Scholars Scrutinize FTC’s Decision to End Its Investigation of Google’s Business Practices

By TAP Staff Blogger

Posted on January 14, 2013


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The major antitrust news from earlier this month, the Federal Trade Commission’s (FTC) announcement that it has ended a nearly two-year investigation into Google's search and mobile business practices and declined to press antitrust charges continues to garner debate in technology sectors.


Following the announcement, TAP pointed to the writings of several scholars who shared their thoughts on the FTC’s announcement. Below are excerpts from additional posts and articles on this intensely debated decision.


Antitrust Issues Are Ground Rules for Innovation

Prior to the FTC wrapping up its investigation, Professor Randal Picker of the University of Chicago discussed the importance of antitrust investigations in his article for Bloomberg:

Antitrust issues often seem arcane to outsiders, but this is where modern societies establish the ground rules for innovation and competition policy. Industrialized economies generate most of their growth from new ideas and ways of doing business, and effective competition is crucial to making that system work.

In a recent Washington Post article, William Kovacic, George Washington University Professor of Law and Policy and formerly general counsel for the FTC, discussed the challenge for U.S. regulators:

U.S. regulators long have struggled to determine what’s best for consumers — and what can be successfully addressed with laws written long before anyone imagined the economic role that today’s technologies would play.

“It has been the single issue that the antitrust system has had trouble dealing with since 1890,” said George Washington University law professor William Kovacic, a former FTC chairman. “That’s because the consumer impacts typically are mixed.”

Bork’s Legacy: Weakening of American Antitrust Laws

Frank Pasquale, Seton Hall University, and Siva Vaidhyanathan, University of Virginia, examined the principal components that informed the agency’s decisions in their article for Dissent Magazine, “Borking Antitrust: Google Secures Its Monopoly.”

Bork argued antitrust law should narrowly focus on something called “consumer welfare,” acts of price-fixing, and little else. … Bork’s followers largely ignore the ways powerful firms can leverage long-term dominance by using profits gained from one monopoly to undercut competitors in adjacent fields. They have steadily undermined a more expansive vision of how antitrust can benefit society by ensuring competition and enabling small, emerging companies to thrive, compete, and innovate. If a business practice appears to help individual consumers, however trivially, then they have little concern about its long-term effects.

One of Bork’s last acts was to bless Google’s near-monopoly over search advertising as “pro-competitive” in an October 2012 white paper commissioned by Google. On Thursday the Federal Trade Commission showed, once again, Bork’s enduring influence. Charged with enforcing antitrust laws and protecting a broad sense of consumer welfare, it punted on its twenty-month antitrust investigation of Google.

By doing so, the FTC not only adopted Bork as its patron saint. It put those who might hope to create the next big thing, the next Google, or the next Facebook, on notice: they should probably defer their dreams. Google will be free to bully small and emerging firms without the U.S. government riding to the rescue.

Google Case Was Really About Educating the CEO

Shane Greenstein, Northwestern University, looks at the FTC-Google investigation in a broad and historical perspective. In his post, “The FTC and Google: Did Larry Learn his Lesson?,” Professor Greenstein makes the point that, “As with prior major antitrust investigations, the Google case was really about educating the CEO.”

In other words, antitrust is far from the first priority or interest of most CEOs in technology firms. Most CEOs treat antitrust violations like a kid who does not clean up his room. It is a careless mistake — a little thing that just does not matter to them.

I have read quite a few of the official statements coming from Google over the last few years. I would say there was considerable evidence two years ago that Google’s executives did not understand how antitrust applied to them. Like many others, when the FTC opened this investigation I thought Google’s executives were showing many signs of being naive, and I inferred that it reflected lack of proper schooling in antitrust. It has been very interesting to watch Google step up its game in the last two years and wrestle with some of the key issues — at least in its public statements.

Examining the Allegations of Misconduct

In “Why Does Everyone Think Google Beat the FTC?”, Tim Wu states, “The Commission was right to investigate Google, right to stop the practices it did, and also right to settle the case instead of beating the firm into submission.” Wu is Professor of Law at Columbia University and was a senior advisor to the Federal Trade Commission from 2011-2012. In his article for The New Republic, he looks at the allegations of Google’s misconduct.

The investigation showed that some of the allegations of Google misbehavior were correct. Forget the company's misleading “one click away” slogan: Google’s market power is felt intensely by advertisers and websites. And Google hasn't always been averse to flexing its muscle in legally ambiguous ways. In an important example the firm produced clones of sites like Yelp and Tripadvisor, complete with their reviews stripped from the sites. When the companies complained, Google, it turned out, effectively presented the firms with an extortionary choice: “hand over your reviews, or delist yourself from Google.” The former was a form of slow death, the latter, high-tech suicide.

The FTC was right to call foul here. It wasn’t just that Google was using its monopoly power to make money. It was more serious: it was threatening the very incentive to be the next Yelp or Tripadvisor.

The Commission also found out that Google was issuing threats based on patents that Motorola had long ago agreed to license openly as part of important industry standards. … But the crucial point is that Google crossed another line when it messed with standard-setting processes that it is the FTC's responsibility to safeguard.

In the settlement, the firm agreed to stop these anticompetitive practices. The burden should be on critics to explain why the FTC should have gone further.

 



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