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Friday, April 16, 2010

U.S. Steps up Probe of Tech Hiring Practices

The Wall Street Journal

Probe seeks to uncover antitrust violations and gentleman's agreements

The Justice Department is stepping up its investigation into hiring practices at some of America's biggest companies, including Google Inc., Intel Corp., International Business Machines Corp., Apple Inc. and IAC/InterActiveCorp., people familiar with the matter said.

The inquiry is focused on whether companies, particularly in the technology sector, have agreed not to recruit each others' employees in ways that violate antitrust law. Specifically, the probe is looking into whether the companies' hiring practices are costing skilled computer engineers and other workers opportunities to change jobs for higher pay or better benefits.

After a probe that began more than a year ago, Justice Department investigators have concluded that such agreements do raise significant competitive concerns, according to the people familiar with the matter.

But the leadership of the antitrust division hasn't yet decided whether—or how—to challenge the hiring practices, these people said. About a dozen companies are meeting with top antitrust officials at the Justice Department this week and next, some to defend their practices, others to provide information.

Antitrust experts say the Justice Department could argue that an agreement between competitors that holds down labor costs is as much a violation of antitrust laws as an agreement to fix prices.

Such agreements are "very close to the line," said Melissa Maxman, an antitrust lawyer at the law firm Cozen O'Connor. "They're not agreeing on price, but they're kind of agreeing on costs." Skilled computer scientists with some management responsibilities, for instance, often make base salaries of $180,000 to $210,000. Compensation for the most sought-after workers typically soars far above that and includes bundles of stock options and bonuses.

The Justice Department hasn't confirmed the existence of the investigation, and a spokeswoman declined to comment Friday. But several companies said they have received requests for information on the way they hire employees.

"IBM is one of many companies that have been contacted by government officials in a broad-ranging inquiry of technology and nontechnology companies regarding hiring practices," said company spokesman Edward Barbini. "We are collaborating with the government's inquiry."

Some companies are defending their recruiting practices. "Since investigations of this nature are confidential, we will not comment on what the Department of Justice may or may not be doing," said Intel spokesman Chuck Mulloy. "However," he said, "we believe our hiring practices are lawful and don't harm competition."

Google declined to comment. Apple and IAC didn't immediately respond to requests for comment.

Behind the scenes, technology companies are making the case that agreements among companies are not anticompetitive and don't affect employees' salaries or the availability of jobs. They say such agreements are commonplace, used by companies to maintain good relationships with business partners.

Some tech companies also say the agreements under investigation only stop them from cold calling each other's employees, not from hiring them.

The technology industry makes the case that it would be harder to enter into collaborative ventures with other companies if they fear losing valuable employees.

But Justice Department lawyers could respond that such agreements distort the labor market, theoretically harming the economy by cutting incentives for other people to enter such fields.

"In the long run, this is going to distort and depress the incentives for people to actually develop the talents and skills that are useful in this market," said Salil Mehra, a Temple University law professor who formerly worked in the Justice Department's antitrust division.

Policing the labor markets hasn't been a central focus of antitrust enforcers in recent years. But the Justice Department did act against what it saw as efforts to manipulate the labor market. It brought a civil case against a group of hospitals in Utah in 1994, alleging that they had illegally conspired to hold down nurses' wages by exchanging information about their pay.

A year later, it took action against the American Bar Association for allegedly using its accreditation process to force universities to raise law-school salaries. Both cases were settled.

The current investigation is the latest by antitrust enforcers to take aim at the often close-knit relations between tech companies, particularly in Silicon Valley.

The Federal Trade Commission's ongoing investigation into interlocking boards of tech companies forced Google's CEO, Eric Schmidt, to resign from the board of Apple.

Another casualty of the FTC probe was Genentech CEO Arthur Levinson, who stepped down from Google's board. He had been doing double duty as a director for Apple and Google until the FTC started asking questions.

More recently, the decision by legendary venture-capital investor John Doerr to resign from Amazon.com's board was influenced by the FTC investigation, according to a person familiar with the matter. Mr. Doerr—who recently declined to comment — is also on the board of Google.