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Wednesday, October 21, 2020

Europe failed to tame Google. Can the U.S. do any better?


The Justice Department’s antitrust suit against Google offers the United States an opportunity to succeed where Europe stumbled.

European Union regulators investigated and fined the Silicon Valley giant three times from 2017 to 2019, hitting it with more than $9 billion in penalties while ordering it to lower its barriers to competitors.

But Google is as dominant in Europe as ever. The company had 93 percent of Europe’s online search market in September, up from 91 percent when Europe started imposing regulations in 2017.

(More reading: Silicon Valley is in a world of trouble)

Google is not an easy target. The company’s lawyers, economists and spin doctors regularly outwitted antitrust enforcers at the European Commission, the EU’s primary competition authority. Google’s market capitalization of close to $1.1 trillion is higher than the GDP of all but 14 countries in the world, according to the International Monetary Fund.

But the U.S. may have the best chance of curbing Google’s dominance, both because it has real power to force break-ups and — potentially — because it can build on the efforts of those who have gone before it.

“The U.S. government is both politically and technically in a far better position ... to do much more serious things like actually break companies up,” said Thomas Vinje, an antitrust lawyer at Clifford Chance in Brussels and a member of the California bar who represents several Google rivals. "But it's important that it learns the lessons from the European experience.”

The U.S. is attempting to do that — both through direct cooperation and taking notes on where European efforts have floundered — but the Americans still run the risk of finding themselves painted into the same corners as their colleagues across the Atlantic.

Talking to each other

Antitrust prosecutors from the Trump administration and dozens of U.S. states' officials have regularly spoken with both EU regulators and industry competitors that are key players in the European cases.

“We encourage our staff to have a ‘pick-up-the-phone’ mentality” with counterparts in Europe, Assistant U.S. Attorney General Makan Delrahim said in a 2018 speech in Brussels. Justice Department officials and state prosecutors have also talked multiple times to companies that lodged complaints in Europe since their investigations launched last year.

The EU and the U.S. also occasionally exchange staffers to work on cases for a few weeks or a couple of months, a European Commission official said, but these people cannot divulge information the firms gave them in their home jurisdictions. (The official discussed the matter on condition of anonymity because he’s not allowed to speak to the news media.) That means that any staffers the Commission sends to Washington have to master the art of pointing the U.S. case teams in the right direction — providing tips, essentially — without actually giving away confidential info, the official said.



One way to bypass that restriction is for the companies to sign a confidentiality waiver that would allow information to be transferred — a document that the E.U. and U.S. have successfully used in situations such as dozens of merger cases and the FTC’s original Google case in the early 2010s.

The European Commission declined to comment on whether it plans to exchange staff on the Google case, or whether Google had or was in the process of waiving its confidentiality rights.

Former U.S. Federal Trade Commission chair William Kovacic expressed doubts about American policymakers collaborating in any meaningful way with their European peers.

“I am doubtful about how honest and complete the cooperation is,” said Kovacic, who also serves as a non-executive director for the U.K. Competition and Markets Authority. “They always say, ‘of course we cooperate.’ But that is the party line. ... These agencies are both partners and competitors.”

He said that even within the limitations, the authorities could allow each other’s staffers to work with the other side full time.

Steps like these would help them anticipate Google’s next moves.

The need for speed

The EU’s first formal investigation into Google began in November 2010, after the U.K.-based comparison shopping service Foundem, followed by Microsoft, complained that the company was abusing its dominance as a search engine to promote its own shopping service. British couple Shivaun and Adam Raff started Foundem, allowing consumers to compare prices of products ranging from toys to airline tickets, in 2006 — but after being demoted in Google’s rankings, they invested all their efforts into fighting the search giant.

It took until September 2017, however, for the European Commission to decide to fine Google €2.4 billion and order it to give rival shopping services equal treatment on its search results page.

Regulators are still monitoring Google’s compliance with the shopping order. The EU lower court’s judgment of Google’s appeal is not expected before March and will most likely end up at the higher court, meaning a final ruling can be expected at the earliest in 2023.

Because of how long the EU’s case against Google Shopping took, many complainants believe that the European remedies failed because Google had already gained control of the market.

“The commission was sending an ambulance to a funeral,” said Luther Lowe, senior vice president of public policy at Yelp, the online review site that has complained to both EU and U.S. authorities about Google’s treatment of rivals.

The next effort culminated in 2018, when the EU fined Google a record €4.3 billion and told the company to end the illegal restrictions it had imposed on Android device manufacturers and mobile network operators to cement its dominance in search. One of the complaints from rival apps was that Google coerced smartphone makers into pre-installing its money-making search, Chrome and mapping apps on the home screen of their devices.

Lowe was equally dismissive of the EU-approved remedy in the Android case, in which Google agreed to an auction allowing rival search engines to appear on a screen of options that users can select from when they set up their phones. “That’s a remedy that would have been attractive a decade ago, but that horse left the barn,” Lowe said.

The Android appeal, now pending with the lower court, is about a year behind the schedule in the shopping case.

Cases can go much faster in the United States. Based on a rough calculation of U.S. court procedures, Kovacic said a final order on Tuesday’s Google suit could come in early 2024 if the case goes to the Supreme Court.

Deputy Attorney General Jeff Rosen told reporters Tuesday that the need for speed is top of mind.

“In technology industries in particular it's important to move as quickly as is practical, because the markets are fast moving,” he said.

But neither speed nor success is a sure thing in the U.S., either. Rosen said of the Google filing, “this is a situation we might have even preferred to be quicker but we want to make sure that we've done the work that's necessary.”

The Justice Department’s 1998 antitrust suit against Microsoft ended in 2002 with a settlement that some critics — including some states that brought the case alongside DOJ — derided as too weak. During the Obama administration, a 19-month probe of Google by the Federal Trade Commission ended with regulators taking no action, even though the agency’s prosecutors had recommended taking the company to court.

Imposing the right fixes

U.K.-based comparison shopping site Kelkoo, for example, is infuriated with how Google’s compliance with Vestager’s decision has failed to bring traffic back to its website. Kelkoo argues that the comparison listing ads Google shows as part of its remedy require users to click on a small tab before they can see any listings, and few consumers even know the option exists. A September study commissioned by Kelkoo and 24 other rival services found that less than 1 percent of traffic through Google Shopping is being directed to rivals.

“It’s been three years since Google launched its compliance mechanism as a so-called remedy — and the harsh reality is that nothing has changed,” Kelkoo CEO Richard Stables said.

The U.S. operates in a very different legal setup from its European counterpart. While the European Commission investigates and fines firms, it largely relies on the companies under investigation to design remedies to resolve the problematic conduct — a system critics say has helped Google evade meaningful competition. By contrast, the DOJ and states will need to bring a case in court and persuade a judge to impose any potential fixes.

Cristina Caffarra, an antitrust expert at the economics consulting firm Charles River Associates, argued in a paper that Google used the freedom it received in the European process to propose “smokescreen” solutions that let it maintain its dominance.

The European Commission investigated one of these solutions, through which Google was accused of offering incentives for ad agencies to pose as comparison shopping sites to increase the number of non-Google results in its shopping box after efforts to give genuine rivals more visibility did not pay off. These claims of “false comparison shopping sites” have reached regulators, “and of course we look into this,” Vestager said. Google responded by tightening the criteria for companies to participate in its shopping program.

"These remedies were meant to fail,” said Caffarra, who advised Google rivals News Corp. and Yandex in antitrust cases in Europe. “They couldn’t work. You are giving the guilty party the opportunity to design the remedy.”

Caffarra has also been hired by U.S. state attorneys general to advise on their probe into Google, which she declined to discuss.

EU officials aren’t as negative about the Google Shopping remedy as critics are. Olivier Guersent, director-general of the EU’s competition unit, told a conference of international antitrust enforcers in September that the EU has seen “positive developments.”

“For us the objective of the remedy, of any remedy, is to re-establish the competitive process,” he said. “I don’t think any authority in the world can guarantee a specific market outcome and I don’t think we should even try to.”

Vestager, the EU commissioner, told U.S. lawmakers in July that she has some concerns about the effectiveness of the commission’s remedies.

“In a scenario where that conduct had been going on for many years and has allowed the company to illegitimately benefit to the detriment of others, I often find myself asking the question whether [we should aim] to restore the competition that has been lost, than just levelling up the playing field where the company has already gained a competitive advantage due to its illegal conduct,” she said.

In response to the Android decision, Google in March began giving Android phone users a choice screen when setting up their devices that allows them to select their default search engine, including rivals like DuckDuckGo and Yahoo.

In arguing against the Justice Department suit on Tuesday, Google representatives noted that 97 percent of Android users choose the Google search engine even though they’re given that choice.

DuckDuckGo, a vocal Google competitor, rejected this solution from the start.

“A preference menu is a great remedy to increase search competition quickly but the way it’s been implemented in Europe does not work and is purposefully flawed by Google,” DuckDuckGo founder Gabriel Weinberg said.

And the slots for search engines on that choice screen are decided in an auction, a “pay to play” model that Weinberg said only fits companies that have profit as their prime motive and relies on “false scarcity,” as the menu has room for only three alternative search engines.

DuckDuckGo has proposed an alternative to the choice screen, but Weinberg said enforcers should also look at larger solutions that directly address Google’s control over search. Those could require Google to provide rivals such as DuckDuckGo and Microsoft’s Bing with data on what people are searching for and prohibit it from sharing data across business units. For example, that could bar Google from using data from a person’s web history on Chrome to inform advertising.

More robust "Do Not Track" requirements — allowing users to opt-out of the tracking across the internet that companies use for advertising — would open up possibilities for advertisers and other technologies that don’t rely on users’ personal data, Weinberg said.

Break it up?

It’s hard to “police what’s going on inside a company,” an individual involved in the U.S. Google probe said, speaking anonymously to talk candidly about the investigation. “Knowing how complex this ecosystem is and how the privacy laws introduce another layer of complexity, I don’t know how you monitor that as the [DOJ] antitrust division.”

Stephen Kinsella, a lawyer who represented Foundem in the EU Google Shopping case, agreed.

"I don't see any other remedy in search other than a structural one," Kinsella said. “Ideally, you’d break it up,” but at the very least regulators could require Google’s search and advertising divisions to deal with each other on the same terms that they deal with external companies.

In the Justice Department’s still-ongoing probe of Google’s advertising technology business, rivals and customers speaking to investigators have advocated requiring the company to sell off parts of its ad business and the Chrome browser.

Others have pushed for requiring the company to either sell off YouTube, the world’s largest online video platform, or allow other companies to sell video ads on the site. Google previously allowed that but changed its policy in 2016 so that YouTube ads can only be bought through Google’s products.

Setting a precedent

Kovacic described how, when he was at the FTC and the Microsoft case made its way through the European Commission, “a common lament from [the EU’s competition directorate] leadership was: ‘Why hasn’t your country dealt with this? … We don’t like being in the position of handling and addressing matters that you guys should have taken care of.’”

That’s made it more difficult for EU enforcers to take tough action. Vestager, despite her reputation as a tough enforcer, has repeatedly said that breaking up tech giants was a measure of “last resort.”

Vestager’s reticence may not only be due to the difficulty of splitting up monopolies under the current state of EU law (a legislative proposal facilitating breakups is expected soon), but also because Europe is not eager to lose political capital by doing what it believes the U.S. should have done.

Both the U.K. and Australia have recently finalized in-depth inquiries of Google, in particular its impact on the news media and advertising. In Australia, the antitrust authority is crafting a mandatory code of conduct that would require Google and Facebook to pay news publishers for their content. This summer, the U.K.’s competition authority recommended Parliament introduce new regulations that would require Google to make its data available to rival search engines and limit its ability to be the default search engine on smartphones and in browsers.

Officials from both countries have said they have consulted with the U.S. about their market studies and recommendations.

Following in the footsteps of Europe, Brazilian authorities opened a probe into Google’s control over the search market in 2011, but voted to close that probe last summer. Around the same time, though, Brazil’s competition authority opened a new investigation into Google’s Android operating system focused on the same allegations in the EU case and Tuesday’s U.S. complaint.



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