Who will get caught in antitrust net

Dominant tech companies like Google and Apple could face closer scrutiny, while smaller competitors like AMD have the most to gain.

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By David Goldman, CNNMoney.com staff writer

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NEW YORK (CNNMoney.com) -- Big tech companies are likely targets for the Justice Department's antitrust crackdown, say experts, which could bode well for some smaller players.

One reason tech firms tend to be on antitrust watch lists is because technology is always evolving with companies looking to enter new consumer markets with new products. It's that emphasis on "new" that will make it easier for the Justice Department to launch an investigation, say experts.

"Obama's biggest obstacle to its antitrust policy is that the federal courts have developed a number of defendant-favoring rulings that have made it difficult for the Justice Department to win," said Keith Hylton, antitrust professor at the Boston University School of Law. "That makes tech attractive to the Obama team, because there will be cases that the courts haven't ruled on before."

President Obama's top antitrust official, Assistant Attorney General Christine Varney, last week announced the reversal of a Bush-era policy that had weakened the government's ability to take on monopolies.

Also last week, European regulators levied a record $1.5 billion fine against Intel Corp. for unfairly paying computer makers to delay or even cancel products that contained chips made by rival AMD.

"In the tech sector, it's possible to get such an advantage with a product, that nothing else is worth buying," said Martin Reynolds, analyst with tech consultancy Gartner. "There becomes an inertia effect, where a product builds a critical mass, and it's difficult to move away from it."

Among the most common ways for leading tech firms to gain market share is through mergers and acquisitions. But with the Obama administration vowing to be aggressive on the antitrust front, those types of tie-ups may now face much closer inspection in the United States.

Here's a snapshot of some potential losers and winners in the new antitrust era:

Losers: Experts said companies that dominate their fields are the most likely to draw the attention of antitrust officials.

Google (GOOG, Fortune 500) tops most analysts' lists of tech companies likely to attract notice. It has already been down the antitrust road. During the Bush era, Google came under close examination when it tried to ink an advertising partnership with rival Yahoo -- a move that was subsequently abandoned.

"Google has a durable network effect, becoming far more valuable to consumers than other competitors," said John Harkrider, co-chairman of the antitrust practice at Axinn Veltrop Harkrider LLP. "Creating a competitive product to Google isn't difficult, but it has so many people using it, that it has become difficult for anyone to break into that market."

Google said it is not an antitrust target.

"We know that competition on the Internet really is just one click away, so we work hard to make sure that we earn our users' trust and support every day," Google spokesman Adam Kovacevich said. "We make it easy for users to switch to competing services, help other business be more competitive by lowering their IT and advertising costs, and have developed open source browsers that foster competition."

Meanwhile, Microsoft (MSFT, Fortune 500), which has already found itself on the opposite ends of U.S. and EU court rulings this decade, could again be under scrutiny because of the dominance of its Windows operating system.

Windows is cheap compared with competitors like Red Hat's Linux and Apple's Mac OS, and a large percentage of personal computers come with Windows pre-installed -- 83%, according to Gartner. Accordingly, a majority of software gets written exclusively for Windows-based computers and ultimately forces consumers to use Windows whether they want to or not, say experts.

Apple (AAPL, Fortune 500) is another possible target. It dominates the MP3 player market with its iPod line with a near-80% market share. Apple has the capital to invest enough in development that it can come out with a new iPod every year. That keeps bringing back consumers who want the newest toy, said Reynolds.

Intel (INTC, Fortune 500) could be the target of more scrutiny, because it churns out new processors almost as quickly as Apple produces new iPods. Analysts say Intel's new microchips usually double the performance of chips made in the previous year. Intel has no rivals that can compete with that consistency because no other company has the revenue Intel has.

Winners: While smaller competitors of the dominant firms could have much to gain in the new landscape, there are some bigger companies that also stand to win.

Microsoft could find itself on both sides of the coin, as a ruling against Google could help it become a player in the online advertising world. Yahoo (YHOO, Fortune 500) also stands to benefit from any ruling that goes against Google, as the former giant has struggled mightily to match Google's ad share.

AMD (AMD, Fortune 500), which brought its case against Intel to the European Commission, could make out well if the Intel ruling is upheld after a looming appeal. Analysts say AMD actually took a bite out of Intel's market share several few years ago when it developed a dual-core processor for desktops, but the company has since struggled to compete with its much bigger rival.

"When [AMD] has a product in the market that is compelling, they do very, very well," said Reynolds. "When they don't, they do very badly."

And Oracle (ORCL, Fortune 500), which recently announced it will acquire Sun Microsystems (JAVA, Fortune 500), could gain share in the consumer software market if Microsoft is found to be in violation of antitrust laws. Oracle and Sun offer open-source software products for free, but they have still failed to compete with many Microsoft products, which have a strong consumer following.

Analysts say there's no guarantee that the Obama administration will target tech companies in its anti-monopoly push, but they expect antitrust complaints to rise and big tech companies to be on high alert. To top of page

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