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Google Antitrust: Easy To Charge, Hard To Prove

If any more regulators and legislators target antitrust probes at Google (GOOG), they'll have to take numbers and stand in line. The European Union has an existing probe, the Federal Trade Commission and the Senate Judiciary Committee are reportedly readying subpoenas, and rumor has it that California and New York are in the early stages of antitrust investigations, joining Texas and Ohio.

But investigations are different from bringing formal charges, and formal charges are a long way from proving anti-competitive behavior. According to a number of legal experts, government lawyers would have their work cut out for them. Not only are the issues subtle, but the specifics of how Google operates may be perfectly legal under antitrust law. There are three points that have to be shown:

  • Google has a market dominance in search.
  • Google is deliberately promoting its services over competitors in search.
  • The improved search position gives Google's other services an improper advantage in other markets, such as mapping, email, or travel.
None of those hurdles is easy to clear, particularly in the U.S.

Market dominance
"Usually, [legal market dominance] means the power to raise price significantly over cost for a significant period of time," says Eleanor Fox, a professor of law at the New York University School of Law and an expert in trade regulation. But whether that's the relevant definition becomes just one of many points of contention.

Google doesn't charge for search. It does make money from search advertising, but an advertiser bidding process sets the rates. Government lawyers would have to argue that a large search market share was enough to dominate the market.

"The standard benchmark [of monopoly power] is having two-thirds [of a market]," says Roger Dennis, dean of the Earle Mack Law School at Drexel University and a former special assistant to the assistant attorney general for antitrust policy during the Carter administration. Google has been losing market share each month. According to Experian Hitwise, the share dropped below 65 percent in March 2011, which is under the two-thirds level. Google would certainly argue that under traditional definitions, it no longer has market dominance.

Promoting its services over competitors
After showing that Google had a market advantage, the government would then make the case that the company promoted its interests in other markets over those of its competitors, abusing its existing market power.

Is putting its own listings first enough? That's hard to say. Search for "maps" in Google, and Google Maps comes first. But MapQuest (AOL), Yahoo (YHOO), and Microsoft (MSFT) Bing are right behind. In some cases, like email, a competitor with a bigger market share (Yahoo) may appear after Google's offering.

But Google's algorithms consider many factors, and the company would argue that its rankings are designed to be responsive to the needs of consumers, an argument that holds weight with judges. "The FTC would have to show that when it comes up first, it's arbitrary, despite what consumer want," Fox says.

The physical venue of search could also have an impact on the question. On a desktop or laptop, Google and competitors may have virtually equal attention from consumers. And yet, the growing use of smartphones could help tip the argument the other way, as smaller screens might squeeze out competitors from the first screen of search results, effectively giving Google a far more powerful position.

Abuse of market power
The final question is whether Google abuses its market power -- one of the most subtle issues in antitrust law, according to Dennis. In past antitrust actions against IBM, AT&T, and Microsoft, the questions "about abuse of market power went on and one for decades," he says.

Competitors might complain, but that alone "is not a sign that [Google is] doing anything illegal," says Fox.

"Assuming Google got their market power by fair means, how much can they exploit that market power they created by their own innovation and acumen?" Dennis asks:

This is the classic tension in antitrust law. You want people to compete like the dickens aggressively, but then, if they become highly successful like Google, how much do you pull them back from the strategies that made them successful?
"For the European union, this is an easier case," Fox says. The EU prohibits "a dominant firm from discriminating against rivals," keeping them from gaining market advantages the leader already enjoys. EU regulators might only need show that Google got a jump on additional markets by listing its offerings first.

Sometimes even winning is losing
The real danger for Google is not that it might ultimately lose an antitrust action that a government brought, but that it got involved in the first place. "They would certainly have to spend a lot of money in legal fees," Dennis says. "These kinds of antitrust cases are among the most expensive kinds of litigation that any company can face. Millions. Tens of millions. Depending on how long it goes on, hundreds of millions."

Google could afford that type of legal bill. The bigger danger is in the loss of focus. "Microsoft spent so much of its corporate energy around antitrust litigation with Justice and others that it really hurt the strategic direction of the company," says Dennis. "If I were a Google senior manager, that would be among my concerns."


Image: Flicr user @jbtaylor, CC 2.0.