Surprise! Google-Commissioned Antitrust Report Says Google Has No Case To Answer For Search

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The best line of defense is attack — and if you can couch your attack in authoritative legal language and attach it to lofty legal principles, so much the better. That’s the underlying message behind a Google-commissioned report (released today) that seeks to undermine the legitimacy of ongoing antitrust probes into Mountain View’s search dominance and practices.

Since 2010 Google has been subject to an EU antitrust investigation into whether it is abusing its dominant position in search, followed by a 2011 FTC probe investigating Google’s “core advertising business.” Rivals’ complaints include the charge that the search giant unfairly favours its own products in search listings at the expense of theirs.

Late last month Google was warned by the E.C.’s Competition Commissioner, Joaquin Almunia, that it needed to do more to allay antitrust concerns — or face formal charges of breaching EU rules, which in turn could open the company up to a fine of 10 percent of its global revenues.

The EU and Google have been in negotiations for months to try to reach a settlement to avoid this turn of events. But in a speech at Fordham University in New York, at the end of last month Almunia fired the following shot across Mountain View’s bows:

As to Google, it is well known that we have competition concerns that the company is using its dominance in online search to foreclose rival specialised search engines and search advertisers.

After several exchanges with me, Google has agreed to propose solutions in the four specific areas of concern that we have identified.

I have now instructed my staff to engage into technical discussions with Google in order to assess in-depth the solutions presented to us.

If effective solutions were found quickly and tested successfully, competition could be restored at an early stage by means of a commitment decision.

However, we are not there yet, and it must be clear that – in the absence of satisfactory proposals in the short term – I will be obliged to continue with our formal proceedings.

Now in the latest twist of the saga, Google has fired a shot back. The report – commissioned by Google and written by Judge Robert Bork and Professor Gregory Sidak — examines the legal basis for the antitrust claims, and dismisses them as “lacking any compelling legal or economic argument for a government antitrust case” (in fact it concludes there is zero case for Google to answer, noting: “None of the purported antitrust problems that Google’s critics have raised indicates that Google is behaving anticompetitively”).

Specifically, the authors argue that the antitrust claims “contradict real-world experiences in search” and “demonstrate competitors’ efforts to compete not by investing in efficiency, quality, or innovation, but by using antitrust law to punish the  successful competitor”.

The report begins by citing the principle that antitrust law protects consumers by protecting the competitive process

The Chicago School of law and economics teaches—and the Supreme Court has long affirmed—that antitrust law exists to protect consumers, not competitors. Penalizing Google’s practices as anticompetitive would violate that principle, reduce dynamic competition in search, and harm the consumers that the antitrust laws are intended to protect.

The authors argue that Google’s search behaviour cannot therefore be anti-competitive since Google’s success or failure is determined by whether consumers choose to use its search engine or not. “Consumers can switch to substitute search engines instantaneously, and at zero cost, and this constrains Google’s ability and incentive to act anticompetitively,” the report notes. “Consumers can also navigate directly to any competing search engine due to the Internet’s open architecture.”

The pair go on to add:

Punishing Google for being the most effective search competitor would harm consumers and thus contradict the recognized purpose of antitrust law. Search engines epitomize dynamic competition—the virtuous cycle in which innovation drives competition, which further drives consumer-welfare-enhancing innovation. Dynamic competition in search enhances the user experience, increasing the value of search services to both consumers and advertisers. Antitrust intervention that would prohibit or circumscribe Google’s practices would punish and therefore deter the same welfare-enhancing innovations that have made Google an effective competitor. Such use of antitrust law would weaken dynamic competition, as only successful firms would need to worry about being penalized for being winners. Losers do not face monopolization suits for having lacked a superior product, business acumen, or the benefits of a historic accident.

The report also dismisses the scale argument — i.e. that Google is now too big in search to compete with — on the grounds that Google itself once had to compete with a search incumbent (Yahoo) and was able to surpass it, just as Yahoo had surpassed others in its turn, noting: “Google’s critics therefore exaggerate the importance of scale to being able to compete in search.”

On the charge that Google’s “ranking methodologies and search algorithms are unfair” the authors again point to Google’s business imperative to be a useful service as a shield against unfair practices:

It is difficult to see how anything that Google does in search and ranking algorithms is unfair. Google bases its business on developing search and ranking algorithms that facilitate consumer searches. Google would employ a particular ranking methodology only if it helps to attract and retain search engine users. Google’s competitors do the same thing, including offering specialized search. Courts have long recognized that a practice likely has “redeeming competitive virtues” when all competitors use it.

The authors also dismiss claims that Google is the de facto “gateway to the Internet”:

Google, or any search engine, cannot be a gateway to the Internet. First, Internet users can navigate directly to websites due to the open architecture of the Internet. Innovations in web-browser customization have provided consumers with more tools that allow them to forgo search engines when accessing content. Second, there are numerous search engines on the Internet, and consumers can—and frequently do—switch among search engines at zero cost. Mobile apps provide yet another way to directly access other search providers. No technical limitations exist that force consumers to perform searches only on Google.