Cry "Havoc!" and let slip the dogs of war!"
EU's Competition Commission, under Commissioner Margrethe Vestager, has filed its first complaint against Google. If you work for Google, live in a bubble, or get all of your information from Google sources, this may come as a bit of a surprise. The rest of us have been watching revelations of dirty tricks against large and small competitors, abuse of intellectual property rights laws, abuse of privacy for both users of Google services and anyone who interacts with users of Google services, and wondering how much longer it would take before someone, somewhere, said "Enough!"
Google has committed so many abuses, over so many years, that it has hard to know where the European Commission should start. And, I believe, once the filing of complaints and litigation start, there will be additional complaints. There will be more complaints, in more jurisdictions. Eventually even Google's cozy ties with the current administration in Washington will not be enough to protect it, and there will be litigation in the US as well.
This post can be used as if it were a program for a sporting event, highlighting what to watch for as the game unfolds. Expect to see more complaints and more charges, in the EU, in Japan, in Australia, in Latin America, and eventually in the United States. Each section below describes a "play" that the European Commission and other jurisdictions may eventually execute.
1. Actions by Google that are clearly illegal abuses of monopoly power
Google has used its monopoly power to harm competitors. Moreover, as Google extends its reach beyond search into targeted ads, sales of merchandise, sale of tickets for sporting events, and reservations services for air travel and hotels, it will have more competitors. As it competes in more areas, its abuse of search will become even more visible. There is a clear record of Google placing its own offerings above those of competitors. The previous proposed settlement did not go nearly far enough. It allowed Google to continue to place its own offerings above that of its competitors, as long as it offered its competitors the opportunity to purchase ads, clearly marked as ads, at prices determined by Google. This is nonsense. The current Commission has offered no such agreement, and has complained about Google's abuse of competitors in comparison shopping.
Expect to see the Commission insist that Google use the same algorithms to rank its own services that it uses to rank competitors' offerings. Google already operates in several other markets, and if unchecked will expand into still more. Over time, expect to see limitations to Google's ability to extend into new service offerings when they compete with existing companies. Google's only advantage when it expands into new lines of business is the willingness to cheat in search placement to promote itself. When this advantage is removed, they will stop being able to encroach on legitimate existing businesses. Expect to see the Commission object to Google's preferential treatment of more of its own offerings.
2. Actions by Google that are clearly illegal attempts to extend its monopoly power
Google has taken its near monopoly on search in Europe and combined it with its near monopoly on cell phone operating systems, to extend its monopoly into targeted ads. The tops lines on search are labeled as if they were ads but they are not. They are hijacked search results. This is quite separate and distinct from targeted ads, where an advertiser sends email and text messages to a user based on his or her recent activity. You email a friend about urgently needing to get to Chicago? You get an email suggesting flights. You text a friend about being hungry and wanting Thai food? Google has the capability to send you a text message back about a Thai restaurant really close to where you are, offering you a discount. By combining users' search history with their recent activity from their Android phones and GPS information from these phones, Google has created a new monopoly on highly informed targeted advertising. This is harder to identify their abuse of their power in search, and therefore harder to stop.
Expect to see the Commission approach this more slowly, as complaints are added during the years it takes to resolve the current complaints. Targeted advertising does not appear to be a monopoly. Highly informed targeted advertising, allowing the advertiser to know how urgently the buyer wants or needs something, and allowing the advertiser to set prices that approach the buyer's maximum willingness to pay, is unique. Over time, as the Commission gains more information, it may stop Google's practices with highly informed targeted ads. This is a monopoly. As importantly, it can be used to increase the prices that consumers pay, and thus can harm consumers. Expect to see the Commission file complaints about targeted ads.
3. Actions by Google that are clearly illegal attempts to defend its monopoly power
Google controls search, and controls what users can find. As importantly, Google controls the Android desktop of every Android cellphone and controls what software users are allowed to see. Google has alleged that Android is an open device. Recent court papers indicate that the Mobile Application Distribution Agreement (MADA) allows Google to determine what can be preloaded onto an Android device, and where it can be preloaded on an Android device. Mapping software is a striking example. Any phone manufacturer that wants to be compliant with the Android standard has to load Google Maps and no competitors' mapping programs. Mapping is critical -- it is where GPS data, search, and ads all come together. Google considers any cellphone manufacturer who "cheats" and loads competitors' mapping programs to be in violation of the MADA, and as such Google denies them access to their App Store, Google Play. Without the app store, a phone cannot be tailored to the requirements of tis owner; without the app store, any smart phone is really just a dumb phone.
This one is easier. Expect to see the Commission figure this out really quickly. Expect to see every aspect of the MADA challenged that is not directly and provably related to protecting the integrity of the Android Platform. Expect to see Google's right to punish cellphone manufacturers severely restricted, or even eliminated; if a phone runs an Android operating system, it will have access to Google Play. Expect to see an entire new set of complaints concerning the Android operating system.
4. Actions by Google that violate intellectual property rights law in order to extend and defend its monopoly power
When Google wants something they take it. When Google launched its own review sites they had no content. Why would anyone go check out reviews on a site that had no reviews? Why would anyone post a review on a site where no one went to read reviews? It's hard to compete with Yelp when there is no reason for anyone to abandon Yelp. But Google was able to offer Yelp a compelling choice: let us read your material and copy it while you die a slow death, or ban us from copying your material, in which case we will drop you from our search results and you will die immediately. Google offered similarly unattractive choices to EU newspaper editors who complained about Google's theft and republication of their content.
I expect, and truly hope, that the European Commission will provide meaningful relief to every website owner and every content owner whose content has been plundered by Google. Google may not be required to pay damages. But future plundering will be stopped.
5. And, of course, actions that are not yet illegal but soon will be!
This one is complicated. In the 1880s America needed a new approach to regulating railroads and introduced the Interstate Commerce Act (because network effects were new). America needed to regulate giant manufacturing firms, an passed the Sherman (Antitrust) Act (because massive economies of scale were new. Less than 25 years later America needed to figure out what to do with AT&T and in 1913 the Kingsbury Commitment created the world's first regulated private monopoly (because with early 20th century technology telecommunications companies needed to be monopolies, and American regulators knew that monopolies could not be trusted). Online search is another, newer anomaly. Technically, search is a mandatory participation third party payer market, which I have described in a previous post. In these markets, competition does not work to limit prices, and something else is needed. But this will take a long time to figure out, and it will take even longer to generate a consistent regulatory response.
Because this one is complicated, expect it to take longer to resolve. Ultimately, Google will be offered a choice, the sort of brutal choice that it has offered to its own competitors for years. It will be offered the choice to be a regulated utility, with limited but guaranteed rates of return, or it will be banned from Europe. It will accept the offer it is given. Google does not create value, it harvests value. That sounds harsh, but it is true. The choice is not between having Google or losing search; the choice is between having an unregulated Google, or having a more cost effective and more honest search engine. If Google refused to cooperate with the EC and were banned from Europe it would take very little time to replace it, and there would be no degradation in the quality of search results. You may not believe it, but Google knows this to be true. Expect to see a fundamental reexamination of Google's business model.
6. What comes next?
Google will of course counter every complaint the European Commission presents. Its arguments and responses to regulators and the courts have worked inexplicably well for years, forestalling any meaningful restriction on its activities. There is little reason to expect any changes in their strategy.
Expect to see Google claim that since there is no charge to consumers for most of their services, there is no possibility of harm to consumers. If you think regulators uniformly accept that, try handing out free cigarettes in a schoolyard. Expect to see Google claim that they don't steal content or remove it from the net, they just move it from the authors' pages to their own pages. If you think the authorities uniformly believe that, try moving valuable works of art from rooms in Google executives' homes to rooms in your own home. Expect to see Google claim that since their keyword pricing is determined by auctions it is based on value that Google creates. Expect Google to claim that choice is only a click away, and that no company is forced to participate in keyword auctions. Expect Google to claim that Android is open, and any hardware vendor can create any product using Android. Expect a lot of nonsense, half truths, and worse. And expect a number of independent scholars, not just me, to refute each and every claim Google offers.
I have been writing about Google and its antitrust abuses since March 2009. It's about time that formal charges have been filed.
"Let the wild rumpus start!"
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