Saturday, December 1, 2012

Googleopoly Next Moves

I enjoyed this refresher on FTC Act Section 5 which convincingly argues against its use for claims that might otherwise fail under, or just alongside of Sherman Act Section 2. Section 5 gives the Commission power to
"… prevent persons, partnerships, or corporations, except [a list of exceptions defined in other statutes], from using unfair methods of competition in or affecting commerce and unfair or deceptive acts or practices in or affecting commerce." 15 U.S.C. §45(a)(2)
As the post by Manne and Szoka summarizes, the FTC has sought to expand its use of Section 5 under cover of various theories, though recent success has come via consent decrees rather than in the courts. Scholars have debated the expanded use of Section 5 for decades, though little has come in the way of definitive legislative or judicial clarification.* The authors argue that with successful expansion of Section 5 in the courts, "the agency would again threaten to become a second national legislature, capable of regulating nearly the entire economy."

The authors continue, "Troublingly, 'reducing consumer choice' seems to be a euphemism for 'harm to competitors, not competition,' where the reduction in choice is the reduction of choice of competitors who may be put out of business by competitive behavior." As black letter antitrust law reminds us, the goal is protecting competition, not competitors. Members of Congress have recognized this alleged sleight of regulatory hand and sent letters to the agency making clear that they view expanded assertion of Section 5 into antitrust territory as an unacceptable expansion of agency power in the ongoing Google investigations.

It's hard to ignore one of Google's core arguments throughout these discussions that one can simply click elsewhere. On Google itself, how does streamlining user experience and doing something most consumers presumably prefer - conveniently getting the results they want, e.g. Google showing its maps products first for a related search - harm consumers or competition in a way the agency should step in?  The post also points out the 1994 codification of the agency's 1980 Unfairness Policy Statement into Section 5(n) which weighs against agency intervention:
The Commission shall have no authority under this section or section 57a of this title to declare unlawful an act or practice on the grounds that such act or practice is unfair unless the act or practice causes or is likely to cause substantial injury to consumers which is not reasonably avoidable by consumers themselves and not outweighed by countervailing benefits to consumers or to competition. In determining whether an act or practice is unfair, the Commission may consider established public policies as evidence to be considered with all other evidence. Such public policy considerations may not serve as a primary basis for such determination. (emphasis provided by Manne and Szoka)
In addition, given that many of the most vocal proponents of agency action have been competitors displeased with their Google search rankings, it's hard not to see a bit of "big equals bad" creeping in, something antitrust law has long rejected. As the great Learned Hand reminds us, “The successful competitor, having been urged to compete, must not be turned upon when he wins.” In a monopolization case, the first fight over market definition (Web search? entire Internet search? a single online service type?) would be difficult enough, let alone the rule of reason analysis into the accused firm's conduct. In other words, a Sherman Act case ain't gonna be easy, so it's no wonder the agency is looking for alternatives (assuming they're convinced some type of regulatory action is necessary). At a prior hearing, Senator Blumenthal used the analogy of Google owning and running a racetrack in which it now has horses in the race, while Google Chairman Schmidt countered that Google is more like a GPS system for the vast Internet. And this is just the search preference issue. The company has tangoed with the Commission (and FCC) on other issues before, settling for cash. Whatever you think, toss in the issue of search results as speech or opinion that some courts (and Google) endorse, and this is an issue that'll continue to have policy and law geeks on the edge of their seats for a while.

*Courts in the 60's and early 70's provided more expansive approval, though scholars strongly disagree on whether later decisions took a more constricted view. See footnotes 7 and 8 here.