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Relaxing whilst doing Competition Law is not an Oxymoron

Microsoft v. Google – Clash of the Titans

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On Behalf of the Antitrust Community, A Big Thank You – Antitrust law professors should be grateful to Microsoft (hereafter, “MSFT”). As a repeat offender of the competition laws, MSFT has provided scholars with loads of research and educational material for the past 20 years. Now, since yesterday, MFST is trying to turn the tables. In its complaint against Google, MSFT seeks to endorse the role of the victim of anticompetitive conduct. Food for thought in upcoming lectures, articles, and so on.

My Initial Reaction, and the Timing of MSFT’s Complaint – I have on several occasions criticized the Commission’s MSFT decisions (and some might have thought that I had a tiny bias for the Redmond giant). Given that I try to be am consistent with myself – and that I do not, or no longer, work in a law-firm advising one of those firms – I’ll be blunt: from a legal perspective, yesterday’s complaint against Google looks fragile. Its chief, and maybe sole merit is to throw some mud at Google in the press, at a moment when (i) Google has been reported to be close to a settlement with the Commission; and (ii) Google has suffered a major setback last week, when its settlement with US publishers and authors was annulled by a NY judge.

The Essential Facility Allegations – For this first post on the MSFT complaint, let’s focus on two of the new allegations described in MSFT’s General Counsel’s post. The first couple of allegations involve a conventional refusal to supply case, with input foreclosure effects. Google is a vertically integrated operator with upstream activities (media content) and downstream interests (search, mobile phones, etc.). The complaint focuses on the media content which Google provides through Youtube. Through a range of technical measures (e.g., refusal to disclose the site map of Youtube which prevents indexing), Google would allegedly restrict rival search engines and mobile phones’ access to Youtube content (e.g. indexing of Youtube links on Bing would not be satisfactory). Since Youtube content is an essential input for rival firms downstream, Google’s conduct would lead to foreclosure effects. This scenario has been described in the December 2010 Opinion of the French Competition Council at §313.

Smartphones and Search Engines are Multifunctional Products – I have my doubts on those allegations. Remember: three cumulative conditions must in principle be met to prove an unlawful refusal to deal under Article 102 TFEU. The first of them involves proving that the input is “indispensable for rival firms to operate in the downstream market. On cursory examination, this condition is unlikely to be met in the present case. This is because Youtube content represents (i) only a tiny share of what end-users look for on the web; and (ii) one of the very many parameters which buyers consider when they purchase smartphones. Rival search engines/phone manufacturers foreclosed from access to Youtube may still compete with Google out of search efficiency on other types of data (news, blogs, whatever). Similarly, rival smartphone manufacturers may still compete with Google’s Android phones on other types of apps, on genuine technical performance (screen, battery, etc.), and so on. Search engines/smartphones are multifunctional products. As such, they can operate viably around the content function – as premium as it may be – provided by Youtube.

Replicability? – In addition, the indispensability condition is not met where the firm requesting access can replicate the alleged essential facility, or start its own production of the alleged essential input (e.g, through investments or upwards vertical integration, for instance). Here again, one should not forget that the financial costs required to create a database similar to Youtube are not that significant. This is because content is posted primarily by users, and those do not have to pay for this. The crux of the matter for a new entrant thus lies in attracting users to the media platform and incentivizing them to upload their content. And to do this, the only thing needed is an ergonomic platform and, first and foremost a nice and original idea. Back in the day, Youtube had it, Microsoft not. Tough luck.

Magnitude of the Alleged Unlawful Conduct – To prove an abuse, one must also establish that the conduct has anticompetitive foreclosure effects. On this, it must be stressed that Youtube belongs to the list of websites which most workers cannot visit during day-time. Hence, access to Youtube content is irrelevant to many of the Internet searches made across the world during working hours. Rival search engines that do not index any Youtube content can thus perfectly provide adequate search functionalities to worker, and have thus a lot of space to expand on the market. If there’s a foreclosure effect, it is likely to be limited to a fraction of the searches made on a daily basis.

Caveat – Of course, all of this remains subject to further discussion, but those are a few preliminary ideas that sprung to mind yesterday in reading the press release. I will try to post more on the other allegations in upcoming weeks.

A Wish – To conclude, let’s just pray that MSFT stays in business for the next years. Should MSFT be forced off the market through anticompetitive tactics, many antitrust scholars would face dramatic input foreclosure issues.

A Weird Coincidence – The MSFT complaint comes timely. A day after I published with my assistant a paper entitled “Back to Microsoft I and II – The Art of Secret Magic”. See here for a link to the paper (http://jeclap.oxfordjournals.org/cgi/content/abstract/lpq080?
ijkey=dJNPpOPfKQ5FcGd&keytype=ref
)

Press Coverage – I am quoted in a Bloomberg report yesterday. See here.

Written by Nicolas Petit

1 April 2011 at 4:57 pm

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