Given news that a European consortium of rivals has submitted yet another monopolization complaint against Google to the EU Commission, it is time to take stock of where we are in this long-running saga. A month ago the U.S. Federal Trade Commission (FTC) dropped its independent investigation, concluding that the facts did not support an antitrust prosecution of Google. Since then, the rhetoric from Google’s critics has reached absurd levels.

For instance, Bloomberg ran an editorial titled The FTC’s Missed Opportunity On Google. There the editors opined that “The FTC missed an opportunity to explore publicly one of the paramount questions of our day: is Google abusing its role as gatekeeper to the digital economy?” It is unfortunate that a leading American business publication could have so little understanding of competition policy and the role of antitrust law in policing the U.S. market economy. The editorial starts from an incorrect premise and proceeds to suggest, of all Luddite things, regulation of Internet search engines as “a public utility of sorts for e-commerce.” That’s obviously the theme of Google’s commercial rivals, but it’s neither correct nor appropriate.

Google’s alleged search dominance is hardly that of a gatekeeper. The fact is that Google neither acts like nor is sheltered from competition like the monopolists of the past, something the company’s critics never claim because they just can’t. Google succeeds only by running faster than its competitors. There’s nothing about Internet search that locks users into Google’s search engine or its many other products. Nor is new entry at all difficult. There are few, if any, scale economies in search and the acquisition of “big data” in today’s digital environment is relatively low cost, due to massively scalable storage architecture. Microsoft’s impressive growth of Bing in a mere three or so years shows that new competition in search can come at any time. Facebook’s recent, disruptive entry into search, leveraging its own trove of personalized user data, proves the point. As a result, Google remains surrounded by scores if not hundreds of competing providers of search, and succeeds relative to those rivals because its algorithms and search results are deemed superior (more accurate and useable) by Web patrons.

Read more »

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After all the controversy about Apple’s booting Google Maps off of iOS6 — reportedly because Google refused to incorporate turn-by-turn real-time directions — Google released a new iPhone app with those capabilities. According to the company:

At the heart of this app is our constantly improving map of the world that includes detailed information for more than 80 million businesses and points of interest. Preview where you want to go with Street View and see inside places with Business Photos to decide on a table or see if it’s better at the bar. To get you there, you’ve got voice-guided, turn-by-turn navigation, live traffic conditions to avoid the jams and if you want to use public transportation, find information for more than one million public transit stops.

I’ve not had any real issues with the Apple Maps app, including directions, but this one seems quite nice. Worth a try, for sure.

Google Maps For iPhone is here | YouTube.

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A few weeks ago, the head of competition for the European Union, Joaquin Almunia, reportedly instructed Google that the search giant must make “sweeping changes” to its business model by extending restrictions the Europeans are insisting upon for Web search into the mobile realm. (See EU Orders Google to Change Mobile Services | Reuters.)

Is he possibly for real? We all know mobile is growing by leaps and bounds, powering political revolutions, connecting the developing world to the new information economy, and disrupting legacy industries. That market dynamism should instead counsel for a restrained approach, delaying government intervention until at least some of the dust settles, because mobile is different. Here’s why — and how that matters.

1.  Apps Rule Mobile, Not Web Search

With more than 300,000 mobile applications released in the last year alone, “apps are increasingly replacing browsers as the method of choice for connected consumers to find and use information.” This striking user preference is neither difficult to discern nor hard to understand. One can see it walking on nearly any downtown street as teenagers query Foursquare and Facebook apps for friend check-ins, businessmen find lunch spots with OpenTable or Yelp, and 20-somethings search for trending hashtag topics inside Twitter’s app. In other words, in the mobile realm apps rule.

Wired’s editor-in-chief Chris Anderson in 2010, along with Square’s COO Keith Rabois in 2011, both predicted flatly that the Web is dying and mobile devices with dedicated apps are to blame. Apple’s Steve Jobs (watch his keynote) said it a bit more provocatively:

On a mobile device, search hasn’t happened. Search is not where it’s at. People aren’t searching on a mobile device like they do on the desktop. What is happening is they are spending all of their time in apps.

The numbers now prove that all three of these pundits were correct. As much as 50% of mobile search is happening in apps today. In March, a remarkably small 18.5% of all smartphone and tablet usage was in the browser; the rest was through apps. Nearly half of smartphone owners today shop using mobile apps. The international wireless association GSMA reported as far back as 2011 that second only to texting (and even more than actual calls), native apps comprise the highest level of smartphone activity. Yelp’s CEO Jeremy Stoppelman told Wall Street on August 2 that a majority of weekend searches now come in through its mobile app and that “by choosing the Yelp app people are bypassing search engines and consequently their engagement is higher.” Even venerable Craigslist is today battling mobile apps.

So mobile Web search is either dead or dying. That’s in part, as explained in the next bullet, because mobile users need, want and expect immediate answers, not a listing of URLs for browsing. Blue links just do not cut it anymore when users are mobile.

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Google’s Kansas City fiber project has just launched. As CNet commented, it is

much more advanced than what the average American is able to access from any cable operator or telco broadband provider in the country. And Google is offering it at prices that beat the local and even national competition.

Google shows broadband providers how to build a superfast network | CNET News.

There’s a place in American business for firms willing to in invest in long-term network upgrades. Verzon’s FIOS ruled the U.S. for years in terms of speed, pricing and content. Not anymore!

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When Google’s proposed acquisition of Motorola Mobility was announced in 2011, the business press focused mainly on the extension of Google’s core business from Internet search into hardware. But from a legal perspective, the treatment given the deal by competition authorities in the United States, the EU and China raises intriguing questions about the scope and objectives of merger policy in emerging technology markets.

The acquisition represents a classic case of downstream vertical integration into complementary markets. Since Google’s aborted launch of its own “Nexus One” smartphone in 2010, Google’s presence in the wireless handset and other hardware markets has been minimal. Merger reviews typically focus on horizontal concentration in a relevant product market; namely, to evaluate the risk that an increase of concentration post-transaction may produce a rise in prices or other so-called “coordinated effects.” There has been virtual unanimity among antitrust scholars and enforcement authorities for several decades that vertical integration typically presents little or no antitrust risk.

That is a principal result of the Chicago School antitrust revolution, ushered into American antitrust law and policy by GTE Sylvania in 1977. Under this approach, vertical restrictions and other relationships between manufacturers, distributors and retailers are presumptively procompetitive by increasing incentives for interbrand competition. Although technically classified as a “rule of reason” analysis, in reality the leniency of American antitrust law to vertical restraints has been such that there are almost no significant examples (with a few exceptions, like the Microsoft monopolization case of 1998-2000) of vertical restraints or mergers being judged to violate the Clayton Act or the Sherman Act.

So it should come as little surprise, therefore, that from an antitrust perspective Google’s proposal to acquire Motorola Mobility raised very few eyebrows. Yet just weeks ago it was announced that Google had received final approval to close the deal from the new China Competition Authority (the Ministry of Commerce, Anti-Monopoly Bureau ), contingent on one important concession. The Chinese required that Google pledge to maintain its Android operating system (OS) on a free basis for all wireless device manufacturers for the next five years.

The evident competition concern here is behavioral, not structural. That is, there is no risk that post-merger, Google’s share of either its own markets or Motorola’s markets will exacerbate coordinated affects or give it enhanced unilateral market power. To the contrary, the competitive risk potentially feared by antitrust regulators or competitors is that once it has a presence in wireless device manufacturing, Google might favor its own financial and competitive interests downstream by beginning to charge device manufacturing rivals for the Android OS.

This presents two provocative issues. First, should merger enforcement policy be grounded in a prediction of the post-transaction business incentives of the merging parties? While merger analysis must necessarily be based on a prediction of future effects, projecting the future business behavior of any one firm is far more problematic and unreliable than the kind of structural market analysis informed by HHI and oligopoly economics. And in most if not all antitrust regimes, even if the merger itself is accorded clearance by competition authorities, governments and competitors still have the opportunity to challenge actual post-merger conduct as a violation of the antitrust laws. Especially in rapidly changing technology markets — of which wireless handsets are undoubtedly a leading example — the risk of error in basing merger policy on predictions of future business behavior seems rather high.

The second issue raised by Chinese approval of the Google-Motorola deal is whether antitrust enforcers can or should dictate price. Typically, it is assumed that antitrust policy relies upon marketplace competition to produce the most efficient allocation of resources and “correct” pricing. Even in per se illegal price-fixing cases, the government never independently decides what the “right” price should be, but rather steps in to redress cartels or other restraints that limit the ability of market forces to set price based upon supply and demand.

“Open source” software, however, seems to be an emerging exception to that settled rule. In Oracle’s 2009 acquisition of Sun Microsystems, competitive concerns were raised about whether Oracle might begin charging for Sun’s open source mySQL database software. In Google’s 2010 acquisition of ITA, a travel software developer, the U.S. Justice Department required as part of a consent decree settlement that Google agree to maintain ITA pricing to travel service rivals and to continue R&D for the software itself. While ITA represents proprietary, paid software, the same vertical pricing concerns animated the government’s response to that deal as well.

But who is to decide whether an OS, or any other software, must or should be offered for free? The business model case for open source — dating back to that pioneered by Netscape in the late 1990s, where the Web upstart offered its browsing software for free in order to capture share and profits from the sale of server software — has been that companies offer free products in order to monetize their investment at another level (typically upstream) of the distribution chain. Economics would therefore teach that, if as seems correct, Google could make more money from handset profits than licenses for its Android OS, its rational business incentives would be to maintain Android as a free, open source product.

There’s still a big difference between legacy command-and-control economies like China, despite its recent liberalizations, and the market-oriented economy of the United States. Yet with increasing globalization these sorts of conflicting world views are likely to become more prominent. Whether the OS wants to be free could become less important than whether some government or enforcement agency – probably not in the U.S., one hopes – makes it their job to supplant the marketplace and dictate the answer.

Note: Originally written for my law firm’s Information Intersection blog.

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With reality television all the rage, viewers may wonder why there’s been no reality series about the inbred high-tech ecosystem of Silicon Valley. There should be, because the reality of how our technology bastion really competes today — namely by patent litigation and acquisitions — is astonishing.

Last year Google, Apple, Intel and other leading Silicon Valley companies were targeted by federal antitrust enforcers for tacitly agreeing not to hire each other’s key employees. Such a conspiracy could have landed top executives in jail. This year Apple, Samsung, Google, Nokia and others have all been battling over back-and-forth claims that smartphones and wireless tablets infringe each others’ U.S. patents. Now, just weeks after Google’s general counsel objected that patents are gumming up innovation, the search behemoth has announced its own $12.6 billion acquisition of Motorola Mobility, and with it their own portfolio of wireless patents, just a fortnight after purchasing a relatively few (“only” 1,000 or so ) wireless patents from IBM.

While the executives at Google have nothing to fear personally from these patent wars, others seem to have a lot at risk. That is because, according to the Wall Street Journal, the U.S. Justice Department’s Antitrust Division is investigating another possible conspiracy among Silicon Valley companies. This one arises out of the collective bid in the late spring of nearly every wireless phone operating system manufacturer, except Google, for a portfolio of 6,000 cell phone patents formerly held by bankrupt Canadian company Nortel. Simply put, Google started the bidding at about $1 billion, but the others joined forces to lift the price to an astounding $4.5 billion and win the prize.

That’s the legal background to Google’s just-announced Motorola Mobility acquisition, and it’s one that could have serious anticompetitive consequences. If the curiously named “Rockstar Bidco” consortium — which includes Microsoft, Apple, RIM, EMC, Ericsson and Sony — refuses to license the erstwhile Nortel patents to Google for its Android wireless operating system, they will be agreeing as “horizontal” competitors not to deal with a rival. Classically such group boycotts are treated as a serious antitrust no-no, and a criminal offense. If the group licenses the patents, on the other hand, they could be guilty of price fixing (also a possible criminal offense), since a common royalty price was not essential to the joint bid and would eliminate competition among the members for licensing fees.

If the Rockstar Bidco companies decide to enforce the patents by bringing infringement litigation against Google, things could be even worse. Patent suits themselves, unless totally bogus, are usually protected from antitrust liability so as not to deter legitimate protection of intellectual property assets. (That does not mean they’re competitively good, since patent suits are often just a means of keeping rivals out of the marketplace.) Nonetheless, a multi-plaintiff lawsuit by common owners of patents would have those same horizontal competitors agreeing on lots of joint conduct, well beyond mere license rates. For starters, is the objective of such an initiative to kill Android by impeding its market share expansion? That’s a valid competitive strategy, standing alone, for any one company; it takes on a totally different dimension when firms collectively controlling a dominant share of the market gang up on one specific rival.

Google’s broader complaint that patent litigation in the United States is too expensive, too uncertain and too long may well be right. This bigger issue is being debated in Washington, DC as part of what insiders call “patent reform.” The high-stakes competitive battles being waged today in the wireless space under the guise of esoteric patent law issues like “anticipation” by “prior art” suggest a thoroughly Machiavellian approach to the legal process, just as war is merely diplomacy by other means. They inevitably color the perspective of policy makers, who watch with regret as a system designed to foster innovation gets progressively buried with expensive suits, devious procedural maneuvering and legalized judicial blackmail.

Even the biggest companies, though, would find it hard to compete if their largest rivals were allowed to form a members-only club around essential technologies to which only they had access. Microsoft’s own general counsel countered two weeks ago that Google was invited to join an earlier consortium bid but declined before the Nortel auction. Embarrassing, yes; dispositive, no. If the offer were still open, now that it is clear Google’s principal wireless rivals are all members, things would be different. Indeed, there’s even an opposite problem of antitrust over-inclusiveness where patents and patent pools are concerned. If everyone in an industry shares joint ownership of the same basic inventions, where’s the innovation competition? Google’s defensive purchase of Motorola is a desperate, catch-up move that does not really change this “everyone-but-Android” reality.

Silicon Valley’s patent wars are for good reason not nearly as popular as Bridezillas or So You Think You Can Dance. Yet they are far more important, economically, to Americans addicted today to their smartphones and spending hundreds of dollars monthly on wireless apps and services. Whether the Justice Department will challenge the Rockstar Bidco consortium or give it a free pass remains to be seen. From a legal perspective, it is just a shame the subject is too arcane, and certainly way too dull, to make a reality TV series.

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The battle to beat Google’s Android mobile phone OS is quickly turning into a legal bonanza. Apple is suing HTC, Samsung and Motorola, all makers of wireless phones with the Android platform. Oracle is seeking up to $6.1 billion in a patent lawsuit against Google, alleging Android infringes Oracle’s Java patents. And Microsoft is suing Motorola over its Android line.

That’s all perfectly fine from an antitrust and competition standpoint — leaving aside the harder policy question of whether using patent infringement litigation to block competition should be permissible. Enforcing property rights is a legitimate and rational business activity that, absent “sham” lawsuits, is not second-guessed by antitrust enforcement agencies or courts. There can be exclusionary consequences, but they are a result of the patent laws in the first instance, not of themselves anything anticompetitive by the patent holder.

A much more troubling aspect of the increasing IP (or “IPR” as they say across the pond) battles surrounding Android is the recent sale of Nortel’s 6,000 or so wireless patents at a bankruptcy auction in Canada to a collection of bidders including Apple, Microsoft, RIM, EMC, Ericsson and Sony. How Apple Led The High-Stakes Patent Poker Win Against Google, Sealing Ballmer’s Promise | TechCrunch. The winning consortium bid more than $4.5 billion — some five times Google’s opening bid and, according to some pundits, far more than the portfolio was worth — to gain control of the patents.

“Why is the portfolio worth five times more to this group collectively than it is to Google?” said Robert Skitol, an antitrust lawyer at the Drinker Biddle firm. “Why are three horizontal competitors being allowed to collaborate and cooperate and join hands together in this, rather than competing against each other?”

Antitrust Officials Probing Sale of Patents to Google’s Rivals | Washington Post.

These are good questions. Patent “pools,” which are collections of horizontal competitors sharing patent licenses among themselves, are today generally considered procompetitive under the antitrust laws where they (a) are limited to technologically essential or “blocking” patents, and (b) do not contain ancillary restraints, such as resale price-setting or restrictions on participant use of alternative technologies. (MPEG, WiFi, LTE and other communications technologies are prime examples of patent pools.)  The theory is that, with price effects eliminated, the cross-licensing of patents that might otherwise be used to block entry into a market reduces barriers to entry and increases efficiency.

Yet the consortium which won the Nortel wireless portfolio, revealing dubbed “Rockstar Bidco,” includes nearly everyone in the mobile phone and wireless OS businesses except Google. If these players agreed among themselves not to license their own patents to Google, that would be a per se illegal group boycott (also known as a concerted horizontal refusal to deal). Competitors cannot allocate markets or conspire to keep a rival out of the marketplace. It is unclear whether Google was invited to join Rockstar Bidco, but unless Larry, Sergey and Eric turned down such an offer, it seems a fair case can be made that the consortium bid was in effect an implicit horizontal agreement not to include Google. Post-auction, the reality of licenses will clearly tell us whether the joint ownership structure was a pretext to cover a refusal to deal. No one knows what the consortium intends to do with the Nortel patent portfolio; they won’t say. Microsoft, RIM And Partners Mum On Plans For Nortel Patents | Forbes.

This author happens not to be a fan of Android; I’m a very happy iPhone user since day one of the Apple wireless revolution. This does not mean, though, that I can agree with a business strategy in which all of the other players in the mobile phone industry gang up on Google. (It is unclear were Nokia fits into all of this, but given the steadily decreasing share for its Symbian OS, I suspect the inclusion or not of Nokia will not be dispositive.)

The antitrust issue this presents is a thorny one, which frequently comes up in connection with trade associations and technical standards. When competitors collaborate, is under-inclusiveness or over-inclusiveness worse? Which is the bigger threat to competition? That is, if a trade group opens a collective buying consortium, for instance, is it better from an antitrust perspective to require that it be open to all — so that some rivals are not deprived of the scale economies — or that the consortium includes less than all firms in the market — so that competition in purchasing will drive down input prices?

Another concern is that, by excluding Google, the Rockstar consortium allows the other competitors to utilize the patents without paying license fees (since they now own them), leaving Google alone to need licenses for its Android OS. Does Nortel Patent Sale Make Google An Antitrust Victim? | TechFlash. That is a variant of “raising rivals’ costs” (here one rival only), which has over the past three decades become a recognized basis for assessing the anticompetitive nature of unilateral, single-firm conduct. When a group includes horizontal competitors who collectively control a huge share of the market, raising rivals’ costs supplies the anticompetitive “purpose or effect” needed to make out a rule of reason antitrust claim, even if the group boycott concern is misplaced or ameliorated. Here the intent to slow down Android is clear; whether that is anticompetitive, exclusionary or not is more ambiguous. Apple, Microsoft Patent Consortium Trying to Kill Android | eWeek.com.

There are precious few judicial decisions in this area and the IP licensing guidelines from DOJ/FTC do not really speak to the question. For that reason alone, the Rockstar Bidco venture, in my view, merits a very close look by the U.S. competition agencies. Allowing Google’s mobile phone competitors to do indirectly, with joint patent ownership, what they could not do indirectly, by agreeing not to license to Google, would be an incongruous result. On the other hand, a remedy may be worse than the harm. In standards, for example, it is often the case that antitrust risks are mitigated by requiring the holder of an essential patent to agree to so-called FRAND licensing (fair, reasonable and non-discriminatory terms and conditions). That’s an appropriate remedy where under-inclusiveness is the problem, so long as there’s a market measure for a “fair” license (royalty) price. Where the licensor, as in this instance, is everyone except the licensee, I for one fear there would be no objective way to assess whether license rates were reasonable.

DOJ's Christine Varney

The lack of an effective remedy for a competition problem does not, of course, require that the transaction involved be blocked.  At the same time, where a problem cannot be fixed, that is a good enforcement policy reason not to allow the structural market conditions giving rise to the issue in the first place. Put another way — a slight modification of an old aphorism — if there’s no remedy, maybe there should be no right. Whether the viability of the Rockstar consortium is decided by outgoing Assistant Attorney General Christine Varney or her September successor, the forthcoming answer should be interesting.

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Well said, Adam Thierer!

Humility and patience are the better prescription. It’s easy to forget that just a dozen years ago many of us still hadn’t heard of Google and were still using AltaVista or AOL to find information online. Yesterday’s tech giants can become tomorrow’s also-rans fairly quickly in the Digital Economy.

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Looks like the Great Recession is officially over, at least at Google. But Eric. I need maid service, too!!

According to Gawker, the Mountain View-based search giant has kicked off an experimental new perk: the use of (free) “runners” from TaskRabbit to clean employee apartments, remove trash, cook dinner and run errands.

Unfortunately, the perk is only available to Google workers living in the five metropolitan regions serviced by TaskRabbit, including New York and the San Francisco Bay Area

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Few things piss me off more these days than the carriers taking advantage of Google’s openness to load up Android phones with crapware and their own proprietary garbage. But you know, a big part of the problem is us.

Maybe you, not me. The problem is the open source heritage of Android, which allows every device manufacturer and user to saddle their phones with junk applications that don’t play well together (interoperate). Google is the new Windows. Love ‘em, but don’t take my iPhone 4 away!!!

Posted via email from glenn’s posterous

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