Apple May Face Investigation over iAd

Apple could face an investigation over iAd, a feature of its upcoming iPhone OS 4 that allows third-party developers to embed advertisements into mobile applications, according to a new article in The Wall Street Journal. That article's unnamed sources also suggested that Apple could alter the language of its iPhone developer agreement to avoid a possible antitrust investigation into its application-development process by either the Federal Trade Commission or the Department of Justice. The developer agreement stipulates that applications be originally written in Objective-C, C++ or JavaScript as executed by the iPhone OS WebKit engine.

Apple may alter the language of its controversial developer agreement to avoid a potential federal antitrust investigation, according to unnamed sources quoted in The Wall Street Journal. In addition, the article indicated that the Federal Trade Commission has "taken an interest" in iAd, Apple's upcoming mobile application advertising platform, in the context of potentially unfair competitive practices.

The Wall Street Journal's source suggested that "Apple could try to head off trouble with antitrust enforcers by changing the terms of its developer agreement," but gave no indication over whether such a move was imminent.

News that Apple may be the target of a federal antitrust organization first surfaced in a May 3 article in the New York Post, which along with The Wall Street Journal is owned by Rupert Murdoch's News Corp. That Post article, also quoting from unnamed sources, suggested that the Federal Trade Commission and the Department of Justice were debating whether to open an actual investigation.

Much of the supposed antitrust activity is focused on Apple's mobile applications policy, which forbids the use of third-party development tools in the creation of apps for Apple's App Store. Specifically, a clause in the developer agreement for the recently unveiled iPhone OS 4 stipulates that "applications may only use Documents APIs in the manner prescribed by Apple and must not use or call any private APIs" and "applications must be originally written in Objective-C, C, C++, or JavaScript as executed by the iPhone OS WebKit engine, and only code written in C, C++, and Objective-C may compile and directly link against the Documented APIs."

That excludes tools such as Adobe Flash CS5, which in turn may force developers to choose between building an application for Apple or for another smartphone ecosystem. Given the relative paucity of some developers' resources, and the popularity of Apple's apps, the government could feel that forcing such a choice could raise the specter of unfair competition.

But according to the WSJ article, another aspect of Apple's evolving mobile business could become a federal target: "Several developers said they have been contacted by the FTC about the Google-AdMob probe, with two saying they were told that the agency was also looking into the iAd service."

In theory, iAd will allow third-party developers to embed advertising directly into their apps, a practice that Apple CEO Steve Jobs claimed during an April 8 presentation would bring more than 1 billion ad impressions per day, at least based on the average time a typical Apple mobile user spends with apps.

"The iAd is a big step for Apple-their way to stick a finger in the eye of Google, and even Microsoft (Bing)," Jack Gold, an analyst with J. Gold Associates, wrote in an April 8 research note. "Sounds like the only ads going to iPhone and iPad ultimately will be through Apple's ad-equivalent of iTunes monopoly for music. This is a game changer, and I'll bet someone legally challenges this monopoly position (probably in Europe, where iTunes is being heavily challenged)."

But if the government's supposed queries turn into an actual investigation, that legal challenge could now come from this side of the Atlantic.