DOJ & FTC antitrust report cards

Scott Cleland Contributor
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How are the DOJ and FTC doing in enforcing antitrust laws in the Digital Age? Tuesday the Senate’s antitrust subcommittee will have an oversight hearing to grade the DOJ and FTC on that very question.

The subcommittee has at least two glaring antitrust oversight questions to ask, explore and grade. The first concerns the commitment to Federal consumer privacy protection, and the second concerns why there is such a stark difference in the DOJ and FTC’s antitrust enforcement records with Google.

First, has the DOJ/FTC’s unilateral decision to substantially reduce the scope of U.S. antitrust enforcement — by no longer considering privacy to be a non-price factor in antitrust enforcement — contributed to the current ineffectiveness of consumer privacy protection in the online advertising market?

The fateful policy decision by the FTC/DOJ to ignore privacy as a factor in antitrust enforcement has fostered a perverse market dynamic where many online advertising companies now effectively compete on the basis of who can take advantage of consumer privacy most, rather than compete on the basis of who can best protect consumer privacy.

Tellingly, Google last year was found to have hacked into their competitor Apple’s Safari browser to bypass the privacy and security protections of Apple’s customers, in order to serve Google’s ads to Apple’s customers without the customers’ permission.

Perversely the FTC, because of their prior privacy decision, could not consider it anti-competitive to break into a competitor’s system for competitive gain. The FTC was self-limited to enforcing that Google misrepresented their privacy policy.

The DOJ/FTC’s preemptive decision to look the other way, if companies’ competitive practices harm consumers’ privacy, has created a de facto antitrust safe harbor for mass privacy abuse on the Internet. It ensures there is no antitrust accountability, risk, or cost for dominant players’ sacrificing consumer protection of privacy for anti-competitive gain.

Common sense tells us that law enforcement committed to maximizing the effect of deterrence signal neither the exact time/place of their police patrols, nor where they won’t patrol. However, with privacy and antitrust, authorities have unwittingly telegraphed to the marketplace exactly where they won’t provide accountability, so potential bad actors know they can get away with abusing consumers’ privacy with relative impunity.

Simply, does the subcommittee believe that this DOJ/FTC policy decision, not law, is responsible antitrust enforcement, when private data has become the currency of the online advertising economy?

Second, given that the DOJ/FTC have responsibility to enforce the same Sherman and Clayton antitrust acts, why do the DOJ and FTC have such radically different antitrust enforcement approaches and records in dealing with Google? Has DOJ been too tough? Or has the FTC been too lax? How can this bipolar enforcement be equal protection under the law?

The evidence shows a tough DOJ antitrust enforcement record with Google. In 2008, DOJ threatened a Sherman anti-monopolization antitrust case against Google to block the proposed Google-Yahoo Ad Agreement. In 2009, and again in 2010, the DOJ opposed the Google Book Settlement as anti-competitive, providing the evidence and analysis for Federal Judge Chin to block it.

In 2010, DOJ sanctioned Google and five other companies for broadly colluding to limit their employees’ compensation. In 2011, DOJ required a consent decree to mitigate the anti-competitive effects of Google’s acquisition of ITA. In 2012, in coordination with the EU, the DOJ sternly warned Google to not anti-competitively abuse standards essential patents as part of its approval of Google-Motorola.

In stark contrast, the evidence shows that the FTC has had an exceptionally lax antitrust enforcement record with Google.

In 2007, the FTC approved Google-DoubleClick (4-1) with no conditions, effectively tipping Google to dominance by allowing Google to buy most all of the advertiser, publisher, and user relationships that it did not have. Contrary to the FTC’s approval assumptions, Google now commands about half of the global online advertising market, and gaining, per ZenithOptimedia.

In 2010, the FTC approved Google’s acquisition of Admob without conditions despite “serious antitrust issues,” by assuming Apple iAd would provide sufficient competition to mitigate any anti-competitive harm. Fast forward three years and Apple iAd has 3% and Google 57% share of U.S. online advertising, and Google commands 93% of U.S. mobile search advertising revenue – all per eMarketer.

In 2013, in dropping its search bias investigation of Google without any finding of antitrust violation, the FTC effectively adopted the opposite of the antitrust analysis of the DOJ. To find that consumers on balance were helped more than hurt by Google’s search bias, the FTC had to assume that the consumer was the customer of search, not the advertisers who actually pay for it.

The FTC’s apparent contorted market analysis effectively presumes search is somehow a charity for consumers, not a business, and if consumers sufficiently like the charitable benefit, Google can’t be anti-competitive to publishers or advertisers.

The subcommittee should ask why the FTC apparently believes consumers are Google’s customers of search and not the product sold to search advertisers, when the DOJ has repeatedly concluded the opposite.

The subcommittee should also ask if the FTC’s policy of ignoring privacy as a potential consumer harm in antitrust analysis led the FTC to be able to conclude that search bias does not harm consumers “on balance.”

In sum, Senate overseers should revisit the DOJ/FTC decision of whether or not antitrust enforcement best protects consumers by excluding privacy as a non-price enforcement factor when loss of privacy is the primary consumer harm in online advertising.

They also should explore the question of whether or not there is equal protection under the law when two antitrust enforcers with the same Sherman/Clayton authorities, consistently produce opposite outcomes. It is increasingly obvious that something is amiss here.

Scott Cleland is President of Precursor LLC, a consultancy serving Fortune 500 clients, some of which are Google competitors; he is also author of “Search & Destroy: Why You Can’t Trust Google Inc. Cleland has testified before both the Senate and House antitrust subcommittees on Google and also before the relevant House oversight subcommittee on Google’s privacy problems.