Google, the EU, and Antitrust in the Digital Age

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American antitrust law (which is the source of European antitrust law) is rooted in the idea that trusts - large, market-controlling companies - upon achieving a certain level of market dominance, will act in such a way that undermines the positive impacts of competition and harms consumers. In the US, the Sherman Act (1890), the Clayton Act (1914), and the FTC Act (1914) provide the foundations for antitrust law, with a few subsequent acts and numerous important Supreme Court decisions adding much-needed color. Europe’s antitrust law is formalized in Treaty on the Functioning of the European Union. Though the philosophical underpinnings of both systems are the same, there are a few significant differences. One could argue that, for a large multi-national company like Facebook or Google that would be subject to both, the only one that matters is the one that's more strict. Any significant company cannot afford to not participate in such a large market and thus needs to follow both rule sets while not running afoul of either at any time (more to follow) - though they could create special versions for a market following that market’s particular requirements. 

Antitrust laws generally do not prohibit a monopoly, and do not penalize a monopoly simply for existing - to the extent that the monopoly was created through fair, competitive means and that it subsequently does not act a way that harms either consumers or competition. The line that is drawn regarding acceptable behavior once a monopoly exists, and how it is measured, is where US and European antitrust law differ. US law is focused on the consumer, which is generally measured in terms of what the consumer would pay. European antitrust law has an additional provision focused on protecting competition itself. This means that, in Europe, if a firm that is dominant in space A undercuts a competitor in space B - because it can recoup the profits in A (and eventually, hopefully, own space B) - this behavior is illegal. In the US, however, the mere act of undercutting in space B is not sufficient to be illegal if it can be shown that new entrants, or the hypothetical entrance of a company, would ensure that the price to the consumer in B does not increase, even after the smaller competitor would go out of business. This underscores the focus on competition as opposed to the focus on prices. 

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This last week, Europe issued its finding that Google is a dominant firm. This means that search is an area subject to antitrust purview - not a terribly surprising fact given the size of the market, but still one that had not been officially concluded - and that Google is dominant in that market. This means that, in Europe, as discussed above, Google’s actions will be viewed under stricter scrutiny in areas that aren’t necessarily search to the extent that they relate to Google’s dominance in search. The direct result of that finding was that, for the case in question, Google had abused its market dominance as it relates to comparison searches. Specifically, Google had used its market dominance in search to show its comparison search results above those of competitors while demoting the results of its competitors. The data showed that by simply placing a result as the first result - or moving it to the third result - the impact on clicks was dramatic. In every instance, Google placed its own comparison search results first, meaning its search dominance in search led to dominance in comparison search. The penalty was severe - $2.7B and the requirement that it change its behavior within 90 days or else face an ongoing five of 5% of average global turnover. The required behavior includes giving other comparison search engines equal treatment in its search results as its own. Arguably, this is a very weird result - making Google include other search results in its own results, so it remains to be seen how Google will respond. Google's argument that consumers prefer this behavior, that the results for a search are available on the first page rather than having to go through an intermediary, and that it should be allowed to innovate its own search results as it sees fit, were not sufficient for the European courts. Meanwhile, in the US, the same behavior is likely not illegal under anticompetitive regulations because there is no price effect to the consumer. One could question that conclusion, as well as what it means to have a "price impact to the consumer" - like how directly or indirectly that is measured. One could also look at the US v Microsoft non-Supreme-Court decision regarding illegal tying of a product to a dominant product - but both are outside the scope of this discussion.  

The abuse-of-dominance result in this case is directly relevant to companies like Yelp. But the finding that Google is dominant itself will likely have a much broader impact, especially in a jurisdiction that, like Europe, promotes competition itself, not just pricing. The most immediate result will probably be on the two outstanding European antitrust cases against Google. The first is regarding Android, where the thesis is that Google has used its dominant position in search to stifle choice and innovation in mobile apps. The second is regarding Adsense, where Google has limited companies that want to use Google’s search advertisements from working with any other providers. 

Traditionally in digital, it has not been the case that antitrust has been effective in eroding market dominance. The most noteworthy example is Microsoft - the consent decree that it signed with the government that enabled competitors to include their browsers in Windows had very little to do with Microsoft’s loosening grip on the PC. This happened through the shift to web. Some may claim that the shift to Facebook's and Apple’s closed ecosystems v the open web is more threatening to Google than any antitrust settlement. Nonetheless, Google’s dominance in ad tech is tied to its success in search. Companies that commit to a certain spend level on their DSP are given discounts on search - which could be argued to be a mandatory expense; Adsense leverages Google’s Display Network - search-informed banner ads that subject third-party websites to Adsense’s terms of service; publishers themselves are required to meet various Google search policies around content and presentation, including monetization, to be displayed in search; AMP is a Google-owned definition for mobile websites that promotes search results for publishers that embrace its standards, and punish those that don't, and which has meaningful impacts on how publishers can work with monetization partners. All of these could begin to be scrutinized more closely once one has made the conclusion - as the EU has - that Google is a dominant firm and they may not use their dominance to undermine competition itself. So it will be interesting over the next couple years to see this play out, and it may have a very positive impact on competitiveness in the ad tech ecosystem.