Collusion in the Tech World

In my September 19 post (Collusion in the eBook World), I discussed how Steve Jobs of Apple formed a cartel with book publishers to raise the price of eBooks.

A resulting lawsuit found that such collusion had occurred, but the price of eBooks has risen smartly anyway, perhaps because there are now only three sellers -- Amazon, Barnes&Noble and Apple -- who have not much incentive to compete on price.

Now another anti-competitive collusion has been acknowledged, and the only arguments are over the damages, which seem quite low given the the losses suffered by the plaintiffs.

The Market for Tech Employees

Earlier this year, Apple joined Google, Intel and Adobe in a $324 million settlement regarding collusive hiring and salary practices.  Lucasfilm, Pixar and Intuit reached an earlier settlement on the same complaint.

What the tech companies were doing was agreeing not to poach each other's employees and to keep pay raises within limited bounds.

The complaining class was huge -- 64,000 workers -- and estimates of their lost wages ranged as high as $3 billion.  In addition, the tech companies could have been assessed triple damages, $9 billion,  had they lost their case at trial.

The New York Times estimated that the employees' attorneys -- the Lief Cabraser Heiman & Bernstein and Joseph Saverin law firm -- could collect "as much as $75 million in fees" from the settlement.

Recently a federal judge has thrown out the settlement, saying it is too low given the precedent in the earlier Lucasfilm-Pixar-Intuit agreement.  She says the tech companies should pay at least $380 million.  Even if the settlement amount is increased substantially, the stiffed employees will receive trivial settlements, symbolic maybe but certainly not significant.

The Complaints

Here are some nuggets out of that lawsuit, as reported by Mark Ames of PandoDaily, a blog about the tech industry.  (Go to the site for his very good, detailed rundown; it's called Techtopus.)

In 2005, after Google had begun recruiting some Apple employees,  Apple CEO Steve Jobs sent an email to Sergey Brin, the Google cofounder, saying this:

     "if you hire a single one of these people that means war."

Instead of telling Jobs to take a hike, Brin ordered a halt to recruitment of Apple employees until an agreement could be worked out.  By February a member of Apple's board who was also a senior advisor to Google emailed Jobs that Google's chief executive "got involved and firmly stopped all efforts to recruit anyone from Apple."

The usual incentive used to hire a valuable employee away from another firm is to offer more pay.  Apple and Google didn't want compensation costs to go up; the other named companies joined in the collaboration, which disadvantaged all their employees.

At his death, Jobs' estate totaled $10.2 billion.  Brin's net worth is estimated at $30 billion.

Between 2005 and 2010, Apple revenues grew from $13.9 billion to $63.5 billion.  In the same period, Google's revenues grew from  $6.14 billion to $29.3 billion.

Currently, Apple and Google together hold at least $200 billion in cash.  If they had paid their employees more -- even the $3 billion the lawsuit claimed against all the tech companies -- Apple and Google would still have more cash than ways to invest it.


Tech Salaries

The collusion among tech companies likely has much to do with the fact that tech salaries increased slowly between 2000 and 2010, a period in which demand for tech employees increased substantially.

Anyone who has taken an economics course gets the point.  Scarcity in a market with increasing demand tends to bid up the prices for products or, in this case, tech workers.  As the prices rise, more products or workers enter the market -- more people train to do tech jobs.  Over time, the market equalizes.

A tech job search company, Dice, said the average pay for tech jobs last year was $87,800, up 2.6 percent from 2012.  After inflation, the raise is less than $1,000. This is lot of money compared to what most people make, but it would be substantially higher if there were a true market for talent in the tech industries.