If the Obama Justice Department guns for Google, is Microsoft safe?
Microsoft reached a surprising milestone this week. In a routine court filing, the U.S. Justice Department and handful of attorneys generals asserted that Microsoft's communications protocol disclosure is "substantially complete." Finally. The Microsoft that once beat Netscape senseless had finally bowed before the great government overlord. Perhaps for good reason. There's a new sheriff in town, looking for bad guys to jail.
The Obama Administration appears ready to legally take on dominant companies in a way the Bush Administration simply wouldn't. In May, the Wall Street Journal claimed that the Obama Administration had put together an antitrust watchlist, on which there is Google's name, among others.
About a month after her appointment to head the Justice Department's antitrust division, Christine Varney set the new enforcement tone. "Americans have seen firms given room to run with the idea that markets 'self-police,' and that enforcement authorities should wait for the markets to 'self-correct,'" she told members of the U.S. Chamber of Commerce in May. "It is clear to anyone who picks up a newspaper or watches the evening news that the country has been waiting for this 'self-correction,' spurred innovation and enhanced consumer welfare. But these developments have not occurred. Instead, we now see numerous markets distorted."
Varney emphasized: "The Antitrust Division must step forward and take a leading role in the development of the Government's multi-faceted response to the current market conditions. Vigorous antitrust enforcement action under Section 2 of the Sherman Act will be part of the Division's critical contribution to this response."
Microsoft Seeks Safety in Oversight
Either the Justice Department or the Federal Trade Commission can take jurisdiction over a prosecution depending on circumstances. The Justice Department, along with 20 states (originally), brought the landmark antitrust case against Microsoft in May 1998. Three years later, the FTC investigated and later settled with Microsoft, regarding Passport authentication privacy and security.
In the case of Intel, the FTC is leading the investigation. FTC subpoenaed Intel in June 2009 and by December had expanded the investigation to include the chip giant's nVidia disputes. In May, the European Union's Competition Commission found that Intel had violated antitrust laws on the Continent, fining the company $1.45 billion. It's perhaps no coincidence that the FTC subpoena came a month later. In her May speech, Varney made clear there would be closer coordination between U.S. enforcers and their European counterparts.
Microsoft may be the only dominant high-tech company outside the periphery of increased antitrust enforcement. Microsoft's government oversight was to end in November 2007, but the judge imposed a two-year extension. Google helped the decision, by filing a complaint about Windows search that led to voluntary changes by Microsoft. In April 2009, the Justice Department, Microsoft and settling states filed a motion to further extend oversight, which U.S. District Judge Colleen Kollar-Kotelly granted. Microsoft's oversight continues through May 2011, unless extended again.
The first question to ask: Why would Microsoft so easily agree to another 18 months of oversight? The answer is another question: Why not? If the Obama Administration is going to step up antitrust enforcement, the safest place for Microsoft is existing oversight. Microsoft is a problem solved, from the Obama Administration's perspective.
Stalking the Wild Google
The three most obvious dominant U.S. high-tech companies are Google, Intel and Microsoft. All could be classified as monopolies -- and this is where I point out that being a monopoly isn't illegal in the United States. It's the abuse of monopoly power that normally concerns antitrust enforcers. Intel is an animal cornered by the FTC. Microsoft is the beast caged by the Justice Department. By comparison, Google is fair game. It's open season, and the Obama Administration is on the hunt. For the hunters, an over-dominant Google could be seen as disrupting the food chain. That Google would have to be caged, too. Or killed.
Google's search dominance is indisputable, with worldwide search share around 60 percent, according to combined analysts data, but much higher in some countries. Google is hugely influential over the Web, particularly when it comes to utility of search and the economy around keywords. But Google's influence stretches farther.
In the strangest of coincidences, today at ZDNet, Doug Hanchard posted blog: "DOJ vs. Google: Will it happen? Unlikely -- as government would lose." I planned to write the post you are reading much earlier in the day, but personal matters delayed finishing the writing. So I'm in the disappointing position of appearing to respond to Hanchard, which isn't the case. But since he posted first, I'll say that he's probably wrong. An Obama Administration could win against Google, which is dominant in search and advertising -- and something more, often overlooked.
The Google economy disrupts many established companies that sell goods or services that the search/information giant gives away for free. The dispute some newspapers and media mogul Rupert Murdoch have with Google is really about the free economy. Will the more regulatory inclined Obama Justice Department view this disruption as anticompetitive?
The High Price of Free
U.S. antitrust law is particularly hard on price fixing, which usually takes place between two or more companies. Classic example would be airlines agreeing to set prices, thus negating the price fluidity caused by competition and bringing harm to consumers. Google fixes prices for many services at zero, and this is for stuff other companies charge for. Is that anticompetitive?
I wouldn't say so, but I'm no lawyer. But I have closely followed Microsoft court cases for more than a decade -- and learned something about antitrust law along the way. Pricing certainly was an issue in Microsoft's U.S. antitrust case. The company gave away for free Internet Explorer and bundled it for free with Windows. Netscape charged for its browser, but later was compelled to give away the software. U.S. trustbusters argued that Microsoft used its Windows dominance to push into an adjacent market, with IE's free cost and Windows bundling being two tactics.
The Clinton Justice Department had a tough time making pricing and adjacent market arguments stick, but ultimately convinced the judge of something more pressing for his remedy: That together, Office and Windows created an "applications barrier to entry" for competing products. Google may be vulnerable, too. For example: Google search bundling with Mozilla Firefox, Apple Safari and Google's own Chrome. An aggressive Justice Department could argue that the company's dominance in search and, related, advertising create barriers to competition for other products.
Google is standing pretty much where Microsoft did 11 years ago. The Clinton Administration prosecuted Microsoft for fear the company would otherwise become gatekeeper to the Internet. The Obama Administration could easily act against Google from the same fear.
Microsoft's past sins give it some protection from Obama's antitrust hunters. As previously stated, Microsoft is caged. Google is game. I know, I know, guns and liberals are supposed to be oil and water. Not back home in Maine. My dad hunted bear and deer, and he voted Democrat. Would he shoot a Google? If it had antlers, absolutely.