THE BLOG

Search, Innovation, and Antitrust

11/10/2011 10:59 am ET | Updated Jan 11, 2012
  • Stephen D. Houck Former Antitrust Bureau chief, New York State Attorney General's Office

Stephen D. Houck served as lead trial counsel for the 20 state plaintiffs in the government's lawsuit against Microsoft while he was chief of the Antitrust Bureau for the New York State Attorney General's Office from 1995 to 1999. He is an advisor to Google.

The core premise of antitrust law is that the best way to help consumers is through competition -- far better than through government intervention in the marketplace. Innovation is highly valued not only because it leads to new products and increased economic activity, but because it is an important means of competition in its own right. Innovation puts pressure on all competitors to improve their products and price them fairly.

Two main principles emerge from antitrust cases dealing with innovation. The first is that courts give considerable deference to innovators. That's because the courts recognize that progress is impossible without innovation and that innovation is a difficult, risky process -- one that the law should nurture, not discourage. Judges know that they are not well-equipped to second guess decisions about technology and product design.

The second principle that emerges from the cases is a healthy skepticism about complaints made by competitors. That's because the courts recognize that the interests of competitors and consumers are not necessarily aligned. On the contrary, innovations -- particularly those most attractive to consumers -- can make life difficult for competitors.

It would be bad public policy to constrain innovation because competitors have a hard time keeping up. And it would be really bad public policy to prevent a company from trying to make its products better simply because that might hurt a competitor's business. As the courts frequently say, the goal of antitrust law is to protect competition, not competitors.

In the 1960's and 70's, there were a number of challenges to IBM's dominance of the computer industry. The challenges were unsuccessful because the courts said that IBM was free to alter its products even though other businesses might be hurt as a result. For example, in a case brought by IBM's competitor Calcomp, the federal appeals court in California said: "IBM ... had the right to redesign its products to make them more attractive to buyers ... It was under no duty to help [its competitors] survive or expand."

Similarly in the 1970's and 80's, there were a number of unsuccessful challenges to Kodak's dominance of the photography industry. In a case brought by Kodak's competitor Berkey Photo, the federal appeals court in New York stated: "Even a monopolist ... must generally be responsive to the demands of consumers, for if it persistently markets unappealing goods, it will invite loss of sales ... If a monopolist's products gain acceptance in the marketplace, therefore, it is of no importance that a judge or jury may later regard them as inferior, so long as that success was not based on any form of coercion."

Neither IBM nor Kodak is dominant any longer. Each lost its position as the result of the normal give and take of the marketplace -- without government regulation or intervention of any kind. IBM failed to recognize the importance of the PC operating system and mistakenly -- very mistakenly -- ceded that market to Microsoft. Kodak, now on the verge of bankruptcy, failed to appreciate the shift in consumer preference from film to digital photography.

Google is no less susceptible to the impact of market forces. It didn't even become public until 2004 and is much less established than IBM and Kodak were when they were the subject of antitrust challenges. Google succeeded by displacing existing search engines with many more users -- like Yahoo and Lycos -- for one reason: it had a superior product.

Without the freedom to improve its products through innovation, Google too will wither and eventually die. It will lose market share rapidly if consumers believe there are better means to get the information they want -- whether by using other search engines like Bing, social networks like Facebook and Twitter, or entirely new products like Apple's voice-activated Siri. It is even easier for Google's users to switch to other products than it was for IBM's and Kodak's customers. Not only are there numerous alternatives readily available on the Internet free of charge, but many consumers already have them installed on their PCs and other devices.

Google's critics are urging antitrust enforcers to prevent it from adding new features like Local and Product Search based on a misplaced concern about the impact on other businesses. But preventing Google from giving users what they want -- through features similar to those provided by its competitors -- is bad antitrust policy. It also illustrates how government meddling in the marketplace, even though well-intentioned, can lead to results that are profoundly anti-consumer.

A number of courts, from New York to Ohio to California, have already dismissed antitrust lawsuits brought against Google by its competitors. The courts have set a very high bar before they will take the extraordinary step of mandating government intervention in the market -- particularly government intervention that could have a negative effect on innovation.