Rick Rule is a partner at Cadwalader, Wickersham, and Taft LLP. He was assistant attorney general under Ronald Reagan. Rick represents Microsoft, among other companies with concerns regarding Google's business practices.
Nobody disputes that the antitrust laws exist to protect competition in the marketplace and are not to be used offensively by aggrieved competitors. But the Federal Trade Commission's recent decision to close its investigation into Google without obtaining any meaningful relief demonstrates that the Commission totally failed to understand that Google's customers are not just Web users, but online advertisers, and that harm to advertising competition ultimately harms consumers. At the Department of Justice, which historically has investigated advertiser-supported media businesses, such as broadcast television and newspapers, it has long been understood that the agency must "follow the money." Because the FTC seemed to overlook this truth, its decision last week raises a substantial number of ongoing questions.
Google supporters often point out that its products are "free," meaning that Web users can access Google's online content without having to pay anything. But if Google gives its search engine away for free, how does it earn more than $35 billion in revenue? The answer is Google charges companies billions of dollars to advertise on its Web pages.
In closing the investigation, the FTC effectively ignored the fact that Google's actions were designed to preserve its advertising monopoly. By biasing its search results to deprive non-Google websites of Internet traffic, Google was ensuring that advertisers had no place to go on the Internet other than to Google. The company's actions allow it to keep advertising prices high and to prevent viable alternatives from gaining traction in the marketplace.
Just ask yourself if, 60 years ago, monopoly daily newspapers blocked local television stations from developing, would the antitrust agencies have looked the other way because higher advertising prices would keep down the price of a newspaper? Or, 30 years ago, would antitrust regulators have looked the other way if broadcast networks sought to exclude Fox from starting a fourth network because broadcast television is free?
There is reason to believe that the FTC's decision is just round one of this heavyweight fight. In the early 1990s, the first federal agency to conduct an antitrust investigation into Microsoft's business was the FTC. Despite a staff recommendation that the Commission file an action against Microsoft, the FTC's commissioners were deadlocked and closed the investigation, only to have it picked up by the Department of Justice a few months later. Ultimately, Justice brought a case against Microsoft notwithstanding the company's claims that it wasn't harming consumers because it gave its web browser away free of charge.
Here again the FTC's staff recommended that the Commission bring a case against Google. Individual commissioners' separate statements and comments to the press indicate that at least four of the five current commissioners—including senior Republican Commissioner J. Thomas Rosch—wanted to bring a case, but they couldn't agree about the specific claims to pursue. The appropriate approach for an enforcement agency would be to determine whether at least three votes could be found for any of the claims recommended by the staff. If no charge could garner a majority, then either send the case back to the staff to re-focus its investigation or vote to close and let other enforcers take over.
Instead, the current FTC Chairman claimed a "consensus" and accepted a "voluntary" agreement with Google. Rather than follow the normal oft-used consent decree procedure that allows for public review and comment—a procedure the FTC has been using for decades to settle cases—the Chairman accepted mere "voluntary commitments." This is major deviation from decades of practice at the FTC and the Department of Justice, and as even Commissioner Rosch has observed, the commitments were "useless." The voluntary commitments call the Commission's entire investigation into question, particularly in light of the fact that Google has a history of ignoring its commitments under legally enforceable decrees. Just last summer, for example, the FTC fined Google over $22 million for violating its consent decree in the Google Buzz privacy matter.