In a time of intense political polarization, the news that 48 states (all except Alabama and California), along with Puerto Rico, and Washington, D.C., have opened antitrust investigations into Google deserves the reporting prominence that it has triggered to date.
The core issue is whether Google is limiting competition in online advertising and the advertising choices for online advertisers, given its dominance as a web search engine. These unprecedented probes add investigative firepower to a comparable federal antitrust inquiry being conducted by the Department of Justice.
After headlines recede, however, these various government antitrust enforcers may find they are legally constrained in seeking an antitrust law remedy that punishes Google for its alleged anti-competitive practices.
That’s because Google’s behavior may not actually fall within the boundaries of antitrust law at either the state or federal levels. U.S. prosecutors would be well advised to review a recent, largely obscure decision issued by the Higher Regional Court of Düsseldorf to see how facts may ultimately not support actual legal penalties. And they should have their German-English dictionaries handy, or rely (ironically) on a Google Chrome translation since the court’s opinion remains in its native language.
The German court was reviewing a similar antitrust investigation of Facebook under that country’s antitrust law. The Bundeskartellamt, Germany’s competition authority, began its Facebook investigation in March 2016. One piece of advice for U.S. antitrust enforcers of all stripes is that they need to review Google’s business model broadly and deeply—as it is now and how it is evolving.
Do Your Homework
To its credit, the Budeskartellamt spent several years researching online platforms before it even began its investigation; it is unclear whether this level of necessary pre-investigation research already has taken place in the United States. If not, the initial investigatory steps will need to be directed at gaining a comprehensive understanding of Google’s complex and highly-profitable business model, which extends well beyond search to email (Gmail) and video (YouTube), for example.
Antitrust law requires an abuse of a dominant position in a market to create an environment that deters competition. Since Google’s most prominent online services are free, any anti-competitive effects are unlikely to reach a typical antitrust law benchmark—namely, whether a company is using its dominant position to squeeze out other and increase its prices in the marketplace.
At the consumer level, this may make it difficult for U.S. antitrust enforcers to focus on Google’s massive and constant acquisition of data by consumers, including what privacy protections Google is offering users to obtain such valuable data. As the Bundeskartellamt noted, “users have to expect a certain processing of their data if they use such a free service.”
Focus on How Data Is Collected
Instead, the investigations are more likely to examine how Google merges this consumer data with other data generated by affiliated business units and by third-party websites. In the German case, the concern centered on data collected by services owned by Facebook, such as WhatsApp and Instagram, combined with data from third-party sources that used Facebook’s application programming interface (API).
When users visited websites with embedded API, their data was transmitted to Facebook without even pressing a like or share button. In turn, this data was used to target advertisers and generate billions of dollars of revenue.
The Budeskartellamt, unable to base a theory of consumer harm on a free service instead argued that this exploitative behavior was unfair to both sides of Facebook’s two-sided business model. For the consumer side, it found that “the damage for users lies in the loss of control: they are no longer able to control how their personal data are used.”
And for the advertising part of the business model, this aggregation of consumer data made it indispensable—creating a “potential for competitive harm on the side of advertising customers who are faced with a dominant supplier of advertising space.”
No Harm Found
That brings us to the recent German court review of the Bundeskartellamt investigation. It found that consumers were not harmed by Facebook, which had informed them about data use practices in a lengthy terms of service agreement when they registered as users. “There is no evidence that Facebook obtains the consent of users through coercion, pressure, exploitation of lack of willpower or otherwise unfair means.”
The court further found that “whether the users act out of indifference or because they do not want to spend the necessary time and effort … does not matter. Their decision to sign on is ultimately free, uninfluenced and autonomous.”
And regarding online advertisers, the court ruled that there only could be anticompetitive effects when the ability of Facebook rivals, and their incentive to compete, are diminished. “Not every economic disadvantage inflicted on another company constitutes a hindrance in the antitrust sense,” the court said. “What is needed is an impairment of the competitive and entrepreneurial options for action and decision-making.”
The court rejected the notion that additional data increases the barriers to competitive entry, and indicated that this issue “requires closer examination and a detailed explanation/review and conclusive presentation by the antitrust authorities.”
The Budeskartellamt bore the burden of proof in the Facebook case, and the court found it failed to show that Facebook was abusing its power by advantageously using aggregated data that no other competitor could generate. In other words, the asymmetry of information may have created a market failure, but that did not justify a conclusion that Facebook exercised illegal market power to harm advertisers through higher pricing.
The torrent of U.S. Google investigations will be extensive and will take several years at a minimum, not counting any possible judicial appeals that may follow. Although the two digital giants are different, they are obvious targets of continuing scrutiny, with antitrust law as one powerful government tool to employ against them.
Key for U.S. Investigators
Several interesting aspects of the German case should be noted in the United States. There may be a significant gap between theories of consumer and advertiser harm that are developed at the outset and Google’s actual business model, which continues to change over time. That’s why it will be essential for antitrust enforcers to gain an intensive understanding of that model at the outset. This will require a slower, more deliberate pace for any investigation, and a longer period where fewer headlines are generated.
And the data privacy aspects of that business model, while useful for larger policy discussions, may be ill-fitting within the narrower legal contours of an antitrust law case. They may be an unnecessary distraction on what ultimately will need to be proven—that there is real current and ongoing consumer harm and harm to advertisers caused by Google’s market dominance.
The German case was heralded widely when the Facebook investigation was launched, encouraging the Bundeskartellamt to employ a kitchen sink approach that included any possible antitrust theory rather than focusing on likely persuasive evidence that could survive a judicial appeal.
If its U.S. state and federal counterparts are to derive any quick lesson from across the Atlantic, it should be that antitrust law, while broadly written, requires a greater level of precision that reflects the technology and business realities of Google and its online competitors, now and in the years to come.
This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.
Stuart N. Brotman is a Fellow at the Woodrow Wilson International Center for Scholars in Washington, D.C., based in its Science and Technology Innovation Program.