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Aug. 28 — Global leaders in online search, electronic commerce and entertainment—all based in the U.S.—have attracted antitrust scrutiny from the European Commission in 2015.
Three major develoments involve: a longstanding investigation of Google Inc.'s search practices ripened into a complaint; Amazon.com Inc. is under investigation over its dealings with e-book publishers; and Apple Inc. is defending allegations that it conspired with music recording companies to block free music streaming services.
These investigations take place against a backdrop of concern that European authorities are motivated by a desire to advance European interests at the expense of U.S.-based innovators. However, there is a strong sentiment among antitrust attorneys consulted by Bloomberg BNA that the commission's actions will in fact stimulate high tech innovation on both sides of the Atlantic.
Most of these attorneys expressed the belief that the commission is helping to level the playing field for the smaller tech companies through its antitrust investigations. However, they added, the commission's investigation of Google has dragged on for too long—perhaps a result of expending too few resources toward the effort.
One attorney, disagreeing with the consensus, contended that the European Union's “flexible” test for abuse of market dominance in effect makes the commission the arbiter of lawful product innovation—a circumstance that hampers innovators large and small.
Gary Reback, of counsel in the Menlo Park, Calif., office of Carr & Ferrell LLP, told Bloomberg BNA that the purpose of antitrust enforcement is to improve and foster innovation, not the other way around. In many cases, innovation comes from small companies, he said, but it requires dominant companies to play fairly.
“I think what's interesting is that many of the complaints are made by American companies who want to do business in Europe on a level playing field,” Reback observed. Reback played a key role in mobilizing support for successful litigation against Microsoft in the 1990s for abusing its dominant position in the web browser market.
There may be just one dominant company in a particular sector, but there are many, many other companies on the other side which want to bring innovation, he said.
Bruce Simon, a practitioner in the San Francisco office of Pearson, Simon & Warshaw LLP, agreed that the commission's investigations are keeping the playing field even. He told Bloomberg BNA that large tech companies shouldn't worry that the investigations will stifle their innovation. “It's so built into their DNA that there's a momentum for innovation irrespective of any external investigations that come into play,” he insisted.
Reback asserted that the commission's antitrust enforcement has in the past actually encouraged innovative companies like Google to flourish in the online market. In 2009, the commission filed charges against Microsoft over the integration of its web browser, Internet Explorer, into the Windows 98 operating system. The commission reached a settlement with Microsoft at the end of that year, requiring the company to offer European consumers a choice of 12 different Internet browsers.
Reback observed that Google lobbied the commission extensively against Microsoft for the same kind of behavior that Google is now defending with the commission. “There wouldn’t be a Google but for the enforcement against Microsoft,” he said.
In 2013, the U.S. Federal Trade Commission closed an investigation into alleged anticompetitive practices and “search bias” at Google.
• to allow competitor access to standard-essential patents;
• to make it easier for advertisers to use both Google AdWords and competitors' advertising services; and
• to give competing web publishers the ability to “opt out” of Google's vertical offerings in their markets.
Earlier this year, Sen. Mike Lee (R-Utah), who chairs the Judiciary Committee's Antitrust, Competition Policy, and Consumer Rights Subcommittee, announced plans to commence an inquiry into the FTC's conclusion of the Google investigation, following news accounts that a confidential FTC staff report had recommended taking action against it for abusing its market power in online search and advertising.
The European Commission's antitrust investigation of Google has been ongoing since 2010, punctuated by several failed attempts at reaching a settlement. The commission has also been investigating other aspects of Google's behavior, including its alleged favorable treatment of other specialized services in its general search results, copying of rivals’ web content and undue restrictions on advertisers.
Tim Cowen, a partner in the London office of Preiskel & Co. LLP, told Bloomberg BNA that one problem he sees with the investigations is that the commission is taking a great deal of time to gather evidence.
“This doesn't work very well for fast-moving markets,” Cowen remarked.
The tech sector is constantly evolving. If the commission doesn't intervene quickly enough, he said, economic damage can be enormous in a short period. The commission has been probing allegations since 2010 that Google's search page is not fair when consumers seek services online.
Cowen suggested that the commission should put more time and resources into its tech sector antitrust investigations. Given the breadth of the charges against Google, there should be 20 investigations against Google, not just one, he insisted.
Simon agreed with Cowen that he would like to see more resources dedicated towards these investigations in a manner that allows the commission to work faster in light of ever-changing technology.
• requiring that buyers purchase a particular product only from the dominant company;
• setting prices at a loss-making level;
• refusing to supply input indispensable for competition; and
• charging excessive prices.
There is no simple test for abuse of dominance cases. The commission conducts a case-by-case assessment for each dominant undertaking. It considers factors such as the positions of the dominant company, competitors and customers, the conditions of the relevant market and the extent of the allegedly abusive conduct.
Simon observed that, because the law moves more slowly than technology, he has no complaint about the “flexible” standard used by the commission to decide whether a company has abused its dominance in a particular market. If there is a bright line rule for abusive conduct, companies could continually invent new ways to operate outside of that standard.
“Unless you have a flexible standard,” he said, “the law is never going to catch up with innovation.”
William Markham, principal at the Law Offices of William Markham P.C. in San Diego, disagreed.
Markham told Bloomberg BNA that, because there is no clear test for abuse of dominance, large tech firms lack adequate guidance as to which business practices will get them in trouble in Europe. Markham suggested that the best way to draw the line is to employ the same antitrust doctrines developed over time by U.S. federal courts—namely, if a firm already holds a monopoly position, the question is whether its product innovations provide no discernible benefit to consumers but instead are imposed only to deter rivals.
Otherwise, he said, the commission would find itself the arbiter of product developments made by the world’s leading companies, and these companies in consequence would likely become less willing to take risks and innovate.
In Allied Orthopedic Appliances Inc. v. Tyco Health Care Grp. LP, 592 F.3d 991 (9th Cir. 2010), the Ninth Circuit determined that a medical device manufacturer's design change that improved its pulse and blood oxygen sensors to provide new benefits to consumers did not violate U.S. antitrust law, absent evidence of anticompetitive tactics to ensure the product change harmed its competitors.
“As a general rule, courts are properly very skeptical about claims that competition has been harmed by a dominant firm's product design changes,” according to the Ninth Circuit, which quoted United States v. Microsoft Corp., 253 F.3d 34 (D.C. Cir. 2001). In the Microsoft case, the District of Columbia Circuit ruled that Microsoft had violated U.S. antitrust law because it failed to show that the integration of its Internet browser with Windows 98 served a purpose other than protecting its monopoly.
Under the U.S. standard, Markham noted, Google’s changes to its algorithms could amount to an “abuse of dominant position” only if the changes (1) lack any benefit to consumers and serve only to harm Google’s rivals or (2) provide a benefit to Google’s customers but also hinder its rivals, and if Google has employed other anticompetitive conduct to make it prohibitively difficult for its rivals to compete against it.
According to Markham, this test has been painstakingly developed in unlawful monopolization cases in the U.S.
“It is not clear to me, however, that the [European Commission] will adopt this approach, which strives to ensure that a successful firm will not be overly discouraged from making changes to its offerings for fear of running afoul of EU competition law,” Markham said.
Reback, disagreeing, stated that the European rules for abuse of dominance are clear. The commission balances the relevant factors to determine whether the conduct in question is likely to result in consumer harm in the form of higher prices, fewer choices, diminished competition or less innovation.
“It's similar to what we call the rule of reason,” which requires a weighing of all circumstances to determine whether the alleged practice unreasonably restrains competition, Reback stated.
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