When Is Deception an Antitrust Offense? The FTC’s Unorthodox Case Against Google

Hal Singer —  9 May 2012

Last week, the FTC hired outside litigator Beth Wilkinson to lead an investigation into Google’s conduct, which some in the press have interpreted as a grave sign for the search company. The FTC is reportedly interested in pursuing Google under Section 5 of the FTC Act, which prohibits a firm from engaging in “unfair methods of competition.” Along with Bob Litan, who served as Deputy Assistant Attorney General in the Antitrust Division during the Microsoft investigation, I have penned a short paper on the FTC’s seemingly unorthodox Section 5 case against Google. (Disclosure: This paper was commissioned by Google.)

Litan and I explore a few possible theories of harm under a hypothetical Section 5 case and find them wanting, including (1) claims that specialized search results (such as flight, shopping or map results) “unfairly” harm the independent specialized search websites like Kayak (travel) or MapQuest (mapping and directions), or (2) assertions that Google allegedly has “deceived” users or websites by seemingly reneging on pledges not to favor its own sites. For the sake of brevity, I focus on the FTC’s potential deception theory here, and leave it to interested reader to pursue the “unfairness” theory in the paper.

Deception of Users

The alleged bases of Google’s alleged deception are generic statements that Google made, either in its initial public offering (IPO) or on its website, about Google’s attitude toward users leaving the site. The provision of a lawful service, specialized search, launched several years after the IPO statement certainly cannot be deceptive. To conclude that it is, and more importantly, to prevent the company from offering innovations in search would establish a precedent that would surely punish innovation throughout the rest of the economy.

As for the mission statement that the company wants users to get off the site as quickly as possible, it is just that, a mission statement. Users do not go to the mission statement when they search; they go to the Google site itself. Users cannot possibly be harmed even if this particular statement in the company’s mission were untrue. Moreover, if the problem lies in that statement, then any remedy should be directed at amending that statement. There is no justification for the Commission to hamper Google’s specialized search services themselves or to dictate where Google must display them.

Deception of Rivals

An alternative theory suggests that Google deceived its rivals, reducing innovation among independent websites. In a February 2012 paper delivered to the OECD, Tim Wu explained that competition law can be used to “increase the costs of exclusion,” which if successful, would promote innovation among application providers. Wu argued that “oversight of platforms is conceptually similar” to oversight of standard-setting organizations (SSOs). He offers a hypothetical case in which a platform owner “broadly represents to the world that he maintains an open and transparent innovation platform,” gains a monopoly position based on those representations, and then begins to exclude applications “that might themselves serve as platforms.” Once the industry has committed to a private platform, Wu argues, the platform owner “earns oversight of its practices from that point onward.”

So has Google earned itself oversight due to its alleged deception? Google is not perceived by web designers as providing a platform for all companies to have equal footing. Websites’ rankings in Google’s search results vary tremendously over time; no publisher could reasonably rely on any particular ranking on Google. To the contrary, websites want their presence to be known to any and all search engines. That specialized search sites did not base their business plans on Google’s commitment to openness is what distinguishes Google’s platform from Microsoft’s platform in the 1990s. To Wu’s credit, he does not mention Google in this section of the paper; the only platforms mentioned are those of Apple, Android, and Microsoft.

It is even more of a stretch to analogize Google’s conduct to that in the FTC’s Rambus case. Unlike websites that do not depend on a Google “standard”–the website can be accessed by users from any search engine, or through direct navigation–computer memory chips must be compatible with a variety of computers, which requires that chip producers develop a common set of standards for performance and interoperability. According to the FTC, Rambus exploited this reliance by, among other things, not disclosing to chip makers that it had additional divisional patent applications in process. That specialized search sites did not make “irreversible technological” investments based on Google’s commitment to a common standard is what distinguishes Google’s platform from SSOs.

The Freedom to Innovate

A change in a business model cannot be a legitimate basis for a Section 5 case because a firm cannot be expected to know how the world is going to unfold at its inception. A lot can change in a decade. Consumers’ taste for the product can change. Technology can change. Business models are required to adapt to such change; else they die. There should be no requirement that once a firm writes a mission statement, it be held to that statement forever. What if Google failed to anticipate the role of specialized search in 2004? Presumably, Google failed to anticipate a lot of things, but that should not be the basis for denying its entry into ancillary services or expanding its core offerings. As John Maynard Keynes famously replied to a criticism during the Great Depression of having changed his position on monetary policy: “When the facts change, I change my mind. What do you do sir?” If Google exposes itself to increased oversight for merely changing its mind, then other technology firms might think twice before innovating. And that would be a horrible consequence to the FTC’s exploration of alternative antitrust theories.