Barnett v. Barnett on Antitrust

Josh Wright —  10 May 2011

Tom Barnett (Covington & Burling) represents Expedia in, among other things, its efforts to persuade a US antitrust agency to bring a case against Google involving the alleged use of its search engine results to harm competition.  In that role, in a recent piece in Bloomberg, Barnett wrote the following things:

  • “The U.S. Justice Department stood up for consumers last month by requiring Google Inc. to submit to significant conditions on its takeover of ITA Software Inc., a company that specializes in organizing airline data.”
  • “According to the department, without the judicially monitored restrictions, Google’s control over this key asset “would have substantially lessened competition among providers of comparative flight search websites in the United States, resulting in reduced choice and less innovation for consumers.”
  • “Now Google also offers services that compete with other sites to provide specialized “vertical” search services in particular segments (such as books, videos, maps and, soon, travel) and information sought by users (such as hotel and restaurant reviews in Google Places).  So Google now has an incentive to use its control over search traffic to steer users to its own services and to foreclose the visibility of competing websites.”
  • “Search Display: Google has led users to expect that the top results it displays are those that its search algorithm indicates are most likely to be relevant to their query. This is why the vast majority of user clicks are on the top three or four results.  Google now steers users to its own pages by inserting links to its services at the top of the search results page, often without disclosing what it has done. If you search for hotels in a particular city, for example, Google frequently inserts links to its Places pages.”
  • “All of these activities by Google warrant serious antitrust scrutiny. … It’s important for consumers that antitrust enforcers thoroughly investigate Google’s activities to ensure that competition and innovation on the Internet remain vibrant. The ITA decision is a great win for consumers; even bigger issues and threats remain.”

The themes are fairly straightforward: (1) Google is a dominant search engine, and its size and share of the search market warrants concern, (2) Google is becoming vertically integrated, which also warrants concern, (3) Google uses its search engine results in manner that harms rivals through actions that “warrant serious antitrust scrutiny,” and (4) Barnett appears to applaud judicial monitoring of Google’s contracts involving one of its “key assets.”   Sigh.

The notion of firms “coming full circle” in antitrust, a la Microsoft’s journey from antitrust defendant to complainant, is nothing new.   Neither is it too surprising or noteworthy when an antitrust lawyer, including very good ones like Barnett, say things when representing a client that are at tension with prior statements made when representing other clients.  By itself, that is not really worth a post.  What I think is interesting here is that the prior statements from Barnett about the appropriate scope of antitrust enforcement generally, and monopolization in the specific, were made as Assistant Attorney General for the Antitrust Division — and thus, I think are more likely to reflect Barnett’s actual views on the law, economics, and competition policy than the statements that appear in Bloomberg.  The comments also expose some shortcomings in the current debate over competition policy and the search market.

But lets get to it.  Here is a list of statements that Barnett made in a variety of contexts while at the Antitrust Division.

  • “Mere size does not demonstrate competitive harm.”  (Section 2 of the Sherman Act Presentation, June 20, 2006)
  • “…if the government is too willing to step in as a regulator, rivals will devote their resources to legal challenges rather than business innovation. This is entirely rational from an individual rival’s perspective: seeking government help to grab a share of your competitor’s profit is likely to be low cost and low risk, whereas innovating on your own is a risky, expensive proposition. But it is entirely irrational as a matter of antitrust policy to encourage such efforts.
    (Interoperability Between Antitrust and Intellectual Property, George Mason University School of Law Symposium, September 13, 2006)
  • “Rather, rivals should be encouraged to innovate on their own – to engage in leapfrog or Schumpeterian competition. New innovation expands the pie for rivals and consumers alike. We would do well to heed Justice Scalia’s observation in Trinko, that creating a legal avenue for such challenges can ‘distort investment’ of both the dominant and the rival firms.” (emphasis added)
    (Interoperability Between Antitrust and Intellectual Property, George Mason University School of Law Symposium, September 13, 2006)
  • “Because a Section 2 violation hurts competitors, they are often the focus of section 2 remedial efforts.  But competitor well-being, in itself, is not the purpose of our antitrust laws.  The Darwinian process of natural selection described by Judge Easterbrook and Professor Schumpeter cannot drive growth and innovation unless tigers and other denizens of the jungle are forced to survive the crucible of competition.”  (Cite).
  • “Implementing a remedy that is too broad runs the risk of distorting markets, impairing competition, and prohibiting perfectly legal and efficient conduct.” (same)
  • “Access remedies also raise efficiency and innovation concerns.  By forcing a firm to share the benefits of its investments and relieving its rivals of the incentive to develop comparable assets of their own, access remedies can reduce the competitive vitality of an industry.” (same)
  • “The extensively discussed problems with behavioral remedies need not be repeated in detail here.  Suffice it to say that agencies and courts lack the resources and expertise to run businesses in an efficient manner. … [R]emedies that require government entities to make business decisions or that require extensive monitoring or other government activity should be avoided wherever possible.”  (Cite).
  • “We need to recognize the incentive created by imposing a duty on a defendant to provide competitors access to its assets.  Such a remedy can undermine the incentive of those other competitors to develop their own assets as well as undermine the incentive for the defendant competitor to develop the assets in the first instance.  If, for example, you compel access to the single bridge across the Missouri River, you might improve competitive options in the short term but harm competition in the longer term by ending up with only one bridge as opposed to two or three.” (same)
  • “There seems to be consensus that we should prohibit unilateral conduct only where it is demonstrated through rigorous economic analysis to harm competition and thereby harm consumer welfare.” (same)

I’ll take Barnett (2006-08) over Barnett (2011) in a technical knockout.  Concerns about administrable antitrust remedies, unintended consequences of those remedies, error costs, helping consumers and restoring competition rather than merely giving a handout to rivals, and maintaining the incentive to compete and innovate are all serious issues in the Section 2 context.  Antitrust scholars from Epstein and Posner to Areeda and Hovenkamp and others have all recognized these issues — as did Barnett when he was at the DOJ (and no doubt still).  I do not fault him for the inconsistency.  But on the merits, the current claims about the role of Section 2 in altering competition in the search engine space, and the applause for judicially monitored business activities, runs afoul of the well grounded views on Section 2 and remedies that Barnett espoused while at the DOJ.

Let me end with one illustration that I think drives the point home.   When one compares Barnett’s column in Bloomberg to his speeches at DOJ, there is one difference that jumps off the page and I think is illustrative of a real problem in the search engine antitrust debate.  Barnett’s focus in the Bloomberg piece, as counsel for Expedia, is largely harm to rivals.  Google is big.  Google has engaged in practices that might harm various Internet businesses.  The focus is not consumers, i.e. the users.  They are mentioned here and there — but in the context of Google’s practices that might “steer” users toward their own sites.  As Barnett (2006-08) well knew, and no doubt continues to know, is that vertical integration and vertical contracts with preferential placement of this sort can well be (and often are) pro-competitive.  This is precisely why Barnett (2006-08) counseled requiring hard proof of harm to consumers before he would recommend much less applaud an antitrust remedy tinkering with the way search business is conducted and running the risk of violating the “do no harm” principle.  By way of contrast, Barnett’s speeches at the DOJ frequently made clear that the notion that the antitrust laws “protection competition, not competitors,” was not just a mantra, but a serious core of sensible Section 2 enforcement.

The focus can and should remain upon consumers rather than rivals.  The economic question is whether, when and if Google uses search results to favor its own content, that conduct is efficient and pro-consumer or can plausibly cause antitrust injury.  Those leaping from “harm to rivals” to harm to consumers should proceed with caution.  Neither economic theory nor empirical evidence indicate that the leap is an easy one.  Quite the contrary, the evidence suggests these arrangements are generally pro-consumer and efficient.  On a case-by-case analysis, the facts might suggest a competitive problem in any given case.

Barnett (2006-08) has got Expedia’s antitrust lawyer dead to rights on this one.  Consumers would be better off if the antitrust agencies took the advice of the former and ignored the latter.

7 responses to Barnett v. Barnett on Antitrust

  1. 
    Paolo Siciliani 11 May 2011 at 1:50 pm

    I thought exchanges like Expedia operated as two-sided markets, which suggests that there is a side of consumers who might suffer harm in case Google successfully monopolise this market – that is, sellers compared by Expedia, who may have to pay higher commission fees?

    Moreover, I think you have not made justice to Barnet 2011, who alleges also that Google may be deceiving users giving the impression that its vertically-integrated services are ranked at the top as they score at the top under the same algoritm. If this was the case that would be a misleading omission in breach of some consumer protection provision (at least here in the EU).

    • 

      Of course Barnett 2011 might be able to explain how Expedia’s case against Google on factual grounds fits within the framework he set forth in the speeches above (and others), the Section 2 Report, and elsewhere. I have no doubt that he has a theory of harm he will articulate. But so what? This was, for example, Robert Bork’s approach when he sided with Netscape in the Microsoft litigation (the case was like Standard Fashions, and a possible example of exclusion, which he left intellectual wiggle room for in the Antitrust Paradox). Somebody who believes that Section 2 should be used conservatively can believe there are good cases to bring. That’s fine. But I don’t think its too interesting. The tension comes in articulating not just factual distinctions but principles (inferring harm from size, judicial monitoring / remedies are desirable and to be applauded, no worries about error costs, no focus on consumer harm) that conflict with the DOJ Barnett.

      The other interesting aspect is that these are not just positions taken in litigation, but in public fora, a la Rick Rule’s Wall Street Journal column (see post discussing it here) laying out the Section 2 case against Google when he had favored all abolishing Section 2 in his testimony to the Antitrust Modernization Committee. Those are not factual distinctions; they are not consistent with the same analytical framework. If Mr. Barnett wants to make the case that the case against Google is consistent with the earlier principles he adopted with respect to monopolization as applied — which I presume he will — I’d like to see it, and I will presume that it will begin with significant evidence of actual competitive harm. But given the Section 2 framework that Barnett laid out (which I agree with in large part) at the DOJ, one suspects that if he had the type of persuasive evidence of competitive harm that he would have required of a Section 2 plaintiff in 2007, we’d see him reference it to his advantage in 2011 rather than the weaker sauce about size and disadvantaging rivals.

      Deception-based monopolization claims in the U.S. still require evidence of consumer harm.

      • 
        Paolo Siciliani 11 May 2011 at 11:33 pm

        Wow, you are making a claim for intellectual consistency – I say, so what? Are you pissed because he is good at turning around his polemis depending on which camp he is arguing for. Who cares, this is why people hire lawyers and economists alike. Enforcement should not be influenced by ideologies, and in this respect the DoJ report on Section 2 wasn’t a brilliant example of ideology-free policy guidelines – enforcement is difficult, finding proportionate and effective remedy is difficult, so what? Difficulties are not good enough reasons not to try, and my experience is that most of the time, all these difficulties are far overstated – when I hear about type I errors I usually feel reassured as this is “the argument of last resort”, used when there is nothing else worth throwing on the table. And by the way, if courts/enforcers followed the approach advocated in that report, you folks would all be unemployed.

        You say,deception-based monopolization claims in the U.S. still require evidence of consumer harm. In EU we have a concept called competition on the merits, you talk about superior product and business acumen (or historic accident). This is elusive stuff I know, but sometimes it is normatively straightforward: it is unfair and bad for the competitive process to compete by deceiving consumers, in particular when this is done by a dominant company trusted by consumers. That is to say, consumer harm could be inferred by deception since if that was a truely “superior product” I suppose there was no need to deceive consumers to make it commercially successful.

      • 

        You are free to take the ground in defense of intellectual inconsistency. But note that the argument is not only about intellectual consistency. It is also a matter of degree and whether one is attempting to persuade public opinion rather than say, doing what lawyers do when they advocate for clients in court. As I said in the post, the notion that a lawyer represents a plaintiff in a Section 2 case and then a defendant is not very interesting. But I do find it noteworthy when someone so prominent on one side of a debate about monopolization enforcement advocates something altogether different in the public sphere. It was interesting when Rule did it, when Bork did it, and with Barnett too; and in each case surely relevant to the discussion of how much weight to given current opinions. Your notion that would should assign zero weight to the prior opinions seems odd to me. Economists typically do not like to throw out information. And I agree with you, in each case, the lawyers are very, very good. But the leap from there to the prior statements don’t matter is a long one.

        *Finally, on the deception end, you’ve shifted gears from positive to normative here. You started by mentioning that Expedia may be making a deception based claim. I pointed out, as a matter of US law, that this would still require evidence of consumer harm and could not merely be presumed. Now your comment shifts to whether deception is a good or bad thing. I certainly never argued that it was good! But that is quite different from the question of whether we should infer competitive harm and make an antitrust violation out of all unfair or deceptive business practices. And FWIW, we have “competition on the merits” too (see, e.g. Microsoft). The question is under what conditions should it be an antitrust violation. In the US, as a positive matter, we largely do not presume consumer harm from deception (or other tortious acts) in the matter you describe. But note that we also have state consumer protection acts that give private rights of action for unfair and deceptive practices, often with enhanced damages, often exercised through class actions.

      • 
        Paolo Siciliani 12 May 2011 at 11:38 pm

        Not entirely normative, if a super dominant firm like Google has to deceive to launch a new product this opens the question of whether that is a superior product and whether achieving prominence at the expense of established brands (by leveraging the search customer base to ignite indirect newtork externalities for his new service) is good for consumers (since the established brand will see indirect net ext reverse in a vicious cycle). As mentioned erlier in my first comment, in two sided markets there are (sic) two customer sides, and in this case harm may be located on the sellers side, which will indirectly lead to harm to buyers.

        On intellectual inconsistency, to the extent Bernett 2011 makes reasonable points to influence the public as you said (although I wonder what section of the public may be thrilled by these sort of argument) that’s ok, I mean, what counts is that the arguments are reasonable. To try to undermine his arguments by reminding what he had to say 5 years before seems to me a bad example of argumentum ad hominem.

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