Chillin'Competition

It´s been reported today that Microsoft has lodged a formal complaint with the Commission. So far the news have basically reported what was said in a blog post published last night by Microsoft´s General Counsel, so we´re going to try to be the first ones going a little beyond.

I´ve already stated my views on many of the issues which the complaint presumably deals with, but I will add here some ideas (and insist on others). As usual, a disclaimer is in order:  my views are those of an outsider with no access to information other than that which is public.

This will, once again, be a bit lengthy, so, if interested, you can click here to keep reading.

– The complainant: Microsoft was clearly somehow behind the previous complaints lodged with the Commission, but it seems like it wants to personally take mainstage now. Microsoft learned how the intervention of a competition watchdog can affect the ordinary conduct of business, particularly in dynamically competitive markets, and is now willing to change roles and sit at the other side of the table. Brad Smith´s posts admits that some may find this move ironic:

“There of course will be some who will point out the irony in today’s filing.  Having spent more than a decade wearing the shoe on the other foot with the European Commission, the filing of a formal antitrust complaint is not something we take lightly.  This is the first time Microsoft Corporation has ever taken this step.  More so than most, we recognize the importance of ensuring that competition laws remain balanced and that technology innovation moves forward“. 

With the info at my disposal I tend not to share their concerns, as I did not share the Commission´s investigations against Microsoft neither (but I wasn´t writing here back then). Nonetheless, who can blame Microsoft? If I were them I would probably be doing exactly the same thing, using competition law as another competitive tool.

– Content, timing and presentation of the complaint: Microsoft´s General Counsel´s blog post  makes it clear that this complaint aims at enlarging the scope of the Commission´s ongoing investigation. Apparently it doesn´t “merely” refer to competitors being discriminated by search results or to exclusivity arrangements with advertisers, but rather focuses, more generally, “on a pattern of actions that Google has taken to entrench its dominance in the markets for online search and search advertising“.

The complaint comes right at a time where speculations on the Commission and Google being close to a settlement were growing. To the extent that it conflates a number of issues, not all of which had been raised before, the timing has been excellently planned:  the Commission now has to investigate the new allegations (any rejection decision will surely make the object of a very detailed appeal before the General Court), so, in practice, the Commission is now under much more pressure not to close the case so quickly.

(This is part of what I meant when I first said that this will be a never-ending case given Google´s rivals´ strenght and incentives to fight it before the Commission and in Court).

It also strikes me that there is a clear pattern of presenting allegations against Google. Unlike in many other cases, Google enjoys a tremendous and, I believe, well-deserved reputation amongst consumers. Its opponents know that, so anything written against Google nowadays starts by praising and complimenting them, repeating how cool they are, and only then move on to the harsh criticism (two examples: read Brad Smith´s blog post (see the link above) or Ian Forrester´s “Google: the benign monopolist”

– The case against Google: In the past I have stated here my views on the general case, on the allegations on discrimination of search results (Pablo Ibañez was the author of that one), and on Google´s preferential access to “orphan books ” pursuant to the Amended Settlement currently discussed in the US -which has now also been raised by Microsoft in the EU-(here and here).

Microsoft General Counsel´s post provides six examples illustrating their concerns, which are very useful in outlining the content of the complaint, and which go beyond what we´d dealt with in the past. I have no info on whether those additional allegations (restriction of other search engines and Windows phones access to youtube -is youtube an essential facility??- ; restriction of advertisers´access to their own data; exclusivity arrangements regarding the distribution of search boxes; and preferential acess to “orphan books”) can be proved or not, but even if they were, I believe that they could certainly be defended.

I would not address all of them here, at least today (mainly because (a) I don´t have enough information, and (b) I am not working on this case, but I have to work on others..).  Instead, let me focus on (i) what seems to me as an inconsistency at the core of Microsoft´s reasoning; and (ii) on the “big picture” of the case against Google.

– The inconsistency: The bottomline of the complaint, in Microsoft´s own words, is that “Google has engaged in a broadening pattern of walling off access to content and data that competitors need to provide search results to consumers and to attract advertisers“. 

Later on, Brad Smith recognises that the situation in the EU is “worse” than that of the US saying that  “[b]y the European Commission’s own reckoning, Google has about 95 percent of the search market in Europe.  This contrasts with the United States, where Microsoft serves about a quarter of Americans’ search needs either directly through Bing or through our partnership with Yahoo!”

Query: to the extent that the practices challenged by Microsoft are also carried out in the US, how can it be that Microsoft and Yahoo are able to compete in the US despite not having access to the content and data that they apparently would need to do so? 

Couldn´t it rather be the case that all companies can effectively compete in both jurisdictions and that the only difference is that the force of inertia against which Microsoft now has to fight (and which benefited it in the past) is greater in the EU? And in that case, would that constitute a legitimate ground for antitrust intervention? I understand both sides of this discussion, but allowing competiton authorities to intervene to correct the  alleged irrationality of inertia-driven consumers is akin to opening a Pandora´s box without knowing what that could give rise to.

– The Big Picture: As it´s happening in other dynamic markets with a tendency to concentration by virtue of network effects or economies of scale, the Commission observes that markets tip towards one or a few leading providers. Since it´s unable to carry out a reliable forward looking assessment,  it is afraid of what the future may bring (perhaps non-competition related concerns also affect this attitude), as well as of the fact that any ex-post intervention in such markets may come too late to undo any possible harm. Accordingly, what it does is to act with an ex-ante regulatory logic by lowering standards of intervention and adopting disproportionate remedies (aimed at “creating” rather than “restoring” competition) (for a very interesting piece on how some people in the Commission defend this view, see here)  Actually, the previous cases against Microsoft are a perfect example of such a pattern: standards were lowered (remember the disappearence of the “new product requirement” in the refusal to deal part of the first Microsoft case?), and disproportionate remedies were adopted (think of the ballot screen for browsers in the second, more recent, Microsoft case).

Frankly, I certainly don´t have the solution as to how competition authorities should act in these markets, but I don´t think this should be the way forward, particularly given that cases in markets with those features are increasingly more common.  Lowered standards will apply all accross the board, thus damaging competition law´s coherence and compromising competitiveness, and bad remedies are liable to do cause more harm than some business practices. I hope to be able to develop these thoughts in the future.

PS: Those interested on this pattern of intervention should definetely read Pablo Ibañez´s truly outstanding piece: ‘On the application of competition law as regulation: elements for a theory’, in Piet Eeckhout and Takis Tridimas (eds.), Yearbook of European Law 2010  pp. 261-306.