Thursday, January 26, 2012

Google and the US Anti Trust Laws

From all the hullabaloo about Google's recent changes in its search engine, two specific allegations that have stood out in the American media are: (1) that the changes potentially infringe on the privacy of people and (2) that the changes warrant anti-trust investigation.

As a disinterested net savvy observer of the recent changes and the subsequent media coverage I have to state the following:

1. The breach of privacy allegations appear to be unfounded and blown out of proportion either because of misinformation or because of lack of understanding of Google’s search system. The truth is that the personalised portion of the search shows only that much that you could already see and not any more than what you already had access to. Further, the personalised search results are unique & restricted to respective users (based on what they have shared and what others have shared to them) akin to viewing ones personal email or social network streams. All the fuss about the new search changes are either guided by misinformed paranoia or simply mischievous propaganda to malign Google.

2. Sections of the media have raised antitrust concerns for not including Facebook's and Twitter's data in Google's search results, but it should be realised that the terms of these companies obviously restrict Google from displaying/using their data on its search results page. Using any other (out of the way) means to bypass their terms of agreement to include Facebook’s and Twitter’s data in the search results page would make Google vulnerable to legal challenges from these firms. After all, these firms are extracting fees via agreements with Microsoft for giving access to users data on their network to be used in Bing's search results. Remember Google use to list profiles & data from these sites earlier, but it discontinued the practice after the terms of Facebook and Twitter became restrictive. Clearly, going by the adverse publicity in the media, Google is damned if it does and damned if it doesn't.

To understand and to investigate the propriety of the claims in the media I had an overview of the American anti-trust laws. After having seen the provisions of sections 1&2 of Sherman Act, section 7 of Clayton Act, section 5 of the Federal Trade Commission Act and FTC's policy Statement on the standards for determining 'unfairness' in business practices or methods I believe that the allegations against Google are flimsy, or even baseless and vexatious in nature, designed to harm the normal business functioning of Google by causing unnecessary distractions and delays in decision making.

Further, if Google is a candidate for such investigation in the eyes of the media, I believe its rivals are a bigger (more deserving) candidates for the same treatment for their business practices are more likely to violate antitrust laws than Google’s. Facebook, for exampe, has close to 1 billion locked-in users who cannot easily take out their data and move to competitors. All of Google's services on the other hand provide unprecedented control for the user to opt in, opt out, and move to other competitors with their data. Also, facebook by virtue of its large number of users is effectively a monopoly in the social networking market and may be violating section 1 of the Sherman Act and section 5 of the FTC Act by imposing such terms that prohibit automated indexing or retrieval of its users data thus effectively blocking users from removing their own data by reasonable automated means. To make matters worse, Facebook has entered into an exclusive agreement with Microsoft to provide general users’ data through automated means for use in its Bing search engine. Twitter too is guilty of such exclusive arrangement. All of these companies (Microsoft, Facebook, Twitter) involved in this exclusive arrangement may be candidates for antitrust investigations under section 1 of Sherman Act and potentially under section 5 of the FTC Act. Similarly, Apple too is a candidate for antiturst investigation under the same provisions for its restrictive business practices with regard to its iOS platform. Therefore, the media should be equally vocal with regard to business practices of Google’s competitors also.

To conclude, as a general observer of the practices of companies engaged in Internet based businesses that involve users data, I have found that Google's practices are most transparent with the best standards in providing user control over their data. Further, with regard to Google's search changes, let us not underestimate the users' wisdom and pre-empt their chance to make a choice. They would not use the features if the results do not match their expectation. Of course, lets not forget that Bing (whose results by and large mirror that of Google) is just a mouse click away.

Important Legal Notes:
1. It is important to understand that the antitrust laws are concerned with the functioning of the marketplace – i.e. competition and not the protection of any individual competitor.
2. According to the rules of reasonableness under American law, there is no per se rule against monopolization, or attempted monopolization.  There is no “no fault” monopolization, no situation in which there is some “magic” number beyond which a firm may not increase its size or market share; the determining factors will include the means by which those numbers were reached – the reasonableness of the actions which produced the final entity.

Sherman Act:
SECTION 1 (15 U.S.C. § 1). Prohibits contracts or conspiracies in restrain of trade, which phrase has been, since at least 1911, judicially interpreted as meaning unreasonable restraints of trade.

SECTION 2 (15 U.S.C. § 2). Prohibits monopolization or attempted monopolization; it is sometimes used in conjunction with section 7 of the Clayton Act (15 U.S.C. §18), which prohibits mergers or acquisitions which may tend to lessen competition.

Clayton Act:
SECTION 7 (15 U.S.C. § 7). Is probably the most prominent, substantive provision of the Clayton Act. Whereas the Sherman Act was enacted to prohibit concerted activity which actually restrains trade, this provision is directed at preventing activity in its incipiency which may tend to restrain trade. The Merger Guidelines issued by the Department of Justice offer an indication of the ways in which mergers and acquisitions will be analyzed by the Antitrust Division and the FTC; although they are not binding upon the courts, they are considered to be persuasive.

Federal Trade Commission Act:
SECTION 5 (15 U.S.C. §45) is the operative, substantive provision of the FTC Act. It prohibits “unfair methods of competition” and “unfair or deceptive acts” in commerce (15 U.S.C. §45(a)(1)). The provision applies to “unfair methods of competition involving commerce with foreign nations (other than import commerce),” however, only to the extent that such “unfair” conduct has a “direct, substantial, and reasonably foreseeable effect” on the foreign commerce in question (15 U.S.C. §45(a)(3)).

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