Google CEO Eric Schmidt was on the board of Apple for three years and at one time it was said that they had a pact not to poach each other’s employees. They were always thought to be united in fighting a bigger enemy – Microsoft.

In 2007, however, Google released Android, a mobile phone operating system; while the iPhone runs on a propitiatory operating system developed by Apple. At first, this was was seen as primarily an attack on Microsoft and its Windows OS. Still, the handwriting was on the wall, and Schmidt resigned from the board of Apple a month later.

Then, in the July 2009 Google announced the Google’s Chrome OS, a web-based operating system meant for netbooks, and has more recently even announced its own “app store” that would directly compete with the Apple app store. With the launch last week of the iPad – essentially a high end netbook – it seems Apple now considers the Chrome OS a direct threat.

Now it has really come to a head. Apple Inc. CEO Steve Jobs reportedly verbally attacked Google Inc. at an employee meeting after rolling out the new iPad tablet computer last week. Wired reported that Google’s entry into the phone business with its Nexus One drew the ire of Apple CEO. They quoted attendees of the meeting in which Jobs reportedly let loose a tirade where he called Google’s “Don’t Be Evil” motto “bullshit” “We did not enter the search business, they entered the phone business,” it reported Jobs told his employees. “Make no mistake they want to kill the iPhone. We won’t let them.”

As reported in the New York Times, a spokesman for Alibaba, said executives at the company were “angry” because Yahoo appeared to follow Google in suggesting the Chinese government was behind the cyberattacks.  They issued a statement saying that Yahoo was “reckless” in supporting Google because they believed there was a lack of evidence that the attacks were supported by the Chinese government. 

Yahoo is one of the companies that was targeted in the attacks but the company declined to confirm that it was a victim. “The people with knowledge of the situation said that Google contacted Yahoo about the attacks before it publicized them. Google executives were dismayed that other companies were unwilling to publicly acknowledge the attacks, and they were particularly frustrated by Yahoo’s silence” the Times reported. 

Yahoo paid Alibaba $1 billion in 2005 and gave Alibaba control of Yahoo China in exchange for a 40 percent stake in the Chinese company. Yahoo’s investment in Alibaba has paid off in a big way for that company. Alibaba.com, a unit of Alibaba, went public in 2007 with a huge stock offering in Hong Kong and is now valued at $12.5 billion.  Jack Ma, the founder of Alibaba is a celebrity in China because of his success in forcing California’s Ebay to leave the Chinese market, and for taking over Yahoo’s China operations, as part of their billion dollar investment in his company. 

This was a huge amount of capital from a California company that was used to make Alibaba fantastically successful. Now that company is turning on very the people who helped it become what it is.  Is this a simple case of “sucking up” to the Chinese authorities?  Jack Ma is said to be famous for that, and some people even believe he is now milking the resources out of Yahoo so it eventually fails in that country. 

In any event, a consensus seems to be forming that this is a free trade issue.  If the Chinese government blocks Google or other American Internet firms – or forces them to leave that country, the the American Goverment should take the same action with Chinese Internet firms – and it seems like a good place to start would be Alibaba.

“Any decision made by Google will not affect Sino-U.S. trade and economic relations, as the two sides have many ways to communicate and negotiate with each other,” Chinese government spokesman Yao Jian told a news briefing in Beijing.

Well of course the two sides have many ways to communicate with each other – that is not the point. If one party to a trade agreement censors and blocks the content of the other party, then of course it should it should be a trade issue.  In the tit for tat world of diplomacy, if they block the content from one of our companies, then shouldn’t we block one of theirs?

California buys a huge amount of Chinese imports, but they don’t by nearly as many of our exports. One of our strongest industries in the movie industry – but only 20 foreign films are even allowed to be shown in that country each year. The rest of the movies we produce here are simply pirated (i.e. stolen) there, Can you imagine if we said to China, “we will only allow the products from 20 of your manufacturers in our country each year”. Now they are blocking, and possibly even attacking, one of California’s other great industries – Internet services.

It is not at all disrespectful to China to expect our government to respond to blocking and censorship with reciprocal actions that affect Chinese companies. That is how a mature trade relationship works. Mr. Yao Jian has it wrong. This is exactly the kind of thing that should affect trade and economic relations – this is a trade issue.

UPDATE: Evidence that the Obama Administration may be looking at these blocking and censorship issues from a more sensible “fair trade” perspective, might be found in a speech Secretary of State Clinton plans to give on the issue on Thursday. From a column by Andrew Ross in today’s San Francisco Chronicle:

“The Internet is integral to the international trading system,” said Ed Black, CEO of the Computer & Communications Industry Association, who is scheduled to meet with Clinton on the matter this week. “China cannot limit the free flow of information and still comply with its international trade obligations.” “You can’t lecture the Chinese on human rights,” said another industry executive. “You won’t get anywhere with that. So, it’s best to treat it as a trade issue.”

Should the administration go that route, it will enlarge the can of U.S.-China worms already growing around the latter’s increasingly protectionist economic policies. “Greater control of the Internet is part of a wholesale tightening up of the Chinese economy,” said an executive with a high-tech trade organization that is also due to meet with Clinton. “It’s about protecting domestic industries and pushing indigenous innovation. But they’re doing it in blatantly discriminatory, brazenly unfair ways.”

Google disclosed in a blog post that it had detected a “highly sophisticated and targeted attack on our corporate infrastructure originating from China.” Further investigation revealed that “a primary goal of the attackers was accessing the Gmail accounts of Chinese human rights activists,” Google said in the post written by Chief Legal Officer David Drummond.

Google did not specifically accuse the Chinese government. But the company added that it is “no longer willing to continue censoring our results” on its Chinese search engine, as the government requires. Google says the decision could force it to shut down its Chinese site and its offices in the country.

It’s unclear how much of a blow to its business Google would suffer by pulling out of China. The country has the world’s largest population of Internet users but research firm Analysys International said last year that Baidu.com handled 62 percent of Web searches in China compared with 29 percent for Google.

Update, according to the New York TimesGoogle linked its decision to sophisticated cyberattacks on its computer systems that it suspected originated in China :

Those attacks, which Google said took place last week, were directed at some 34 companies or entities, most of them in Silicon Valley, California, according to people with knowledge of Google’s investigation into the matter. The attackers may have succeeded in penetrating elaborate computer security systems and obtaining crucial corporate data and software source codes, though Google said it did not itself suffer losses of that kind.

While the scope of the hacking and the motivations and identities of the hackers remained uncertain, Google’s response amounted to an unambiguous repudiation of its own five-year courtship of the vast China market, which most major multinational companies consider crucial to their growth prospects. It is also likely to enrage the Chinese authorities, who deny that they censor the Internet and are accustomed to having major foreign companies adapt their practices to Chinese norms.

The staff cuts include 1,000 full-time, temporary and part-time workers, plus some open positions that will be left unfilled. They come on top of 125 dismissals earlier this year by the San Jose company, whose core online marketplace is slumping in the face of stiff competition from Amazon.com and users’ growing preference for shopping for products at a fixed price rather than by auction.

John Donahoe, eBay’s chief executive, said that reducing staff will “make us a nimbler, more efficient organization.” He acknowledged that the economy and an unfavorable foreign exchange rate are hurting the company’s finances, although the cuts largely are prompted by internal problems.

Imran Kahn, an analyst with JPMorgan, said in a note to investors, “We believe the cuts could help position eBay to more efficiently weather the current challenging economic environment.” EBay expects upfront the job reductions to will cost $70 million to $80 million, which it plans to record in the fourth quarter.

Investors have been pessimistic about eBay for some time, driving its shares down and prompting calls for management to make cuts. Executives have launched a plan to revive the business by emphasizing bigger retailers in the marketplace along with changes to search and user feedback that have proved unpopular with many sellers.

EBay’s acquisition of Bill Me Later of Timonium, Md., is for $820 million in cash and $125 million in outstanding options. By combining forces, eBay is hoping to bolster its PayPal online payments service, which already dominates the industry. Bill Me Now allows users to buy online, but bills them up to 30 days later. At that time, they can pay immediately or take a loan… In addition, eBay plans to pay $390 million in cash to expand its online classifieds business by buying Danish classified site dba.dk and auto site bilbasen.dk.

Donahoe acknowledged that, given the bleak global environment, it might seem counter-intuitive to make major acquisitions. But he emphasized that eBay’s strong cash reserves – it has nearly $4 billion in cash and short-term investments in June – puts it in a position of strength. “In times like this, stronger companies get stronger, and that’s exactly what these acquisitions will help us do,” Donahoe said.

The cutbacks, the biggest ever at eBay, are yet another example of Silicon Valley giants shedding workers amid the economic slump and potentially foretell a stark job environment in the technology industry. Hewlett-Packard and Nvidia both have recently said they plan to pare their workforces, and Yahoo is in the process of reviewing its organization to make it more “fit,” as CEO Jerry Yang put it.

Are you a member of Facebook.com? You may have a lifetime contract. Some users have discovered that it is nearly impossible to remove themselves entirely from Facebook, setting off a fresh round of concern over the popular social network’s use of personal data.

While the Web site offers users the option to deactivate their accounts, Facebook servers keep copies of the information in those accounts indefinitely. Indeed, many users who have contacted Facebook to request that their accounts be deleted have not succeeded in erasing their records from the network.

“It’s like the Hotel California,” said Nipon Das, 34, a director at a biotechnology consulting firm in Manhattan, who tried unsuccessfully to delete his account this fall. “You can check out any time you like, but you can never leave.”

It took Mr. Das about two months and several e-mail exchanges with Facebook’s customer service representatives to erase most of his information from the site, which finally occurred after he sent an e-mail threatening legal action. But even after that, a reporter was able to find Mr. Das’s empty profile on Facebook and successfully sent him an e-mail message through the network.

In response to difficulties faced by ex-Facebook members, a cottage industry of unofficial help pages devoted to escaping Facebook has sprung up online — both outside and inside the network. “I thought it was kind of strange that they save your information without telling you in a really clear way,” said Magnus Wallin, a 26-year-old patent examiner in Stockholm who founded a Facebook group, “How to permanently delete your facebook account.” The group has almost 4,300 members and is steadily growing.