Thursday, January 3, 2013

Do no evil or see no evil?

In a unanimous decision Thursday, the Federal Trade Commission ended its two year investigation of alleged Google antitrust violation, with a settlement agreement that (as several headlines put it) let Google off “unscathed.”

The FTC took almost no action on allegations that Google tied its dominance in search to support its other businesses, accepted some unenforceable promises by Google to behave in the future, and (in a separate action) set limits as to what Motorola (now owned by Google) can do to pressure rivals to license its patents.

The reactions were predictable. A "consumer" group that criticizes Google told the AP that “The FTC rolled over for Google” (perhaps the AP censors made them clean up their language). Microsoft lamented that Google’s “voluntary commitments” were “less demanding than the pledge the U.S. Department of Justice received from Apple and Microsoft nearly a year ago.”

Outgoing Republican FTC commissioner J. Thomas Rosch dissented from this approach in similar terms:

Instead of following standard Commission procedure and entering into a binding consent agreement to resolve the majority’s concerns, Google has instead made non-binding commitments with respect to its search practices. … [O]ur “settlement” with Google creates very bad precedent and may lead to the impression that well-heeled firms such as Google will receive special treatment at the Commission.

Our “settlement” with Google is not in the form of a binding consent order and, as a result, the Commission cannot enforce it by initiating contempt proceedings. The inability to enforce Google’s commitments through contempt proceedings is particularly problematic given that the Commission has charged Google with violating a prior FTC consent agreement.

Enforcement of Google’s obligations requires a Commission order, not a unilateral commitment by Google to stop its practices. If Google were really willing to abandon its scraping or its API policy, it would have tendered a consent decree to that effect instead of a unilateral commitment that is not enforceable.
Meanwhile, on the other side, Google’s head lawyer bragged: “The conclusion is clear: Google’s services are good for users and good for competition.” Former FTC chairman and part-time Google consultant James C. Miller (III) wrote in Friday’s Wall Street Journal:
The legal case against Google was always weak. Despite the rhetoric of Google's antagonists, they failed to convince the FTC that the company's policies harmed consumers. Since consumers can change search engines with the simple click of a mouse, it's a stretch to say that Google has monopoly power.
It’s surprising to hear a Ph.D. economist claim there are no barriers to entry; this is just a rock of hooey (nod to censors). Perhaps he’s just not up on current research: Network effects are a strong barrier, and in a two-sided market of advertisers and eyeballs, those that get ahead tend to stay ahead.

The decision comes as somewhat of a surprise, since the Obama administration has a 3-2 majority on the FTC and was expected to take a harder line on antitrust. Cynics might say that it’s because Google was Obama’s largest and most loyal re-election donor ($31 : $1) among Silicon Valley’s 10 biggest companies. Coincidentally, Obama’s latest FTC appointee — George Mason professor Joshua Wright — will be recusing himself on Google matters for two years because he’s taken money from Google.

However, for Google critics there is the minor matter of proof. In the US antitrust system, wanting to crush your enemies so you can extort monopoly profits from your customers is not actionable — you more or less have to do it first because it has to be proved in a court of law. The US (at least until recently) has had a greater emphasis on unfettered markets than Europe, where protecting

Instead, most of what Google conceded were items that it had already lost or was likely to lose (the ruling on licensing Motorola’s standards-essential patents is a complex one I hope to take up later).

NYU law professor James Grimmelmann blogged that the FTC didn’t say it found no evidence, but that Google is doing what is legal. His analysis of some key quotes:
  • Google was pure of heart: “The totality of the evidence indicates that, in the main, Google adopted the design changes that the Commission investigated to improve the quality of its search results, and that any negative impact on actual or potential competitors was incidental to that purpose.”
  • Google helped users when it helped itself: “Notably, the documents, testimony and quantitative evidence the Commission examined are largely consistent with the conclusion that Google likely benefited consumers by prominently displaying its vertical content on its search results page.”
  • The data agree with Google: “Analyses of ‘click through’ data showing how consumers reacted to the proprietary content displayed by Google also suggest that users benefited from these changes to Google’s search results.”
  • Everyone else did it, too: “We also note that other competing general search engines adopted many similar design changes, suggesting that these changes are a quality improvement with no necessary connection to the anticompetitive exclusion of rivals.”
And, Prof. Grimmelmann concluded, this exoneration will make it that much harder to initiate or win a U.S. legal challenge to Google monopolistic activities in the future.

Anyone who knows Google knows that it is no more “pure of heart” than Microsoft was in the 1990s or IBM in the 1970s. Microsoft called this “freedom to innovate,” a variant of the “what’s good for General Motors is good for the country” argument.

Like Microsoft, Google pushes for self-regulation of the “trust us” variety. Unlike Microsoft, Google’s mantra of “do no evil” seems to have convinced many that it’s fundamentally trustworthy, despite their pattern of hubris (if not arrogance) and demonstrable efforts to attain Total World Domination.

The timing was particularly unfortunate. This morning's front page WSJ article documents how Google is using tying to support its once-moribund social media experiment, Google+. As Amir Efrati wrote
Google Inc. is challenging Facebook Inc. by using a controversial tactic: requiring people to use the Google+ social network.

The result is that people who create an account to use Gmail, YouTube and other Google services—including the Zagat restaurant-review website—are also being set up with public Google+ pages that can be viewed by anyone online. Google+ is a Facebook rival and one of the company's most important recent initiatives as it tries to snag more online advertising dollars.

The impetus comes from the top. Google Chief Executive Larry Page has sought more aggressive measures to get people to use Google+, two people familiar with the matter say. Google created Google+ in large part to prevent Facebook from dominating the social-networking business.
(In my experience, Google’s approach is similar to Facebook and Twitter, but for the latter it’s more obvious when you are sharing related information than with Google. Also, these firms lack the control of other Internet services such as Google’s search, mail, photos, video, news, maps, telephony, music downloads, book downloads, blogging or cloud services).

For now, the only remaining hope for the anti-Google forces is to win support from governments outside the US (as Sun fought Microsoft in Europe and Japan). As Microsoft and Intel learned, the EU can pretty much do what it wants to American tech companies.

It’s also possible that a publicity seeking attorney general in the Empire state or another state will sue Google in hopes of gaining name recognition for a gubernatorial run. Who knows, perhaps New York’s lame duck billionaire mayor and America’s 21st century Napoleon will throw his corporate empire, bully pulpit and money in support of the effort.

1 comment:

Kenneth M. Kambara said...

define true 'market power'