Antitrust Referees Should Let the Players Play

Having antitrust referees bog down Google in antitrust disputes benefits no one.

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The Google logo is seen at the Google headquarters in Brussels, Tuesday March 23, 2010. Google Inc. has won a key European Court ruling that says it did not violate luxury manufacturers' trademarks by allowing counterfeiters buy brand names as advertising key words that link to online stores offering fake goods. In a Tuesday ruling, the European Court of Justice says Louis Vuitton and other French luxury companies should turn to the French courts to seek compensation for possible damage from the misuse of their trademark.

David Balto is a former policy director of the Federal Trade Commission, attorney-adviser to Chairman Robert Pitofsky, and antitrust lawyer at the U.S. Department of Justice. He has been a senior fellow at the Center for American Progress and has worked with the International Center on Law and Economics, both of which receive funding from many organizations including Google. Mr. Balto has also published research and authored scholarship for Google on technology policy topics, but the opinions here are his own.

"Football" means two very different sports depending upon what side of the pond you are on. And in either sport you need to have a referee to make sure the game is fair, either team has a chance to win and spectators can enjoy the battle. We want a referee to be unobtrusive, to call penalties only when necessary, not favor any team and recognize the game is played best when there are no limits to competition.

This seems to be an apt lesson for antitrust enforcers and their lengthy and exhaustive investigations of Google. For three years, both the U.S. Federal Trade Commission and the European Commission conducted exhaustive investigations of Google, secured millions of pages of documents, interviewed hundreds of firms and listened to endless complaints. At the end, they both reached the same conclusion – that Google did not violate the law and the matter could be resolved with several voluntary commitments.

[See a collection of political cartoons on the economy.]

Both enforcers seemed concerned by some aspects of Google's behavior and ultimately welcomed commitments by Google to make certain reforms. The European Commission settlement has three major components:

  • First, Google is reforming its AdWords API policies (responding to concerns raised by Microsoft) as well as giving websites greater ability to opt-out of having their content displayed in Google's specialized results pages. These commitments are roughly the same as those made to the Federal Trade Commission. And while I have written in the past that Google's display of "snippets" from third party reviews is well within copyright law, it makes sense that the European Commission would insist on these commitments as well.
  • Second, Google will no longer include any "written or unwritten" limitations that would prevent its AdSense for Search publishing partners from using a competing service. The FTC looked at this issue, but decided not to take any action.
  • And third, Google will provide more transparency and choice to search engine users by clearly labeling and distinguishing its specialized search services (such as shopping or flight results) and displaying links to three rival specialized search services near its own specialized results.
  • [Read the U.S. News Debate: Should Probable Cause Be Required for Police to Use Cell Phone Location Data?]

    While some rivals urged the European Commission to forbid Google from displaying specialized search results (even though consumers value those specialized results), it wisely acted with restraint. Instead of banning a pro-competitive and pro-consumer service, the European Commission instead sought to ensure that consumers know that these results are slightly different from traditional web search results.

    Moreover, by displaying links to rival sites, Google will offer consumers greater choice. This approach expands upon Google's past practice with financial search results, where it has always displayed links to sites like Yahoo Finance and MSN Money alongside its own stock quotes. The European Commission correctly rejected arguments that Google has somehow prevented consumers from reaching competing websites, but nonetheless nudged Google to provide new choices for searchers.

    Ultimately, consumers may decide that specialized search is not something they want as a separate product and instead expect specialized search results from their general search provider. Consumers may also decide they prefer a competitor's specialized search engine. This approach is sound: markets work best when there is transparency and choice.

    [See photos of Google's driverless car.]

    Google has entered into a voluntary commitment and the European Commission has the power to bring enforcement actions if those commitments are violated under Article 9 through fines and court action. The Commission has previously enforced such a voluntary agreement with Microsoft on its "browser ballot".

    Google's competitors have predictably objected to the remedies as insufficient. They would probably prefer a world where there are hundreds of antitrust referees on the field ready to throw flags or issue red cards at the slightest infraction. (It would be daunting to try to regulate search unless the European Commission wanted to conscript all the economists and technicians on the continent into the effort.)

    Of course, any football game or market would become bogged down in endless disputes in that type of environment. If the antitrust referees favored one competitor over another the incentive to compete hard would be dampened. Especially in the quickly evolving world of the Internet,  firms would be continually guessing about how to avoid penalties. Ultimately, the consumers would suffer because they would lose the benefits of the hard fought competitive battle.

    Resolving this matter through a voluntary commitment is far superior to a long and expensive litigation that could have, at most, provided an expensive and pyrrhic victory. U.S. and European consumers and competition will benefit from this 21st century approach to antitrust enforcement.

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