After the news broke on April 15 that the European Commission had sent a Statement of Objections to Google alleging antitrust violations in how it presented its general search results commentators said some astonishing things.
Jim Cramer said on CNBC that the FTC didn’t sue Google a few years ago on largely the same allegations for violating the antitrust laws because Google understood Washington “pretty well,” and was “pretty good as schmoozing.” But in Europe, according to Cramer, Google is a taker of market share, not a maker of jobs. “You have to be a job-maker in Europe,” said Cramer, like Cisco in France, in order not to get tagged with an antitrust case from the European Commission.
“We like monopolies,” Cramer said. “In Europe, they don’t like monopolies.”
The next day Farhed Manjoo declared in the New York Times that the EU’s prosecution of Google will “inevitably” be compared to the government’s case against Microsoft, which was sued in the 1990s by the Department of Justice for anticompetitive conduct related to its Windows operating system. According to Manjoo, “the theories supporting the case against Microsoft have all but fallen apart” since then. The same result, he assures us, will eventually befall the European’s (read: misguided) case against Google.
Randolph May, head of the Free State Foundation, blogged about a fictitious meeting at the FCC at which Chairman Wheeler and his staff reason that, since the EU’s complaint is based on Google’s presentation of “non-neutral” search results, such conduct would surely be prohibited under the FCC’s new open Internet regulations. (At the conclusion of the piece, May admits that the “sources” for the article were “inside his head” and not at the FCC. But, still.)
The problem with such pseudo-analytic, psycho-political speculations is that they leave out the real legal basis on which the relevant authorities take their decisions.
In the first place, any discussion of the different treatment of Google in the U.S. and in the EU that fails to take account of the deep differences between the antitrust laws of the two jurisdictions is destined to be misinformed. Under European law, a “dominant firm” can violate the competition laws by “abusing” its monopoly. In Europe, a monopolist that exercises its economic power by gouging consumers with supra-competitive prices, or uses its high market share to steer customers away from rival complementary products, can be prosecuted under the EU treaty’s competition laws.
No so in America, where, as long as one’s monopoly has been lawfully obtained, the Sherman Act does not prohibit monopolist from exercising the economic power inherent in a lawful monopoly. On the other hand, the acquisition or maintenance of a monopoly by anticompetitive means is prohibited under U.S. law. Microsoft’s antitrust liability in 1999 was firmly grounded in the factual evidence of Microsoft’s preference for interfering with the competitive process rather than competing on the merits, by distributing polluted Java, charging per-processor fees, unreasonably restraining retailers, and other illegitimate means. The theories that underlie Microsoft’s liability in that well-reasoned decision remain very much current U.S. law.
Monopoly acquisition or maintenance by anticompetitive conduct is, of course, also unlawful in the EU. In that sense, there is a gap in the U.S. antitrust law compared to EU competition law. The EU prohibits abuse of a monopoly position; the U.S. does not.
Thus, when it came to Google, the U.S. Federal Trade Commission was presented with complaints from Google’s rivals for conduct—abuse of Google’s dominance in general search—that fell squarely in the gap in U.S. law that does not prohibit abuse of dominance. Instead, the FTC examined the putative case against Google under Section 5 of the FTC Act, which authorizes the FTC to take action against any conduct that the Commission finds to be an “unreasonable method of competition” or a “deceptive act or practice.”
The application of Section 5 to conduct that is not already prohibited by Sections 1 or 2 of the Sherman Act is a matter of some controversy among antitrust scholars. The principal disagreement is the extent to which firms are entitled to some ex ante understanding of what would violate the statute. Opponents of expanding the boundaries of the FTC’s antitrust authority claim that the absence of preannounced standards for Section 5 creates uncertainty in the business community. Supporters doubt this and feel a relatively greater confidence that the expert Commission appointed to serve at the FTC will use its collective wisdom in competition law appropriately. So by taking a case against Google, the Commission would be creating case law and building a body of Section 5 jurisprudence, i.e., using the case to create the standards the business lawyers claim to need.
Whether the complaints reviewed by the FTC against Google in 2011 added up to a good case for the Commission to use in the process of building up the jurisprudence of Section 5 is doubtful. A rationale for the case not grounded on abuse of dominance would have raised difficult issues of the nature of competition in platform industries and the relationship between system competition and component competition, answers to which are not immediately apparent in the search industry. We’ve learned recently that the FTC’s staff recommended at the time proceeding with a case against Google, but the Commission was probably wise to wait for a better opportunity to begin (or, more precisely, continue) defining Section 5 standards.
By contrast, the European Union. The differences from U.S. law can be traced to the historical beginnings of the European Community and their ultimate project of building a European Union. The authority to intervene against abuses of dominance was necessary legal authority if a European Directorate for Competition was to have any hope of breaking down the traditional national barriers to trade that exist in Europe and dissolving the grip of each Member State’s national champion in this industry or that. Europe doesn’t like monopolies, Mr. Cramer? You’ve got to be kidding. (Cf. mercantilism, a decidedly European invention).
Like jazz, antitrust is decidedly American, and the evils of monopoly were addressed here before anywhere. We legislated the gap that allows American companies to abuse their dominance for good reason. Not only were we not breaking down long-standing national-industrial barriers, the antitrust framers also understood the notion of “quasi-monopoly,” the economic power enjoyed by first movers, visionaries, innovators and others crazies whose industry we want to encourage, not punish. That distinction is passed over too often. Quasi-monopoly is an incentive, but temporary. It is the reward to success in a Schumpeterian system in which success invites competition. (It’s not a permanent monopoly, and particularly not one like the old phone company, protected by governmental regulations. Are you listening, Justice Scalia?)
Why the FTC passed on bringing a case against Google search and the Europeans didn’t, then, has nothing to do with schmoozing quality or discredited theories. It has everything to do with the currently applicable antitrust law in the two jurisdictions.
The Europeans, with a different experience and a different aspiration, have deemed it wise to anoint DC-Comp with the power to intervene against abuse of dominance. Because an action against Google is not rationally related to increasing intra-Union commerce, we are particularly dependent on the wisdom of the European officials to appropriately apply competition law principles. If the evidence marshalled and presented by Google over the next 10 weeks is sufficiently persuasive to demonstrate that its search algorithm is truly competitively neutral, the company may be able to convince DG-Comp that a prosecution is beyond the spirit of the abuse of dominance standard because it serves no competitive purpose. But, the case is going to have to be made.