Cross-posted at Forbes.com’s “On the Docket”
This very thorny question has recently been on the minds of competition policy and enforcement officials at the Federal Trade Commission and the Justice Department, members of Congress, state attorneys general, judges, and, of course, many businesses. A House Committee on the Judiciary hearing last week offered a spectrum of views on the subject, with at least one witness openly advocating vigorous antitrust action, while another warned of the risk of “antitrust error” chilling innovation. Federal and state competition officials certainly have not shied away from using laws and judicial precedents developed with “brick and mortar” commercial entities in mind in the online world. For those looking for clues as to how government might approach antitrust in the digital marketplace, there are numerous past actions to consider.
FTC/Intel Settlement. One possible source of hints is FTC’s recent settlement with Intel. FTC Bureau of Competition Director Richard Feinstein specifically invoked the settlement in his testimony last week before the House Judiciary hearing. He spoke admiringly about the use of the Federal Trade Commission Act and its general proscription, in Section 5, of “unfair competition.” As numerous commentators have stressed, the FTC Act’s Section 5 offers the Commission options it doesn’t have under the Sherman Act, and FTC’s willingness to settle the Intel case reflected its desire to maintain this weapon rather than risk a destabilizing court loss.
Yahoo-Google Online Search Advertising Collaboration. In 2008, the Justice Department scrutinized an agreement the two online companies reached under which Google would sell search advertising for placement alongside Yahoo search results. DOJ, troubled by the possibility that the agreement would erect barriers to search market entry, signaled that it would likely challenge any consummated collaboration. The parties decided to abandon the agreement. DOJ found during its inquiry that search advertising and search syndication were specific, distinct “antitrust markets,” a finding which could prove significant in future investigations involving the digital marketplace.
Google Book Search Settlement. Perhaps the most intriguing recent source of government thinking on antitrust and digital commerce is the Justice Department’s formal briefs to Federal District Court Judge Denny Chin who is overseeing the settlement of litigation between book publishers and authors and Google. Many class members, including Washington Legal Foundation, objected to the settlement, and those objections, as well as DOJ’s expression of concern over the settlement’s antitrust implications, forced the parties back to the negotiating table. A new agreement is still pending before Judge Chin, one over which the Justice Department noted its ongoing concerns in a second brief.
In this second filing, DOJ identified specific concerns with a horizontal agreement between the parties allowing Google to act as a pricing agent for digitalized books, as well as their decision not to compete on price for works that are not “commercially available.” Such works constitute a large percentage of works the Book Search service would eventually offer. Most importantly for the larger debate on online commerce and antitrust, DOJ expressed its strong concern that the new agreement did “nothing” on the “core issue” of “the ability of Google, and no other entity, to compete in a marketplace that the parties seek to create.” The brief added, “There is no serious contention that Google’s competitors are likely to obtain comparable rights independently.” To do so, competitors would have to copy books without publisher or author permission, and then hope a lawsuit (and its settlement) would follow. Such an approach, DOJ wrote, “is poor public policy and not something the antitrust laws require a competitor to do.”
DOJ’s inquiry into the Book Search suit settlement remains open, and Judge Chin has yet to rule on whether the settlement is “fair” to the parties. His ruling, and DOJ’s possible actions in light of the outcome, will be highly instructive for those wishing to determine how government regulators will approach digital commercial behavior – especially by those with market power – in the future.