Cleland served as Deputy United States Coordinator for Communications and Information Policy in the George H. W. Bush Administration. Eight Congressional subcommittees have sought Cleland’s expert testimony and Institutional Investor twice ranked him the #1 independent analyst in his field. Scott Cleland has been profiled in Fortune, National Journal, Barrons, WSJ’s Smart Money, and Investors Business Daily. Ten publications have featured his op-eds. For a full bio see: www.ScottCleland.com.
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Last May, when the Competition authorities announced they had a preliminary Statement of Objections for four monopoly abuses against Google, the EU competition authority trumpeted their preference for a settlement over enforcement action in this case, i.e. ruling Google a search monopoly guilty of monopoly abuse that warranted a material fine. In extending their public deadlines for Google three times, and then tentatively accepting the immaterial search concessions Google proposed, it is obvious the EU bent over backwards to avoid politically confronting Google.
The EU economy is still reeling from the financial crisis and the resultant austerity measures. The EU needs economic growth. And the proposed U.S.-EU Free Trade Agreement offers the potential for more economic growth. Apparently the EU’s continuing economic weakness, has the EU competition authorities wary of facing Google’s potential political charges of EU protectionism and hostility to innovation, if the EU were to rule Google a monopoly guilty of monopoly abuses. Apparently the EU is also wary of getting the U.S.-EU Free Trade Agreement off on the wrong foot by angering one of the Administration’s closest corporate allies.
And evidently, Google has been throwing its exceptional political weight around behind-the-scenes to secure special treatment and exceptions from the EU.
Importantly, Google’s growing sovereign-like political power has serious implications for the EU decision-making well beyond competition policy.
So what are the problems with politically enabling Google?
Google is the world’s #1 antitrust offender. Google has been found to violate antitrust law in ten different ways in the last five years; and Google is, or has been, under antitrust investigation in nine different countries, in addition to the EU’s investigations of Google’s abuse of search/search advertising dominance, abuse of standards essential patents, and Google-Android’s anti-competitive practices.
Google is Europe’s #1 tax evader. Google is the most aggressive multi-national tax evader in the EU, paying only a 2.4% tax rate.
Google is Europe’s #1 corporate IP infringer. Germany and France formally opposed the Google Book Settlement as mass copyright infringement and anti-competitive. Google settled a Google News infringement suit against Belgian newspapers and another with French newspapers. Other EU nations continue to call for payment for Google News use of their newspaper content. Even one of the EU-Google antitrust remedies is for Google to stop scraping others content and monetizing it as their own, but it requires no restitution for this anti-competitive infringement.
Google Android is #1 in security vulnerability for malware. With a dominant share of the mobile operating system market Google has put gaining rapid share of Android above basic security protection for EU and other consumers. This obvious consumer harm should prompt the EU to formally open a Google-Android antitrust investigation.
Second, the EU decision leaves European consumers and businesses largely at the mercy of the most powerful and economically-pervasive predatory monopoly in EU history.
All other EU antitrust investigations involved primarily one industry or sector, usually technology. The Google case is unique in that the discriminatory problem of monopoly search/search-advertising self-dealing cuts across the consumer economy from shopping to news, maps, travel, restaurants, content, social, finance, video, mobile – most of the consumer online economy.
Remarkably Google, with its ingeniously-narrowing and self-serving remedy settlement, has tricked the EU into tacitly accepting and legitimizing a consumer-wide monopoly that abuses its dominance in contravention to EU law. Simply, the EU decision benefits Google greatly by locking in the Google monopoly status quo with no admission of any wrongdoing despite the EU’s findings.
By signaling its hostility to any changes from market testing in order to protect its political settlement with Google, the EU competition authorities do not appreciate the loud signals they are sending to consumers, competitors and Google: that Google’s ill-gotten monopoly is OK; that the EU views the Google dominated market as superior to a more competitive one; and that the EU has little interest in further investigating Google monopoly search abuse.
More remarkably, the Google proposed remedies that would end the EU’s ongoing investigation of this market would leave oversight of 90+% of the consumer online economy in the hands of one Google-recommended, Google-paid monitor.
It is especially ironic that a company accused of abusing its vertical-monopoly, conflicted-roles of online ad cop, prosecutor, judge and jury, is being allowed to pick the potential pool of Google monitor-cops that the EU will choose from.
Even more remarkably, the EU competition authorities have de facto delegated to the Google monopoly to: 1) fairly organize Europe’s culture(s), commerce, news, and political information going forward, and 2) to not pick online winners and losers by being an “honest” monopoly broker for Europe’s online economy.
This is a lot of blind trust to give a digital information monopoly, with a long antitrust rap sheet and that famously bragged “Google is the biggest kingmaker on this earth.” It is an especially great amount of special trust, given that EU competition law considers monopolies and abuse of dominance to be illegal.
Third, the EU will be proactively enabling Google’s well-known “culture of unaccountability,” by proactively preferring to allow Google to avoid admitting any wrongdoing or taking any public responsibility for breaking EU law.
Apparently, the EU politically decided to mimic the FTC’s no-fault, no-deterrent enforcement approach that allows Google to settle charges of law-breaking with no admission or acceptance of corporate responsibility for illegal behavior. For a brand-dependent firm like Google, the opportunity to skirt any real brand-accountability with the public for breaking the law is a huge gift to Google.
Making matters worse, the EU politically chose to accept Google’s “labeling” remedy so it would not suffer any political criticism for regulating Google’s ever-changing search ranking algorithm or stifling Google’s innovation. As a result, the EU is only entrenching Google’s monopoly not creating the opportunity for more competition.
The bad joke here that the EU competition authorities apparently don’t get is that Google does not consider its offered remedy of adjusting its presentation of search results to be “labeling” — they see the other side of the coin, that the adjustments are Google branding and marketing opportunities.
Google knows that its dominant brand, coupled with the natural propensity of ~a third of users to always click on the top result (usually taken by a Google-owned product) will mean that many users will view Google’s new “labels” as appealing Google branding. Google knows down to the micro-shade of blue and the exact positioning/font/display/framing of every result what presentation changes result in what change in consumer behavior.
Given the EU’s reluctance to require the Google search monopoly to treat competitors as they treat themselves, by requiring a normal monopoly non-discrimination obligation, it is hard to see how the Google’s proposed “labeling” ruse will have any material impact on Google’s dominant revenue model.
If the EU competition authorities accept the Google-proposed remedies to address narrow aspects of Google’s monopoly and abuses of dominance, and shut down the EU’s investigation, the settlement will de facto legalize and legitimize Google’s remaining untouched monopoly power, with only one Google-recommended/paid EU-outsourced policeman on the beat.
Is Google too powerful to prosecute? Apparently that is the current political conclusion of the EU competition authorities. Google is increasingly the de facto Internet sovereign by controlling: 87% of global search advertising; almost half of all global online advertising; nearly half of the Internet’s video viewers; and two-thirds of the world’s smart phone users.
Given Google’s 90+% market share in Europe, and given tough EU competition law, EU competition authorities could have issued a Statement of Objections, declared Google a monopoly that abused its dominance in four ways, fined Google up to 10% of revenues for monopoly abuses, and mandated much more effective sanctions to mitigate the anti-competitive effects of Google’s monopoly abuses.
The fact is that the EU made a political decision to work with Google and do what Google could accept and would not publicly criticize. Obviously EU competition authorities were much more worried about what Google would say than what anyone else would say.
Sadly, this expedient EU political decision to protect Google from EU law and the consequences of its own actions has ominous implications for future EU-Google enforcement decisions concerning: competition, data protection, property rights and consumer protection laws.
[First published at The Precursor Blog, as part of the Google Unaccountability Series]