European Commission to Google: Evil is not Relative

Joaquín Almunia, Vice President of the European Commission responsible for Competition Policy, issued a statement today that is instructive for antitrust regulators around the world.  It boils down to this:  We know what you’re doing to abuse the privilege of operating in the free market–specifically our free market. You have special responsibilities for being a dominant firm and you are abusing them.  We are going to let you try to fix them voluntarily, but should you fail, we will fix the problem for you.

So before the knees start jerking amongst my fellow free marketeers, let it be said that I find it disingenuous in the extreme to try to pretend that Google is just another Joe standing on the corner trying to eke out a living on the streets of Brussels.  So when we look at Google’s behavior through free market principles, I think the most necessary part of that analysis is to require a monopolist abuser of free market privileges to first correct the bad behavior.  Then we can talk about the rest.  I also think that it is important for other good government reasons that the Leviathan of Brussels stay its hand–even against the Leviathan of Mountain View whose senior executives have clearly stated they resent the laws of nation states–and allow participants in the market to course correct.

To do otherwise would be to punish the Google stockholders for the bad behavior of the control group in the company.   (Remember that each Google stockholder is 1/10th of a person from a voting point of view because the insiders operate under a one share, 10 votes rule due to the insiders’ 10x voting power–this is why the company is being sued for using $500,000,000 of company funds to keep its insiders from being indicted.)

So by a pretty nifty positioning, Vice President Alumnia has put the onus on Google to correct bad acts voluntarily.  At the end of the day, this is the important thing for consumers, competitors, and Google’s stockholders.  If the Google rulers will not act to protect its stockholders, then who will if Alumnia does not?

The charges–let’s call them that as Vice President Alumnia has been clear that these points of inquiry will be where the Commission goes in a full-blown antitrust prosecution (a procedure referred to as a “Statement of objections”)–are similar to the objections made by a number of U.S. senators at last year’s U.S. Senate Antitrust Subcommittee hearing.  The senators’ objections were summarized in a letter from Senators Kohl and Lee to the Federal Trade Commission.  Senators Kohl and Lee commended to the FTC testimony before the Antitrust Subcommittee as evidence of the need for a thorough investigation into Google, as well as public statements made by a senior Google executive:

“As discussed at our Subcommittee hearing, Marissa Mayer, Google’s Vice President of Local, Maps, and Location Services, admitted in a 2007 speech that Google did in fact preference its own websites. She acknowledged that, in the past, Google ranked links ‘based on popularity … but when we roll[ed] out Google Finance, we did put the Google link first. It seems only fair, right? We do all the work for the search page and all these other things, so we do put it first … That has actually been our policy, since then … So for Google Maps again, it’s the first link, so on and so forth. And after that it’s ranked usually by popularity.’ In response to written follow-up questions asking whether her statement was an accurate statement of Google policy, Eric Schmidt stated that ‘it is my understanding that she was referring to the placement of links within a one box … and her description was accurate.’

While the basis for Mr. Schmidt’s “understanding” is not clear, even if her statement was in fact limited to the “one box” result, this is a clear admission of preferencing Google results. As consumer surveys show that 88 percent of consumers click on one of the first three links, these statements appear significant when analyzing Google’s potentially anti-competitive practices.”

At the same hearing, Senators Blumenthal and Franken drove the point home:

Senator Richard Blumenthal from Connecticut [told Google’s Eric Schmidt:] “You run the racetrack, own the racetrack, you didn’t have horses for a while but now you do and your horses seem to be winning.” To which his colleague from Minnesota, Al Franken, joked: “Google might be doping the horses.”

Vice President Alumnia’s statement demonstrates that the U.S. Senate are not the only ones concerned:

Our investigation has led us to identify four concerns where Google business practices may be considered as abuses of dominance.

First, in its general search results on the web, Google displays links to its own vertical search services. Vertical search services are specialised search engines which focus on specific topics, such as for example restaurants, news or products. Alongside its general search service, Google also operates several vertical search services of this kind in competition with other players.

In its general search results, Google displays links to its own vertical search services differently than it does for links to competitors. We are concerned that this may result in preferential treatment compared to those of competing services, which may be hurt as a consequence.

Our second concern relates to the way Google copies content from competing vertical search services and uses it in its own offerings. Google may be copying original material from the websites of its competitors such as user reviews and using that material on its own sites without their prior authorisation. In this way they are appropriating the benefits of the investments of competitors. We are worried that this could reduce competitors’ incentives to invest in the creation of original content for the benefit of internet users. This practice may impact for instance travel sites or sites providing restaurant guides.

Our third concern relates to agreements between Google and partners on the websites of which Google delivers search advertisements. Search advertisements are advertisements that are displayed alongside search results when a user types a query in a website’s search box. The agreements result in de facto exclusivity requiring them to obtain all or most of their requirements of search advertisements from Google, thus shutting out competing providers of search advertising intermediation services. This potentially impacts advertising services purchased for example by online stores, online magazines or broadcasters.

Our fourth concern relates to restrictions that Google puts to the portability of online search advertising campaigns from its platform AdWords to the platforms of competitors. AdWords is Google’s auction-based advertising platform on which advertisers can bid for the placement of search ads on search result pages provided by Google. We are concerned that Google imposes contractual restrictions on software developers which prevent them from offering tools that allow the seamless transfer of search advertising campaigns across AdWords and other platforms for search advertising.

I have just sent a letter to Eric Schmidt setting out these four points. In this letter, I offer Google the possibility to come up in a matter of weeks with first proposals of remedies to address each of these points.

If Google comes up with an outline of remedies which are capable of addressing our concerns, I will instruct my staff to initiate the discussions in order to finalise a remedies package. This would allow to solve our concerns by means of a commitment decision – pursuant to Article 9 of the EU Antitrust Regulation  – instead of having to pursue formal proceedings with a Statement of objections and to adopt a decision imposing fines and remedies.

How Google responds to Vice President Alumnia will set the stage for a prolonged period of antitrust investigation that may well break up the company given Google’s “catch me if you can” approach to its relations with elected representatives.  This despite the hundreds and hundreds of millions–if not now billions–of stockholder money that the control group will spend on legal fees trying to perpetuate its ridiculous business practices.

If Google accepts the responsibility of its market dominance, that will be a refreshing change of behavior.  More likely–the company’s insiders will resist being governed to the bitter end, like boys who don’t want to clean up their room.