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The Broader Implications of DOJ's Book Settlement Investigation

The DOJ investigation of the Google Book Settlement suggests that a broader antitrust spotlight may be returning to Google.

  • Apparently the DOJ is investigating whether the Book Settlement sets a competitive or anti-competitive trajectory for the search of digitized books, and of "orphan works in particular.
    • Google argues the settlement is pro-competitive and increases access to books.
    • The DOJ's antitrust investigative scrutiny suggests otherwise. 
  • Since little involving the Internet happens in a vacuum, this antitrust investigation may have much broader implications than most appreciate for:
    • The new Administration's overall antitrust approach;
    • The FTC's oversight of behavioral advertising, and
    • The FTC/Congress' focus on online privacy.   

To start however, it is important to get an update of important facts since antitrust is so fact-driven. Recent facts only confirm and bolster the DOJ's public assessment 11-05-08 that Google had monopoly market power in search advertising and search advertising syndication.

  • Google's overall search market share has increased in the last few months from 70% to 72% as Yahoo's and Microsoft's share has fallen -- per Hitwise.
  • Youtube, which the Bush DOJ approved Google buying two years ago, is now the world's second largest search engine ahead of Yahoo, per Comscore.
  • Google has 97.5% of the mobile search market per a survey in March. 
  • 1Q09 earnings reported by Google and Yahoo indicate that Google commanded ~92% share of search advertising profits in the U.S. in the first quarter of this year.

It is in the context of this increasing market dominance of search advertising that the DOJ is investigating the competitive effect of the Book Settlement. The main question is whether or not the Google Book Settlement could effectively extend Google's search advertising monopoly further -- by de facto granting Google 100% share of search advertising of the 5 million digitized orphan works in the settlement.

  • (As a timely aside, Google's just announced new search tool Google Public Data reported by the Washington Post, could eventually attract antitrust scrutiny, if access to public data was provided in a way that favored Google and Google's access approach, and results in Google getting 90+% share of these searches too.) 

Broader Implications of the DOJ Investigation:

I.   Overall Antitrust Enforcement:

First, this investigation could have broader implications for antitrust enforcement in the new Administration. 

Nothing like this happens in a vacuum. The new DOJ antitrust leadership have made it clear that, it strongly disagreed with the Bush antitrust effort to revise Section 2 monopolization guidelines to make it very difficult for the DOJ to bring a monopolization case against a company in the future. Three FTC commissioners, including the new FTC Chairman, strongly opposed the Bush-DOJ's attempt to substantially weaken monopoly enforcement. Many expect the new Adminstration to revise that Section 2 report to reflect the new DOJ/FTC consensus for more rigorous antitrust enforcement. 

  • This trend towards much tougher antitrust enforcement comes on the heels of the Barnett-Antitrust Division (widely viewed as the most lenient in memory) being only three hours from filing a Section 2 monopolization case against Google last November, if Google did not drop its plans to partner with Yahoo in an ad partnership. This is what Sandy Litvack, the DOJ's special litigation counsel, recounted in AmLawDaily last December.
  • If the Barnett Antitrust Division thought there was enough evidence to bring a Section 2 case against Google for illegally extending its monopoly six months ago, the DOJ investigation of the Book Settlement is noteworthy because the only real reason for the DOJ to have antitrust concerns about the Book Settlement is if Google was acting anti-competitively and/or illegally extending its monopoly.   

If the new DOJ is intent on reinvigorating antitrust enforcement, Google would appear to be the company potentially facing the most antitrust liability/risk.           

II.   Behavioral Advertising:

Second, since the FTC has pending behavioral advertising principles and FTC Chairman Leibowitz is threatening new regulations if the industry does not shape up and better protect privacy... the DOJ Book investigation also has implications for behavioral advertising. In what way?

Per the NYT, the FTC reportedly struggled with the DOJ for jurisdiction over the book settlement. The reason could be that the FTC is concerned that the FTC's approval of Google-DoubleClick merger was a mistake and strongly contributed to the DOJ finding Google to be a monopoly only 11 months after the FTC approved the Google-DoubleClick deal.

  • Moreover, recent evidence confirms that the FTC-approved Google-DoubleClick combination facilitated market power.
  •  Attributor's research from 12-08, found that Google's ad-server share is now at a dominant 56.5% share where #2 Yahoo is at 9.7% and #5 Microsoft is at 3.8% share.
  • Ad serving is a key enabling technology for behavioral advertising.
  • The Google-DoubleClick combination allowed DoubleClick's 30.7% share of ad-serving to be combined with Google AdSense's 25.8% share of the ad-serving market -- creating a dominant 56.5% share through acquisition.    

III.  Privacy

Third, the issue of privacy is strongly implicated in the DOJ review of the Google Book Settlement. Privacy concerns are inextricably intertwined with behavioral advertising because the whole open question surrounding bahavioral advertising is whether advertisers must give consumers the freedom to control the private information behavioral advertisers like Google use in their behavioral advertising.

Moreover, in last week's public discussion of the Google Book Settlement sponsored by the ITIF at the Library of Congress, the American Library Association stated one of its most serious objections to the settlement was that there were none of the privacy protections for readers of the books in the settlement that library researchers routinely enjoy.

  • Remarkably, the Google Book representative, Dan Clancy, publicly admited that privacy concerns never occurred to Google in the negotiations with authors and publishers.
  • Thus, not only does the Google Book settlement concern the DOJ on strictly competitive grounds, it also concerns the FTC on privacy grounds as well.
  • Given that behavioral advertising at core is about monetizing private information without  explicit permission, it will be increasingly hard for competition issues to be separated from privacy issues as they have been in the past.

In short, the DOJ investigation of the Google Book Settlement suggests a broader antitrust spotlight may be returning to Google -- with potentially far-reaching implications for antitrust enforcement overall, behavioral advertising, and privacy.