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Eric K. Clemons

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European Commission vs. Google: That's It? That's All You Got?

Posted: 07/18/2012 7:11 pm

While Google's executives initially offered a frosty response in public to the European Commission's position on its anticompetitive behavior, in private they must be celebrating up and down Google headquarters. They may even be willing to settle some or all of the claims against them. But if this is the best shot that the European Commission has, then settling, and then celebrating, remains their best option.

Let's take a look at Commission Vice President Almunia's four "concerns where Google business practices may be considered as abuse of dominance:"

1. Preferencing and Preferential Treatment of Its Own Offerings

First, in its general search results on the web, Google displays links to its own vertical search services. Vertical search services are specialised search engines which focus on specific topics, such as for example restaurants, news or products. Alongside its general search service, Google also operates several vertical search services of this kind in competition with other players.

In its general search results, Google displays links to its own vertical search services differently than it does for links to competitors. We are concerned that this may result in preferential treatment compared to those of competing services, which may be hurt as a consequence.

In other words, if Google's says its search is unbiased, it should be unbiased even when biasing is good for Google's other businesses. Thou shalt not lie, or bear false witness against they neighbor. This is the area in which Google appears most willing to back down. The Guardian notes, "If Google changes that, it will be a significant step, and show that it has been forced to bow to regulators." Nonsense! Compared to the rest of Google's behavior, this abuse is not central to Google's power or profits, and it should never have been permitted. Stopping it will end one abuse of Google's competitors, but it will not matter much to Google.

2. Stealing Content from Competitors' Offerings

Our second concern relates to the way Google copies content from competing vertical search services and uses it in its own offerings. Google may be copying original material from the websites of its competitors such as user reviews and using that material on its own sites without their prior authorisation. In this way they are appropriating the benefits of the investments of competitors. We are worried that this could reduce competitors' incentives to invest in the creation of original content for the benefit of internet users. This practice may impact for instance travel sites or sites providing restaurant guides.

In other words, even if Google finds a competitor's online user ratings, or lead paragraphs, or headlines valuable, it cannot directly copy them and then use them without permission. Thou shalt not steal.

3. Restricting Use of Competitors' Search Engines (Part 1)

Our third concern relates to agreements between Google and partners on the websites of which Google delivers search advertisements. Search advertisements are advertisements that are displayed alongside search results when a user types a query in a website's search box. The agreements result in de facto exclusivity requiring them to obtain all or most of their requirements of search advertisements from Google, thus shutting out competing providers of search advertising intermediation services. This potentially impacts advertising services purchased for example by online stores, online magazines or broadcasters.

In other words, although Google is powerful enough to impose arbitrary restrictions on its users that limit their use of other search engines, it cannot abuse its monopoly power in ways that violate competition law. OK, this is a bit more complex. We can all understand the 10 Commandments, and we can all agree that violating sections 8 and 9 of the 10 Commandments is morally wrong. We don't all understand Section 2 of the Sherman Act nearly as well, and it's a little more complicated to understand a "violation per se" of the Sherman Act, but limiting a client's ability to use a competing search engine would appear to be an illegal defense of monopoly power. This is illegal in the US under Sherman. It's illegal in the EU as well. Thou shalt not act illegally to defend a monopoly.

4. Restricting Use of Competitors' Search Engines (Part 2)

Our fourth concern relates to restrictions that Google puts to the portability of online search advertising campaigns from its platform AdWords to the platforms of competitors. AdWords is Google's auction-based advertising platform on which advertisers can bid for the placement of search ads on search result pages provided by Google. We are concerned that Google imposes contractual restrictions on software developers which prevent them from offering tools that allow the seamless transfer of search advertising campaigns across AdWords and other platforms for search advertising.

So, once again, although Google can design its technology to limit its users' ability to move their ability to move part or all of their campaigns and keyword programs to competing search engines, it still cannot abuse its monopoly power in ways that violate competition law. Once again, limiting a client's ability to move to a competing search engine would appear to be an illegal defense of monopoly power. And once again, thou shalt not act illegally to defend a monopoly.

But Look at What's Not Here!

OK, Vice President Almunia's statement of concerns is a start. And these abuses that have concerned the Commission have all been clearly documented elsewhere.

But look at what was not covered among the Commission's concerns:
There is no mention of Google's possession of monopoly power over search, or its abuse of bidders in keyword auctions through manipulation of the number of spots available for purchase, through manipulation of quality scores, or through manual manipulation of algorithm results.
• There is no mention of Google's actions to extend its monopoly into mobile search, or its subsidy of Android phones in order to strengthen its monopoly over traditional search
• There is no mention of Google's actions to extend its monopoly over search by bundling services like YouTube into the Android phone in ways that increase Google's attractiveness by leveraging or bundling additional assets in ways that other search vendors cannot match.
• There is no mention of Google's demonstrably criminal behavior in facilitating the circumvention of laws intended to protect consumers from defective products.
• There is no mention of Google's demonstrably criminal behavior in violating the privacy of citizens around the world, either when they were visitors to websites that use Google analytics, or when they happened to be online while a Google recording device drove by.

So that's it? That's all you've got?

Let's hope this is only the start of investigations in Europe.

Why Does This Matter?

I wrote a column almost a year ago, "Say it Ain't So, Joe": Of Google and Some Serious Misbehaving, describing Google's illegal actions in facilitating the illegal importation of counterfeit drugs into the United States and in facilitating the illegal importation of narcotics without prescriptions. I wrote a second column almost two months ago, "Say it Ain't So, Joe, Again, and Again, and Again ...": A Legacy of Continued Bad Behavior at Google; this described a continued history of misbehavior at Google. When I wrote the first column I never expected this to turn into an ongoing series, but I wrote a third column earlier this week, "Say It Ain't So, Joe, Again, and Again, and Again, And Again, And Again, And Again ...": An Economic Analysis of the Legacy of Continued Bad Behavior at Google. It now seems that Google's senior management team has decided that consent decrees, settlement agreements, legal commitments, and promises to regulators are no more binding on the firm's future behavior than social norms, legal codes, and promises to their users. If an action is profitable, Google will engage in it. If an action is profitable, after consideration of payments for fines, penalties, and legal fees, Google will engage in it. This may even appear to be good business.

When an American automobile manufacturer decided that payments for a few deaths from fiery explosions would be less expensive than recalling and repairing a defect in the cars' fuel tanks, massive punitive damages were assessed. The punitive damages were not imposed solely as punishment for a wrongful, painful death; the punishment was imposed to ensure that future business decisions placed higher value on victims who had been incinerated; it was expected that this would save lives in the future. Perhaps it would be best if the European Commission imposed penalties sufficient to alter Google's behavior and to protect European consumers and European businesses.

I really hope not to write additional columns in the "Say it Ain't So" series. If sufficient penalties are imposed on both sides of the Atlantic, Google executives will make business decisions that reflect the true cost of misbehaving,

 
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