Antitrust

The biggest takeaway from the U.S. DOJ (and the EU) approving the Microsoft-Yahoo search partnership without any restrictions is that the Varney DOJ Antitrust Division implicitly agrees with the Barnett DOJ Antitrust Division (which blocked the Google-Yahoo Ad Agreement) --  that Google is indeed an dominant and enduring search advertising monopoly. 

If the DOJ did not believe Google was a monopoly, traditional antitrust analysis would have had more serious problems with the #2 and #3 competitors in a highly concentrated market combining forces.

This is a negative precursor for Google generally -- that they are indeed the next big antitrust problem of this decade.

It is also a negative precursor for the:

• FTC's antitrust review of Google-AdMob; and
• DOJ's review of the Google Book  Settlement.

Google, you have a problem.

Google effectively blew off the DOJ's antitrust, copyright and class action objections to the amended Google Book settlement in Google's 77-page brief to the Federal Court adjudicating the settlement. 

In a nutshell, Google argued that its settlement is "remarkably creative" (p 28), and "fair, reasonable and adequate" (p 67). It focused on the settlement's benefit to humanity: "the benefits of approval are bounded only by the limits of human creativity and imagination" (p 2). Google also effectively instructed the Judge to accept its redefinitions of copyright, antitrust, and class action law and to reject the DOJ's interpretation of the law and its "cramped view of the court's jurisdiction" (p 10).    

The core thrust of Google's argument is political. Google essentially asks the court to make a political, not a legal, decision to:

• Disregard existing antitrust, copyright, and class action law;
• Ignore the opinion, expertise and standing of the DOJ, the United States' Chief Law Enforcement Officer;   
• Effectively rewrite copyright law; and
• Permanently enthrone Google as effectively the derivative use caretaker and gatekeeper of millions of "orphan works" which Google illegally copied.  

I.   Google's argument is fundamentally political.

Google[-AdMob] has come up with another "we think everyone is stupid" defense of Google's anticompetitive behavior: "It's too new to be dominated."

• This new Pinocchio antitrust defense nicely complements its previous grand deception that "competition is one click away,"  and its previous insult to everyone's intelligence that scale is not important to search.  

Google Spokesperson Adam Kovacevich [and AdMob's CEO Omar Hamoui set] up a new "straw man" antitrust problem, easily knock it down, and then presto! conclude Google's acquisition of AdMob is not anticompetitive. From James Temple's San Francisco Chronicle piece:

• "Google spokesman Adam Kovacevich stressed that mobile advertising remains highly fragmented, with more than a dozen networks like AdMob. ..."
• [AdMob CEO Omar Hamoui] "did say that ... antitrust critics misunderstand the online search industry, and that he's confident regulators will approve the deal once they grasp the nuances of the nascent sector.
• "We do display advertising on mobile, which is not an area that Google (or) anyone has dominated," he said. "It's too new to be dominated."

The deception here is three fold:

While Google may be slowly losing the legal battle over the amended Google Book Settlement Agreement, the protracted legal process and Google's political "slow rolling" of the broader process are enabling Google to win the much larger marketplace war for global dominance over digital content and distribution.

• From a big picture perspective, Google is cleverly "playing" and slow rolling both rights holders and the DOJ because Google understands that time is on Google's side, not the side of rights holders or the Government.
• Google's market dominance is only growing and becoming more irreversible, and copyrighted material is only being devalued as long as Google is the only entity that can copy it without permission and currently commercialize it for themselves via search without any compensation to rights holders.   

Takeaway #1: DOJ still strongly objects to the proposed amended settlement (ASA).

In the DOJ's latest statement of interest to the court, the DOJ continues to strongly object that the ASA violates three bodies of law: class action, copyright and antitrust. Key opposition quotes: 

There's new evidence from Google itself, that Google's search results are not neutral, as Google has long publicly represented them to be, and as Google expects everyone on the Open Internet to be.

• (Kudos to famed trustbuster Gary Reback for unearthing the core information that I spotlight in this post; it is from Mr. Reback's friend-of-the-court brief for the Open Book Alliance, which opposes the Google Book Settlement. Don't miss pages 14-16.)  

Google now admits that its search results are not neutral despite longstanding public representations to the contrary.

Most have missed that there's a big antitrust showdown happening this week. 

• February 4th, the DOJ must file a second round of comments on the Google Book Settlement 2.0 with Federal District Court Judge Chin, after Google almost completely ignored DOJ's substantial legal objections in its Book Settlement 2.0 revision.   

The Google-DOJ showdown in a nutshell:

• The DOJ's 9-18-09 Statement or Interest made clear DOJ believes the settlement is likely illegal under three completely different bodies of law (class action, copyright and antitrust), and also may be per se illegal in multiple different ways. (analysis here.)
• Google and the other parties, in their 2.0 revision of the Book Settlement, almost completely ignored the DOJ's stated legal concerns.
• If Google and the parties do not address the DOJ's concerns in advance of the DOJ's second statement of interest filing due February 4th, the DOJ will be thrust into law enforcement mode.     

This is a big deal.

• The DOJ has drawn a line in the sand that the Google Book Settlement as configured is illegal and anticompetitive.

In the last year, Google has taken almost a third of the search revenue market share that they did not have before -- per recent company reports.

• In other words, Google's search revenue share increased from 90% in 4Q08 to 93% in 4Q09.
• To understand the math, supporting numbers,and links behind this estimate see the end of this post.

Google's 4Q09 earnings release also shows Google is exercising its market pricing power at the expense of web publishers by reducing the revenue share percentage shared with web publishers (i.e. raising prices) because web publishers have no where else to go; please see the illuminating analysis by Amit Agarwal of Digital Inspiration blog who deserves credit for this important insight.

• Not only does his analysis show that the revenue Google shares with its web publisher "partners" is going down from 75% at the beginning of 2009 to 72.1% at the end of 2009, these percentages actually understate the price increases imposed upon web publishers because the data masks that the total numbers involve more publishers getting relatively smaller pieces of the overall pie.

So what are the takeaways here?

First, Google is indeed a monopoly and only growing more dominant quickly.

Second, Google is abusing that dominance by raising prices on web publishers that have no real competitive alternative.

Third, these facts make it more likely that:

My vote for quote of the month on Google was "If Google can drop China, it can drop you."

This profound razor-sharp insight was said by Howard Shelanski, speaking for himself, not the Federal Trade Commission, at the Free State Foundation's annual conference at the National Press Club in Washington DC on Friday. 

Mr. Shelanski is currently Deputy Director of the Bureau of Economics at the FTC, a former Chief economist at the FCC, and a widely respected economist and antitrust expert. 

I am spotlighting his quote because it sheds light on the broader implications of the world censorship policeman role Google is asserting for itself in the world. 

If Google is going to take the position that it unilaterally will withdraw access to its search engine from hundreds of millions of Chinese, if the Chinese Government does not do what Google tells it to do, it puts everyone else in the world on notice that Google has the power, interest and wherewithal to withdraw access to its search engine to anyone who might disagree with Google politically.      

Google posted "Google's Privacy Principles" for International Privacy Day and made a pretty sweeping official representation to the public in its announcement post: 

• "We've always operated with these principles in mind. Now, we're just putting them in writing so you have a better understanding of how we think about these issues from a product perspective."   

Is this a factually accurate and fair representation of Google's past and current privacy practices?

If it is indeed a true statement:

January 27, 2010

For Immediate Release

Contact: Scott Cleland

703-217-2407

Media@GoogleMonitor.com

GoogleMonitor.com Launches Today

Will spotlight Google’s lack of transparency and accountability