged agreements were “naked restraints of trade,” it was unnecessary to offer any proof of injury. The best the complaint would offer is a vague suggestion that employees were “likely deprived of competitively important information and access to better job opportunities.”

2ND UPDATE: Amy Lambert, Google’s associate general counsel, noted that contrary to the DOJ’s implications, Google did in fact participate fulling in the labor market:

In order to maintain a good working relationship with these companies, in 2005 we decided not to “cold call” employees at a few of our partner companies. Our policy only impacted cold calling, and we continued to recruit from these companies through LinkedIn, job fairs, employee referrals, or when candidates approached Google directly. In fact, we hired hundreds of employees from the companies involved during this time period.

It also appears, based on my reading of the DOJ’s documents, that Apple was the primary instigator of all this. Which hardly surprises me. Chris O’Brien, writing about this case for the San Jose Mercury-News, said,

We knew Apple was a bully. Turns out, it is an even bigger bully than we realized. According to the complaint: “Apple requested an agreement from Adobe to refrain from cold-calling each other’s employees. Faced with the likelihood that refusing would result in retaliation and significant competition for its employees, Adobe agreed.” Pissing off a key ally? Dumb.

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