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Ie google presentation

  1. 1. James Speta What We Can Learn About Modern Antitrust Law from the Google Cases James B. Speta Class of 1940 Professor of Law Senior Associate Dean of Academic Affairs and International Initiatives
  2. 2. Overview • Welcome • Fundamental questions • Summary of investigations – Google search – Standards essential patents • Current status in U.S. and E.U. • Competition law divergence and convergence James Speta
  3. 3. Fundamental Questions • (1) How can we administer antitrust in digital markets? – Antitrust desires competition – Digital markets can be “tippy” – Competition may be more serial than simultaneous • (2) How can we address the conflict between antitrust and intellectual property? – Intellectual property assumes that, for limited times, monopoly helps innovation and consumers James Speta
  4. 4. Google Case Background • Two principal investigations – U.S. Federal Trade Commission ‒ Begun June 2010, ended January 2013 – European Commission ‒ November 2010 ‒ Several additional investigations in Member States • Private litigation – Principally in the U.S., which has a wider scope for private antitrust enforcement James Speta
  5. 5. Search Issues James Speta
  6. 6. Search • Search • Advertising • Verticals James Speta
  7. 7. • Complaints – (1) Google’s selection of advertisers ‒ Second price auction mediated by a quality score based on likely clicks ‒ Advertisers do not simply win based on willingness to pay, because Google’s payment depends on actual clicks ‒ Alleged manipulation or unpredictability of quality scores James Speta
  8. 8. – (2) Google’s selection of search “results” ‒ Alleged manipulation of both the algorithm and results ‒ Ranking matters (although there is a circularity problem with this data) James Speta Rank in Natural Results Percentage of Clicks First 53% Second 15% Third 9% Fourth 6% Fifth 4%
  9. 9. – (3) Complaints about “verticals” ‒ Google providing its own products as results ‒ Maps, Pages, flights, etc. ‒ Google simply answering questions James Speta
  10. 10. • Google market position – Europe ‒ Google: 95% (according to Commission) – United States ‒ Google: 67% ‒ Bing: 15% ‒ Yahoo: 13%* ‒ Ask: 3% – Russia ‒ Yandex: 62% ‒ Google: 26% James Speta
  11. 11. • Scale matters – Search quality improves with increased numbers of searches ‒ Algorithm has feedback from user clicks – Advertising may be more targeted, increasing value ‒ Advertising products may be differentiated on multiple dimensions – Infrastructure costs are spread – Question: Do scale returns plateau? James Speta
  12. 12. Patents • Google has significant patents that important in mobile handset and software markets James Speta
  13. 13. James Speta
  14. 14. • Standard essential patents – Standard setting organizations help ensure compatibility and set technical compliance terms – Companies that participate in standards setting processes usually agree to license patents at reasonably, nondiscriminatory terms – But, SSOs do not always anticipate patents that might read on standards by organizations that do not participate James Speta
  15. 15. Current Status • United States – Federal Trade Commission ‒ No action against Google concerning search products ‒ Google will enhance content providers’ ability to block Google from scraping content ‒ Google will enhance advertisers’ ability to manage campaigns across different platforms ‒ Google will not seek injunctions on standards essential patents (and will license at reasonable rates) James Speta
  16. 16. • Europe – Settlement negotiations were long – Commission indicated it was likely to find that Google is “dominant” in search – Under settlement, Google will agree to “tag” verticals, to disclose relationship with Google – Under settlement, Google will agree to show three competitors’ products when it shows its own specialized search ‒ Competitors will have to pay for clicks James Speta
  17. 17. • Main differences in outcomes (on search) – Formal finding of dominance in Europe – Formal requirement of remedies in Europe ‒ European Commission indicated twice that FTC package of agreements was not acceptable James Speta
  18. 18. Lessons Learned • Competition law analysis in digital markets – Scale really matters ‒ Scale can create entry barriers if network effects are in play – Nevertheless, it is hard to identify persistent entry barriers ‒ Because network-effects arise from consumer preferences – And, it is even harder to imagine how to break down network effects James Speta
  19. 19. • One key is allowing consumers to switch – to discourage stickiness – Hence the FTC conditions to allow consumers to take their data from Google more easily to move to other platforms James Speta
  20. 20. Substantive Law • Both US and European competition law include monopolization offenses – Sherman Act section 2: ‒ Forbids foreclosure in the acquisition or maintenance of monopoly – Article 102 of the Treaty ‒ Forbids “abuse of … a dominant position” James Speta
  21. 21. • Convergent issues (US and Europe address similarly) – Question of monopoly power/dominance – Definition of relevant market ‒ Internet search and advertising or broader market? – Finding of power in relevant market ‒ Investigation of alternatives ‒ Investigation of entry barriers James Speta
  22. 22. • Divergent issues – – (1) Responsibilities of dominant firms – U.S.: No such responsibility ‒ Section 2 requires improper action, foreclosing competition in the acquisition or maintenance of a monopoly ‒ Microsoft example – requiring computer manufacturers not to carry competing browsers, in order to protect Windows monopoly power ‒ The Colgate doctrine: Those with legal monopolies are entitled to determine their business models James Speta
  23. 23. – Europe: Responsibility ‒ Law recognizes the “special responsibility of the dominant firm not to allow its conduct to impair genuine undistorted competition on the common market” James Speta
  24. 24. – (2) Touchstone of illegality from behavior ‒ U.S.: Consumer injury is the touchstone. Injury to competitors is not improper unless that results in injury to consumers. ‒ Europe: Injury to competitors – injury to competition in the common market – is sufficient to establish “abuse of dominance” James Speta
  25. 25. • Explanation of divergence – European competition law concerns itself with opening markets – Single market principle of Treaty – History of nationalized industries ‒ National champions – Competition law used for liberalization, as well as federal enforcement (Community v. Member States) James Speta
  26. 26. Google’s Context • Central problem in Google case is identifying a neutral baseline for search – Google: we provide the answers that people are looking for – we are not providing links to resources on the web – Under this framework, restricting competitors has a wide ambit James Speta
  27. 27. • The European approach allows the competition authority to abstract away from the consumer value proposition, which is nearly intractable, and focus instead on the effects on competitors • This flows from the different approach of the two competition law systems James Speta
  28. 28. Antitrust/IP • Antitrust and intellectual property have different premises – IP creates monopolies in order to provide consumer benefits ‒ Innovation will not occur without temporary monopolies – But IP positioning of standards patents upsets a cooperative/competitive balance James Speta
  29. 29. • Google settlement – Antitrust is being used to enforce ex ante market solutions – Parties coordinate to create large standards markets, should not be permitted to withdraw or upset equilibrium • Challenges – Getting all players coordinates – Worrying that coordination will dampen competition James Speta
  30. 30. Conclusion • European and US competition law have a different emphasis on competitive marketplaces, due to differences in history • This is manifest in the Google case • Nevertheless, the difference in outcome should not be exaggerated, as the remedy imposed in Europe does not reveal Google’s algorithm James Speta
  31. 31. • Thank you! • James Speta