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Archive for December 10th, 2010

European Commission vs Google

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As anticipated, we will be devoting a series of posts to the investigation initiated by the Commission following allegations that Google discriminates against vertical search pages to the benefit of its own content.

The Commission’s announcement that it was formally initiating an investigation spurred all sorts of reactions. See here for Google´s reaction on its own blog and here for Microsoft´s.

I´m unfortunately not involved in the case, so I will express myself with no constraints. It will nevertheless be extremely interesting to hear from someone in the opposite situation: hopefully some of our colleagues in the blogosphere who are involved in it will eventually comment on the case.

Here are some general impressions which introduce various topics that we´ll be discussing in the coming weeks:

The inevitability of competition law: It was probably inevitable that Google would be facing such legal threats given its position as the de facto gatekeeper of the Internet, even if it has achieved its position via “superior product, business acumen or historic accident” or how we, more laconically, say here “competition on the merits”. A company certainly does something right when its name becomes a verb.

It was indeed predictable that antitrust authorities wouldn’t resist the temptation to act against them (in antitrust law, as in the laws of gravity, mass increases attraction).  In fact, in a short period of time Google has faced investigations regarding its advertising agreement with Yahoo!  (which could not be implemented precisely as a consequence of the antitrust concerns); the existence of interlocking directorates with Apple, and the GoogleBooks project. For my comments on the last two see here and here   

In a sense, the investigation might even be good news for Google, since it affords it the chance to prove once and for all that it does not engage in unlawful behavior. Moreover, and in the case that Google did discriminate, the competition community would be provided with a great opportunity to shed light on the status of discriminatory practices under EU competition law and to make clear that not all discrimination is illegal. However, I´m also afraid of the truth that may lie in the aphorism “big cases make bad law”.

An attack against U.S. companies? Some have, once again, argued that this investigation is another illustration of the fact that U.S. firms constitute the Commission’s favorite target. Against such contention, one should note that also the complainants in this case have rather strong links with the US… If anything, what the investigation confirms (once more) is that the European Commission has certainly taken the lead, and a much harder stance,  in the prosecution of unilateral conducts.

An anti-Google alliance?-. I was told this summer that several law firms in Brussels were closely working together with the aim of putting pressure on Google on as many angles as possible. If true, is this their first success?

If you can´t beat them..sue them! What this case does illustrate is that the resort to antitrust/competition law has certainly become one of the preeminent competitive tools at the service of competitors willing to obtain on a “court” what they weren’t able to do on the marketplace. Surely Microsoft learned this through its own suffering.

Market definition-. Last week we were discussing market definition teasers: what about online search advertising vs online advertising? what about online search vs a much wider content search market?

Is Google really dominant? The relevance of scale/network effects-. As in most major case of the past few years, allegations on the existence of network effects  seems to instantly turn on competition watchdogs. Once again, a positive externality is viewed as a negative market failure justifying antitrust intervention and the instrumentalization of remedies in order to pursue regulatory goals  Furthermore, can there be a dominant position as a result of network effects when, as often reminded by Google, “competition is just one click away”? To what extent is antitrust intervention in network/two-sided markets driven by old reflexes and insufficient understanding?  This stuff (which is of particular interest to me) will also be covered on an specific post.

Should/ can we require neutrality from dominant companies? The conditions under which a dominant company is required to grant non-discriminatory access to its competitors under EU competition law are extremely narrow. There´s much to be said on this, but we leave the floor to Pablo Ibañez, a very good friend and one of the most brilliant and promising competition scholars, currently at LSE.

How can discrimination be proved/ remedied? Proving that Google´s algorithm is discriminatory appears to me like a herculean task. Not everyone sees this way, though (see here). As Nicolas mentioned on his post below, it is most likely that the Commission will be aiming for commitments on the part of Google, in which case it will be freed from this task. However, how could a commitment resolve the Commission’s doubts as to the existence of discrimination? Could we end up with another “must carry” remedy pursuant to which Google should advertise and link competitor search portals on a prominent part of its results page? Come on.

In sum, and in my view, the investigation implies departing from the Commission´s stated priorities when, moreover, there is no clear dominant position; there is no abusive conduct; how Google harms consumer welfare is certainly hard to see; and there does not seem to be an adequate remedy (which in itself should be an indication of the lack of a problem).  A prediction: the Commission will most likely shelve the proceedings, the decision will be appealed by the complainants -who have the incentives and the means to go forward with this-, and we´ll find ourselves before another long legal battle before EU Courts…

*Sources: Every comment  used for writing this post -both in favor of and againts Google- was  found through Google.  Something tells me that the Commission´s staff and, I would bet, the complainants too will resort to Google in order to obtain much of the information they will use in the course of the case (and eventually so would the Judges).

(Image possibly subject to copyright).

Written by Alfonso Lamadrid

10 December 2010 at 7:13 pm