There may not be a real investigation of Google’s business practices from the European Commission, at least not yet. But judging from the waves of hyperbole emanating from the usual suspects, along with a few new entrants, in the wake of the EC’s admission that it forwarded Google some negative mail earlier this month, there may as well have been one. It appears that if enough people on the Internet share a topic with one another, it must be true.
The complaint among three of Google’s competitors is that it leverages its hugely popular, all-purpose search engine as a platform for promoting its own exclusive shopping services. In a way, there’s almost no contesting the complaint — that’s exactly what Google does. The question is whether that’s wrong. As Betanews noted yesterday, the answers may differ depending on the continent they apply to. Depending on the country, the legal standards (and the suppositions behind them) vary.
But late Friday, the other major company whose name was invoked in the course of the complaint — Microsoft — issued a response. Instantly, the hyperbolic headlines roared, the empire strikes back. Microsoft fires back a salvo, a shot across the bow, an interceptor missile.
Then it came time to actually read the response. If you think this article buried the lede way down in paragraph 3, you’ll be astonished in your search for the main point of the blog post late Friday afternoon from Dave Heiner, the usually well-spoken deputy general counsel for Microsoft.
After stating that the EC has begun an investigation of Google — a fact which the EC itself flatly contradicted on Wednesday — Heiner appears to make the case that since so many service providers and advocacy firms have invoked the word “Google” in juxtaposition with “antitrust” in recent weeks, there must be cause for suspicion.
“In this instance, there has been no shortage of affected voices,” writes Heiner. Referring first to the three subjects of the EC inquiry, he continued, “A quick Internet search will surface the growing concerns that have been raised by upstart innovators such as Ciao (owned by Microsoft), Foundem and, ejustice.fr, as well as from industry groups such as the Federation of German Newspaper Publishers and The Association of German Magazine Publishers. Publishers, advertisers, advertising agencies and others want to see real competition in search and online advertising. As Google’s power has grown in recent years, we’ve increasingly heard complaints from a range of firms — large and small — about a wide variety of Google business practices. Some of the complaints just reflect aggressive business stances taken by Google. Some reflect the secrecy with which Google operates in many areas. Some appear to raise serious antitrust issues. As you might expect, many concerned companies have come to us and asked us for our reaction and even for advice. When their antitrust concerns appear to be substantial, we suggest that firms talk to the competition law agencies.”
In summary, complaints…exist. And those complaints suggest, says Heiner, that “Google practices…may be harming publishers, advertisers, and competition in search and online advertising.”
Unable to escape the unavoidable comparison between bundling of search and network services and the other major example of service bundling in the history of computing, Heiner acknowledged that bundling can have negative effects on competitive players. That may force competitors to partner, and here, Heiner explicitly referenced Microsoft’s forthcoming search partnership with Yahoo. But finally, Heiner closed by saying, as far as the question of true harm to consumers is concerned…who knows?
“Microsoft would obviously be among the first to say that leading firms should not be punished for their success. Nor should firms be punished just because a particular business practice may harm a rival — competition on the merits can do that, too. That is a position that Microsoft has long espoused, and we’re sticking to it. Our concerns relate only to Google practices that tend to lock in business partners and content (like Google Books) and exclude competitors, thereby undermining competition more broadly,” the company’s deputy general counsel wrote. “Ultimately the competition law agencies will have to decide whether or not Google’s practices should be seen as illegal.”
In a way, Heiner’s retort is brilliant. He and Microsoft are being given credit this evening for standing up to Google, and even scoring some points in favor of fairness — this message from Microsoft, rarely perceived by enthusiasts as the voice of fairness — all without having really said all that much of substance.
Yesterday, in response to our story whose headline began “Define ‘monopoly,'” some of our regular readers asked for more information and references for some of the main premises of our story: specifically, the thresholds for a “monopoly” in the United States and a “dominant player” in the European Union.
It’s a wonderful request, and I only apologize for being tied up with other matters, though here is our readers’ much deserved response:
It is not really the Sherman Antitrust Act of 1890 that designates the threshold of dominant market share in the US, even though case law that references Sherman tends to also refer to the 75% threshold. Recent precedent was established by the 2002 ruling in one of the long-standing antitrust battles in American history, R.J. Reynolds v. Philip Morris — the battle of the tobacco titans. US District Court in North Carolina essentially determined that previous interpretations of Sherman up to that point effectively evened out to a threshold of 75%, or thereabouts.
Specifically, Reynolds accused Morris of an unfair business practice: paying retailers for shelf space for their products. Those payments effectively came in the way of discounts on purchases, though they may be accounted for more like rebates. Morris’ plan was such that it allowed competitors to set any price they wanted to for competitors’ cartons, such as Reynolds’ — sell the other guy’s product however you want, said Philip Morris, as long as you give us a set amount of shelf space. Part of Reynolds’ complaint was that it was not in a position to offer retailers a plan that made a similar grant — it literally could not offer a plan where retailers could sell Morris’ brands for whatever prices they wanted.
The court in this case ruled in favor of defendant Morris’ petition for summary judgment, on the grounds that Philip Morris may be dominant, but it’s not a monopoly. As the judges found, Morris’ ascertained 51% national market share was “far below the generally accepted 70 to 75 percent minimum share necessary to support a finding of monopoly power.” This while citing the Sherman Antitrust Act, which doesn’t actually set this threshold on its own.
The exact threshold for the European market share threshold is open to some dispute. Sometimes the nature or degree of that dispute depends on convenience. For example, in situations where the European Commission defers to member states for establishing precedent, some of those states then lean right back on EC competition law — and cite 50% as that threshold.
In cases where the EC reviews a potential merger, under the Merger Regulation of 2004, it uses a different metric — one which determines whether a market share number even below 50% would be considered dominant given the number of other competitors in the remaining market.
And in a very famous statement to Reuters in September 2007, then-Commissioner for Competition Neelie Kroes celebrated Microsoft’s loss in its appeal of the EC’s antitrust ruling against it, saying she hoped this would start knocking Microsoft down a few pegs. How much would that be, asked Reuters? “A market level of much less than 95% would be a way of measuring success…You can’t draw a line and say exactly fifty [percent] is correct, but a significant drop in market share is what we would like to see.”
- “United States Antitrust Law Related to Bundling, Loyalty Discounts and Slotting Allowances” by Barbara T. Sicalides. From the blog of Sicalides’ law firm, Pepper Hamilton LLP, October 5, 2007.
- “The Development of Antitrust Enforcement” (PDF available here). From the producers of the documentary film Fair Fight in the Marketplace, narrated by NPR legal correspondent Mara Liasson.
- Antitrust Law and Economics of Product Distribution. American Bar Association, 2006. See the Google Books citation, page 312.
- Market Power Handbook: Competition Law and Economic Foundations. American Bar Association, 2005. See the Google Books citation, “Market Share as a Predictor of Market Power,” page 82.
- 2002 Annual Review of Antitrust Law Developments. Section of Antitrust Law, American Bar Association, 2002. See the Google Books citation, “Market Share as Indicator of Market Power,” page 53.
- “A Simple Guide to the EC Merger Regulation of 2004” (PDF available here). Published by The Antitrust Source, January 2005.
- “DG Competition Discussion Paper on the Application of Article 82 of the Treaty to Exclusionary Abuses: Public Consultation” (PDF available here). Published by The Antitrust Alliance, an independent forum on antitrust practices.
- “EU Competition Policy and the Consumer” (PDF available here). A brochure published in 2004 by the European Commission for Competition. This brochure is not exactly the record of European law, but it’s notable for the initially broad definition it set for the phrase Dominant Player: “A company is a dominant player in a market if it can change, for example, the price or quality of its product in that market independently of its competitors, customers and suppliers without significantly affecting its sales.”
- “Regulatory Reform in Finland: The Role of Competition Policy in Regulatory Reform” (PDF available here). Published by The Organization for Economic Co-operation and Development, 2003. Note in particular page 13, which explains the concept of “Abuse of Dominance,” and clearly defines dominance as “presumed” to imply 50% market share or greater.