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Does U.S. Antitrust Law Apply to Google?

Summary

How the DOJ and FTC handle two high-profile Google market behaviors that appear on their face to violate two different U.S. antitrust precedents, will speak volumes to the world about whether U.S. antitrust law still applies to Google, or not.

First, does the DOJ believe that the new search partnership between #3 Yahoo and #1 Google -- in the highly-concentrated U.S. search market -- is anti-competitive like the DOJ concluded previously in opposing the 2008 proposed Google-Yahoo search partnership?

Second, does the FTC believe that Google’s contractual tying of Google’s top apps to the Android operating system home screen is analogous to the tying behavior that U.S. courts ruled illegal in 2002 because Microsoft tied its Explorer browser app to the Microsoft operating system to disadvantage Netscape? 

Foreign antitrust authorities and the many Google plaintiffs who have sought antitrust relief overseas appear to have little confidence that either the DOJ or the FTC will seriously enforce U.S. antitrust law against Google.

Given the obvious facts and precedents implicating these pending DOJ-Google-Yahoo and FTC-Android operating system investigations, and given the substantial evidence of Google’s exceptional political influence over the U.S. Government, the outcomes of these investigations could serve as de facto litmus tests for the world to gauge whether the DOJ and FTC are impartial enforcers of U.S. law, or are politically-compromised concerning Google.

Why these investigations are de facto litmus tests  

Importantly, antitrust is among the most precedent-dependent part of U.S. law. While U.S. antitrust law is 125 years old, there are actually precious few antitrust precedents that matter, let alone highly analogous antitrust precedents like these.

In both these instances, Google currently appears supremely confident it can get away with what the U.S. Government previously ruled illegal.

1. DOJ Review of the 2015 Google-Yahoo Search Partnership Deal

Concerning Yahoo’s deal to partner with Google on search, the DOJ blocked a previous proposed Google-Yahoo search advertising agreement in 2008 by threatening a Sherman Section 1 and 2 anti-monopolization case – which is among the most severe antitrust enforcement actions in the DOJ’s arsenal.

In 2010, the Obama DOJ Antitrust Division affirmed that Google remained dominant in “Internet search syndication” and “Internet search advertising” and justified approving the normally disallowed partnering of the #2 (Yahoo) and #3 (Microsoft) competitors in a highly concentrated market, precisely because Google was still so dominant in search and search advertising.  

It will be hard for the DOJ to claim that current behavior that is similar to behavior that was worthy of a Sherman Section 1 and 2 anti-monopolization case in 2008 is no longer anti-competitive at all, but somehow pro-competitive when Google’s overall dominance has grown and spread, and when this deal could make Yahoo increasingly dependent on Google to succeed going forward, undermining the competitive incentives of this strategically important market.

Google is unnecessarily putting the DOJ in a very embarrassing and compromising position.

Just because Google apparently believes they can politically roll the DOJ to approve its new search deal with Yahoo doesn’t make it smart politics. Doing so could expose and spotlight the unseemly underbelly and extent of Google’s political power in Washington, and specifically with the DOJ which is supposed to be above reproach.

It also could have the boomerang political effect of stiffening the resolve of foreign antitrust authorities -- not intimidating them.

Google has put the DOJ in a real bind.

In addition to the previous precedent, the current DOJ antitrust chief has long stressed how important it is for there to be at least four competitors in markets – even if they are capital-intensive markets. To protect the four competitor standard, DOJ blocked AT&T-T-Mobile, signaled it would block Sprint-T-Mobile, blocked Comcast-Time-Warner, and currently is signaling it may block the proposed Charter-Time-Warner -- per a recent speech on video competition by the current DOJ Antitrust Chief Bill Baer.

It’s hard to see how the DOJ could fairly approve the Google-Yahoo search partnership which would take the highly-concentrated search market from 3 to ~2 I/2 competitors when it has made such a big deal of moving its general antitrust standard for competition from 3 to 4 competitors for so many other markets.

Given the DOJ’s alleged public concern about video competition, Google should not want to invite public antitrust attention to Google-YouTube’s very anti-competitive Internet video competition history and how DOJ’s antitrust division has looked the other way in the face of Google-YouTube’s willful blindness to YouTube’s mass copyright infringement to gain Internet video dominance. As the old adage goes, those in glass houses should not throw stones.

If Google tries to politically roll the DOJ, it could put an unwelcome spotlight on the obvious appearance of conflicts of interest in having two of the five current Deputy Assistant Attorney Generals for Antitrust just happen to be former outside antitrust counsels to Google -- who now just happen to be in key decision-making positions responsible for helping evaluate whether or not the DOJ should prosecute their recent client Google for antitrust violations.

Surely Google and the DOJ are aware that “the Standards of Ethical Conduct for Employees of the Executive Branch became effective in 1993. The Standards of Conduct – which cover issues such as gifts, conflicting financial interests, impartiality, seeking employment, misuse of position, and outside activities – are designed to address not only actual conflicts of interest but also activities that give rise to the appearance of such conflicts.”

In addition, Google politically rolling the DOJ would put an unwelcome spotlight on why the DOJ did not enforce the compliance provisions of its Criminal Non Prosecution Agreement (NPA) with Google despite Google violating five different U.S. laws during their probation period and despite substantial evidence from state attorneys general and elsewhere that Google did not abide by the compliance terms of the DOJ-Google NPA.

2. FTC 2015 Google-Android Tying Investigation

This latest FTC’s investigation into Android tying will be much harder for Google to get the FTC to justify closing with no action, like it was able to do in abruptly shutting down the FTC’s Google search bias investigation after the 2012 Presidential election.

What most everyone has forgotten is that the FTC shut down its reported 2011 investigation into Android tying in 2012 along with the shutdown of the search bias investigation.

The FTC never mentioned “Android” in its public announcement and only obliquely referred to it in this way:  The FTC also conducted an extensive investigation into allegations that… Google entered into anticompetitive exclusive agreements… in the mobile arena. The agency decided not to take action in connection with these allegations.

Alarmingly, the quiet closing of the FTC Android investigation due to apparent White House pressure turned out to be disastrous to a competitive mobile marketplace.

In the 33 months since the FTC dropped its Android tying investigation, Google-Android’s tying and bundling of Android to multiple popular Google apps, like Search, YouTube, Maps, Play, Gmail, and Chrome, grew Android users from 250 million when the FTC shut down their investigation to 1.4 billion Android users today – a 1.15b increase in Android users in ~33 months! That is not a normal competitive outcome, but powerful evidence of the naked exercise of exceptional market power.

Not only did the premature closing of the FTC’s Android tying investigation enable Google to extend its desktop search dominance to mobile Android search dominance, the anti-competitive Android mandatory bundle also helped Google consolidate its dominance in other apps by adding the following number of users in less than three years: Maps by ~400m; YouTube by ~600m; Gmail by ~650m; Play by ~750m; and Chrome by ~800m.

These staggering dominance growth and consolidation numbers surely have to embarrass the FTC badly, making it at least institutionally difficult at the career staff level for Google to politically shut down this new Android tying investigation – again. The FTC’s professional career antitrust staff must be mortified at the untenable position in which Google and their political leadership have put them and the FTC as a venerable century-old enforcement institution.  

Another reason it will be harder for Google to shut down this latest Android tying investigation again, is that unlike the relatively uncharted legal waters of the FTC search bias investigation, the issue of tying apps to a dominant operating is arguably among the best-charted antitrust legal waters the FTC could enjoy.   

As first reported by The Information, Google’s Android contracts with OEMs contractually tie apps to the Android operating system home screen. This is highly-analogous market behavior to the tying behavior that the U.S. Federal courts ruled illegal in 2002 because Microsoft tied its Explorer browser app to the Microsoft operating system to disadvantage Netscape. 

While Google successfully bullied the FTC into believing that there was sufficient legal uncertainty about whether a court of law would find Google’s search bias illegal under the FTC’s controversial Section 5 antitrust authority, that clever political defense won’t work with these facts because a federal court already has decided (and was upheld) that tying an app to a monopoly operating system was illegal.

That Microsoft precedent also helps the FTC determine the appropriate market definition, usually the most difficult part of an antitrust case.

The U.S. v. Microsoft precedent already approved a market definition of “licensed software operating systems” which excluded Apple’s software operating system, because like iOS today, Apple’s software operating system is not licensed or licensable in the marketplace, it is an embedded and integrated feature available only in Apple products.

With Apple iOS excluded from the “licensed software operating system” market, Android is a modern day monopoly “mobile software operating system” with ~90% market share (see the detailed analysis supporting that conclusion here).

While no antitrust case is easy, this case, at least on the surface, appears to be among the most straightforward U.S. antitrust investigations and cases in recent memory.

Adding to the difficulty of Google getting the FTC to shut down the Android investigation a second time is that the Russian Antitrust authority has already ruled Android’s tying/bundling is anti-competitive and that the Russian mandated remedy, not allowing Google to contractually tie their apps to the Android home screen in OEM contracts going forward, is relatively easy and straightforward to implement and enforce.

In addition, the EU’s Antitrust Chief Margarethe Vestager signaled via the WSJ this week that the EU is likely to pursue a Statement of Objections in the Android tying case as well. 

In light of all the evidence and events catalogued above, the FTC had to reopen the Android tying investigation and at least appear to be going through the motions of fulfilling its statutory responsibilities.

On the other hand, everyone should have healthy skepticism that Google will allow the FTC to formally charge Google given the substantial public evidence that indicates the FTC is not independent of the White House on Google enforcement matters.

The most troubling recent public evidence that the FTC continues to be partial to Google on antitrust matters is how key FTC commissioners publicly strongly allied with Google this past March, at Google’s direction, to effectively cover-up the appearances of political irregularities in how the FTC abruptly shut down its Google search bias investigation, and its Android tying investigation, shortly after the 2012 Presidential election.   

A courageous May 14, 2015 Buzzfeed article exposed a March 23, 2015 email from a top Google lobbyist to the FTC Chairman’s Chief of Staff that urged the FTC to issue a press release to better spin the FTC’s closure of its Google antitrust investigation as Google wanted it to be spun. Two days later, the FTC dutifully complied with a press release doing exactly what a top Google lobbyist urged the FTC do in its Gmail.

It is exceptionally telling that the FTC put out an angry, and very-defensive-sounding, May 2015 press release defending its January 2012 stealth closure of the FTC’s prior Android-tying antitrust investigation, a full month after the EU publicly announced 4-15 its formal investigation of Google alleged Android tying behavior. This is stark evidence that the FTC and the EU and the other antitrust authorities are not on the same page in enforcing antitrust law against Google.

Unless something transformative happened in the last six months that the public doesn’t know about that would radically change these FTC commissioners’ disposition, political instincts, and loyalties affecting the investigation of Google-Android for antitrust violations, the FTC’s angry and defiant press release defending Google, should be considered the latest best public evidence of the FTC’s current political partiality toward Google.

The Macro Political Evidence of DOJ/FTC Likely Partiality on Google Antitrust Matters

Given the DOJ-specific and FTC-specific evidence above that they apparently are partial to protecting Google from U.S. antitrust enforcement, it’s important to close with the disturbing and substantial macro-political evidence and context that neither the DOJ or the FTC are apparently interested in prosecuting Google for U.S. antitrust violations during this particular Administration.   

In a Presidential election year, these two Google antitrust investigations – DOJ’s Google-Yahoo search investigation and the FTC’s Android-tying investigation -- could attract more public scrutiny, especially because of how Google has arrogantly flaunted its exceptionally close ties to the current Administration as a not-so-subtle way of chilling and discouraging plaintiffs from complaining to the DOJ and FTC about Google.

Importantly, a 3-24-15 WSJ investigative story, “Google Makes Most of Close Ties to the White House,” catalogued that Google employees have met with senior White House officials about 230 times in six years, an average of once a week, apparently many times more than any other company.

In addition, it is way beyond coincidence that several former employees of, or consultants to, Google, are positioned in most every major federal policy or law enforcement area of commercial interest to Google Inc.

Lastly, several media stories have reported how the Obama Reelect campaign considered Google Chairman Eric Schmidt’s help very important to the President’s 2012 reelection victory –  see Bloomberg, Sydney Morning Herald, and Time. Reporting also informs us that Google Chairman Eric Schmidt also was unique in proactively hiring most of the 2012 technology talent from the 2016 Reelect campaign per Bloomberg and BuiltInChicago.

Tellingly, the campaign technology team that Alphabet-Google Chairman Eric Schmidt organized and bankrolled in 2012, is now the top technology vendor of the Hillary Clinton campaign -- per Quartz reporting; and the Hillary 2016 campaign’s Chief Technology Officer just happens to be a former Google employee who worked for Mr. Schmidt -- per CNN reporting.

Conclusion

Foreign antitrust authorities and Google antitrust plaintiffs should pay close attention to how the DOJ handles its investigation of the new Google-Yahoo search agreement, and how the FTC handles its second Android-tying investigation, its effective do-over of its stealth 2012 closure of the FTC’s first and failed Android-tying investigation.

The outcome of these DOJ/FTC-Google investigations could serve as de facto litmus tests for the world to gauge whether the DOJ and FTC are impartial enforcers of U.S. antitrust law, or are politically-compromised concerning Google, at least for antitrust matters.

The world is watching.

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Scott Cleland served as Deputy U.S. Coordinator for International Communications & Information Policy in the George H. W. Bush Administration. He is President of Precursor LLC, an emergent enterprise risk consultancy for Fortune 500 companies, some of which are Google competitors, and Chairman of NetCompetition, a pro-competition e-forum supported by broadband interests. He is also author of “Search & Destroy: Why You Can’t Trust Google Inc.” Cleland has testified before both the Senate and House antitrust subcommittees on Google and also before the relevant House oversight subcommittee on Google’s privacy problems.

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Googlegate Series

Part 1: How America Protects National Champion Google in the EU [3-5-15]

Part 2: FTC-Googlegate Scandal Repercussions in U.S. & EU [3-20-15]

Part 3: The Appearance of Google-USG Conflicts of Interest Grows [3-25-15]

Part 4: Googlegate -- The FTC Cover-up Evidence Piles Up [4-1-15]

Part 5: Googlegate II: The Evidence DOJ Made Google Criminal Case Go Away [4-8-15]

Part 6: Googlegate Email Shows FTC an Extension of Google’s Lobby/Press Operation [5-15-15]

Part 7: Does U.S. Antitrust Law Apply to Google? [10-27-15]

 

 

 

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