Google and the Limits of Antitrust: The Case against the Case against Google

Article excerpt

ABSTRACT

The antitrust landscape changed dramatically in the last decade. Within the last two years alone, the Department of Justice has held hearings on the appropriate scope of Section 2 of the Sherman Act and has issued, then repudiated, a comprehensive Report. During the same time, the European Commission has become an aggressive leader in single-firm conduct enforcement by bringing abuse of dominance actions and assessing heavy fines against firms including Qualcomm, Intel, and Microsoft. In the United States, two of the most significant characteristics of the new antitrust approach have been the increased focus on innovative companies in high-tech industries and the diminished concern that erroneous antitrust interventions will hinder economic growth. This focus on high-tech industries is dangerous, and the concerns regarding erroneous interventions should not be dismissed too lightly. This Article offers a comprehensive, cautionary tale in the context of a detailed factual, legal, and economic analysis of the next Microsoft: (1) the theoretical, but perhaps imminent, enforcement against Google. Close scrutiny of the complex economics of Google's disputed technology and business practices reveals a range of procompetitive explanations. Economic complexity and ambiguity, coupled with an insufficiently deferential approach to innovative technology and pricing practices in the most relevant case law, portend a potentially erroneous--and costly--result. Our analysis, by contrast, embraces the cautious and evidence-based approach to uncertainty, complexity, and dynamic innovation contained within the well-established error-cost framework. As we demonstrate, though there is an abundance of error-cost concern in the Supreme Court precedent, there is a real risk that the current, aggressive approach to antitrust error, coupled with the uncertain economics of Google's innovative conduct, will yield a costly intervention. The point is not that we know that Google's conduct is procompetitive, but rather that the very uncertainty surrounding it counsels caution, not aggression.

I.   INTRODUCTION
II.  INNOVATION, ERROR COSTS AND THE
     LIMITS OF ANTITRUST
III. THE UNCERTAIN ECONOMICS OF GOOGLE'S
     BUSINESS AND GOOGLE'S MARKET
     A. Some Basics of Online Search
     B. Google's Market
     C. The Importance of Quality Scores
     D. Network Effects
IV.  THE MONOPOLIZATION CASE
     AGAINST GOOGLE
     A. First Principles of Monopolization
        Enforcement
     B. Monopoly Power
     C. Market Definition and
        Monopoly Power
     D. The Question of Network Effects
     E. Has Google Engaged in Exclusionary
        Conduct?
     F. Exclusive Syndication Agreements and
        Other Foreclosure-Based Arguments
     G. Substantial Foreclosure
     H. Quality Scores
V. CONCLUSION

I. INTRODUCTION

Much has changed in the monopolization law landscape since the watershed Microsoft decision over a decade ago. In the past. two years, the Department of Justice has issued, and then repudiated, a comprehensive report on Section 2 of the Sherman Act, and the European Commission has risen as a leader in single firm conduct enforcement by bringing claims against firms including Qualcomm, Intel, and Microsoft. Meanwhile, China has passed its own antitrust law and has become an important participant in debates over the future of international antitrust. Most recently, the Federal Trade Commission (FTC) controversially invoked its authority under Section 5 of the Federal Trade Commission Act (FTC Act) to challenge Intel's pricing practices in the microprocessor market. (2)

Applying antitrust laws to innovative companies in dynamic markets has always been a perilous proposition, and despite significant advances in economics and jurisprudence, it remains so. Successful firms such as Google, which compete in markets characterized by innovation, rapid technological change, and a strong reliance on intellectual property rights, are especially likely, and especially problematic, targets? …