Monday, May 21, 2012

Is there a basis in antitrust law for requiring ‘neutral’ search results - Comments of Allen Grunes

Posted by Allen Grunes (Brownstein Hyatt)

As we get closer to the Federal Trade Commission making a decision on its Google investigation, both the FTC and Google have been sending public signals to each other. Last month the FTC retained an outside trial lawyer, Beth Wilkinson, signaling that it was serious about the possibility of litigating. The parallel to DOJ retaining David Boies to litigate the Microsoft case was clear, unmistakable, and probably intentional.

In an interesting twist, Google has responded with a new wave of scholarship attacking the legal bases of a possible FTC action from a variety of angles. It is remarkable to note the number of law professors who are now doing research and writing articles “supported by Google.” The law professors Google has financially supported are on the right, the left, and the center of academic antitrust.

I bring this up because, at least in my experience, it is a novel tactic. It reminds me of the massive lobbying effort that AT&T undertook in connection with its attempted takeover of T-Mobile. Remember the 1,500 cupcakes AT&T delivered to the FCC before the merger was announced? Former FCC Commissioner James Quello apparently once said: “If you can’t eat their food and drink their booze and still vote against them, you shouldn’t have this job.” Google has added a scholarly twist – and in that way, perhaps the strategy is typically Google. So I’ll update the Quello comment: If you can’t read their law review articles and still vote against them, maybe you shouldn’t have this job.

Is there a basis in antitrust law for requiring “neutral” search results? Everyone knows that Google’s mantra is “Don’t be evil.” Few people know what it means. In their 2004 IPO letter, Google’s founders have a section titled “Don’t be evil.” That section stresses the importance of a wall between ads and search results. Ads are to be relevant and clearly labeled. Search results are to be unbiased and objective, and not for sale. “This is similar to a well-run newspaper” the founders’ letter says.

And indeed, the comparison to a well-run newspaper is apt. Google is an advertising-supported media business, much like radio, television and newspapers. Only Google’s product is search results, not journalism or television programs.

From an antitrust context, two characteristics of media markets may have something to tell us. First, advertising-supported media are two-sided markets. The more viewers, listeners or readers you have, the more valuable you are to advertisers. The converse is also true. As you lose audience, you lose advertisers. As you lose advertisers, your product declines and you lose audience. In the newspaper industry, that is called the “death spiral.”

Second, to quote Justice Frankfurter in the Associated Press case: “Truth and understanding are not wares like peanuts or potatoes.” The news and information businesses are affected by the public interest. In that same 2004 IPO letter, Google’s founders recognize that searching and organizing the world’s information “is an unusually important task” that should be carried out by a company that is “interested in the public good.” Why? Because “a well functioning society should have abundant, free and unbiased access to high quality information.” That is an almost perfect statement of the importance of Google as a media business to the marketplace of ideas. Maurice Stucke and I have argued elsewhere that more antitrust enforcement, not less, is appropriate in such a case. The basic insight comes from Associated Press, this time from Justice Black: “The First Amendment, far from providing an argument against the Sherman Act, here provides powerful reasons to the contrary.”

With these two insights about media markets, let’s come back to the question of whether there is a basis in antitrust law for requiring “neutral” search results.

It is difficult to say what a truly “neutral” search result would be, and it is true that no one has a right to appear at a particular place on Google’s search results page – say first, or second, or tenth, or eighteenth. But I don’t think that is the right question. Rather, the question is whether there is antitrust significance if Google in fact deliberately (and without justification) demoted search results either individually or in the aggregate.

And here I think that the answer is yes.

Consider the Microsoft decision. Favoring your own products or services, as Microsoft did with Explorer, is not enough to show monopoly maintenance. After all, Internet Explorer users could still download Netscape, so in that sense competition was just “one click away.”

The necessary next step has to be some affirmative conduct to shrink your would-be rival’s share. That was a critical element to the D.C. Circuit in Microsoft. We know how Microsoft did it, according to the court: by conduct including restrictive agreements with third parties and deception of developers. What are some of the possible parallels?

In a two-sided market, scale comes from two related things: audience and ads. In the Internet world, that means hits and ads or other revenue sources. Stop an emerging competitor from getting enough hits, and you make it less valuable to advertisers or business partners. Stop it from getting ads (or other revenue) and it won’t grow. That is the newspaper “death spiral.”

So think Lorain Journal, updated. Recall that in Lorain Journal, the newspaper refused to deal with advertisers who advertised on the new competitor, a radio station. Deliberately demoting search results is akin to a refusal to deal, since a significant loss of ranking amounts to the same thing. But notice something else: as in Lorain Journal, the conduct is aimed not just at the competitor, but also – and in fact primarily – at the competitor’s advertisers or other revenue sources. Cut off its air supply, so to speak, so it won’t grow into a competitive threat.

To complete the inquiry, I think you need to ask: What are the threats to Google’s dominance over search? Or, for that matter, to its dominance over online advertising? To the extent that vertical search services or social media may be such threats, I think you have the ingredients for a case very similar to the one DOJ brought against Microsoft. But the key is in the documents. Few would have guessed that Microsoft viewed Netscape as a threat to its operating system monopoly.

Notice something interesting here. When you recast the question, the focus is on competitive entry or expansion. It is perfectly consistent with dynamic competition. In Microsoft, the focus was on whether the defendant was taking affirmative steps to prevent the emergence of something new, something that could displace its dominance in the operating system market.

When you recast the question, whether or not Google has a “duty to deal” is not the central issue. And there is no need to assume or prove that there is such a thing as a “neutral” search result.

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