Google, Microsoft Spar on Antitrust
3/02/2010 12:26:00 PM
kenmouse
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Seeking $335,000 in unpaid advertising bills, Google Inc. filed suit against a small Internet site in Ohio in October. The complaint was so routine it was just two sentences long. Google never expected the response it got. Last month, the small Internet site countered with a 24-page antitrust lawsuit against Google, accusing the search-engine giant of a litany of monopolistic abuses.
But what really caught Google's attention was the Internet site's legal counsel: It was Charles "Rick" Rule, long the chief outside counsel on competition issues for Google archrival Microsoft Corp.
"My reaction was, 'What the heck is this?' " says Mark Sheriff, an Ohio attorney who represents Google, speaking of the involvement of Mr. Rule and his powerhouse law firm, Cadwalader, Wickersham & Taft LLP, whose antitrust practice is based in Washington, D.C. "It's not every day that a big D.C. law firm like Cadwalader gets involved in a collections lawsuit in Ohio."
Mr. Rule also represents another small Internet firm that has brought an antitrust suit against Google. Meanwhile, in Europe, following complaints about Google that came from, among others, a Microsoft subsidiary in Germany, the European Commission has opened a preliminary antitrust inquiry into the search giant.
To Google, the pattern is clear: It contends Microsoft is embarking on a proxy war against it through various apparently unrelated cases, preparing the ground for a broader antitrust assault of some sort on Google's dominance in the online world. "It's become clear that our competitors are scouring court dockets around the world looking for complaints against Google into which they can inject themselves, learn more about our business practices, and use that information to develop a broader antitrust complaint against us," said a Google spokesman, Adam Kovacevich.
Microsoft calls that nonsense. It says it neither initiated nor is funding the small Internet firms' antitrust lawsuits. The plaintiffs and their legal counsel also deny that Microsoft orchestrated the actions. The Internet firms say they chose Cadwalader and Mr. Rule on their own.
Microsoft does say that a growing number of consumers, companies and governments have concerns about Google's marketplace dominance. "It's no secret that we share many of these concerns," said a Microsoft spokesman, Jack Evans. "It shouldn't come as any surprise then that we frequently hear from parties who believe they've been harmed by Google, or that we would encourage anyone who appears to have a legitimate complaint to contact the appropriate authorities."
The legal maneuvering, at a minimum, shows that Google—with nearly 75% of the Internet-search advertising market in America and over 90% in France and Germany—has now become the high-tech giant that some would like to hobble. There's something of a role reversal here. For many years, it was Microsoft that had to fight off charges—from the Justice Department and from European authorities—of abusing its market power to crush rivals. The official challenges followed numerous complaints from competing software companies, such as Web-browser maker Netscape Communications Corp.
Some legal experts think Microsoft now is taking a page from those firms' playbook to try to stir up official scrutiny of its own nemesis, Google. "Microsoft is doing a lot to try and harass Google on the antitrust front," says Eric Goldman, director of the High Tech Law institute at the Santa Clara University School of Law in California.
Like Mr. Rule, other players from Microsoft's past struggles are reappearing in the new battleground. Gary Reback was an attorney for Netscape who once helped spur the U.S. to investigate Microsoft. Now it's Google he is going after. Through a group he formed called the Open Book Alliance, he is challenging Google's 2008 settlement with authors and publishers concerning electronic books, saying it gives Google an unfair advantage. The Justice Department is reviewing the deal.
Mr. Reback says this attack was his idea but his group later sought and received financial support from Microsoft, among others. The antitrust rap on Microsoft was that it bundled its Web browser with its operating system, giving its own software an advantage over that of competitors. Mr. Reback claims to see an "eerie" parallel in what Google does today as it moves into areas like video, email, maps and cellphone ads.
"They are taking over new technologies and markets, all the things I saw and worried about back in the '90s," he says. "It's Yogi Berra's deja vu all over again."
Google Chief Executive Eric Schmidt has often said greater antitrust scrutiny is inevitable as the company grows, making it more careful about some moves, though not holding it back. Mr. Kovacevich, the Google spokesman, says, "We work hard to put our users' interests first and to compete fair and square in the market."
Microsoft has been active in getting a different point of view across, often behind the scenes. It created and is the main financier of a Brussels-based group that raises concern about Google's online dominance. Called the Initiative for a Competitive Online Marketplace, or ICOMP, the group has distributed documents that suggest Google is manipulating its search results and algorithms to hurt competitors and reward business partners.
ICOMP says it represents a broad range of firms hurt by Google's dominance. Yet some members don't seem much concerned. One ICOMP signatory is a Spanish artisanal cheese maker called Artequeso, whose owner, Alfonso Álvarez, says he doesn't use computers. Mr. Álvarez said someone—he couldn't recall who—had asked him to join the group, and he signed because he opposes monopolies generally.
ICOMP legal counsel David Wood says the group isn't solely focused on attacking Google, although, he says, "it has been characterized that way by Google because [Google] doesn't like anybody to talk about what it does in anything but praiseworthy terms."
Google itself has proved ready to take the offensive in the antitrust wars. In 2009, it joined the European Union's long-running case against Microsoft, which attacked its bundling of its Web browser with its Windows operating system. In a settlement in December, Microsoft agreed to make it easier for PC users in Europe to choose which browser to install.
The small antitrust plaintiffs represented by Mr. Rule, the longtime lawyer for Microsoft, accuse Google of such tactics as lowering its "quality score" of their sites, with the result that their ads cost more or appear less prominently in searches.
Google regularly tweaks its search algorithms—partly to stay ahead of people trying to game the system—but denies it makes any changes for anticompetitive reasons.
The litigant that initially faced a suit by Google over an unpaid bill is myTriggers.com Inc., whose antitrust allegations appear in Franklin County, Ohio, common pleas court. The other private antitrust suit was filed by a site called TradeComet.com LLC in federal court in New York; Google is trying to get it moved to California.
Mr. Rule says any notion that these cases are directed by Microsoft is "false and distracts from the serious allegations in the complaint." Officials of myTriggers and TradeComet make the same point.
Google suggests that in any case, when longtime lawyers for Microsoft represent other plaintiffs against Google, they get to see confidential Google information unearthed through discovery in those suits.
Mr. Rule, who is a former head of the U.S. Justice Department's Antitrust Division, says it isn't uncommon for law firms to represent multiple clients against the same adversary. He says the work he and Cadwalader do for myTriggers and TradeComet is unrelated to their work for Microsoft.
Microsoft's Mr. Evans says, "Since we're not parties to these lawsuits, we wouldn't be privy to the information Google might be required to share. The bigger question is what is Google afraid of others learning about their business practices?"
In a blog post, Microsoft's deputy general counsel, Dave Heiner, suggests there is nothing untoward about its raising questions about Google's behavior. "Complaints in competition law cases usually come from competitors," he wrote on Microsoft's public-policy blog Friday.
Besides the European Commission's informal Google inquiry, France—where Google has 93% of search advertising—is expected to investigate whether Google abuses its dominance. Google says it complies with European laws and competes fairly.
U.S. authorities are watching as well. The Justice Department's antitrust chief, Christine Varney, once represented Netscape. But before her current appointment, she indicated the antitrust focus has shifted.
"For me, Microsoft is so last century," she said in June 2008. "They are not the problem. I think we're going to continually see a problem—potentially with Google," which "has acquired a monopoly in Internet online advertising." Neither the Justice Department nor the Federal Trade Commission has given any sign of a broad investigation of Google's business behavior, although Google is undergoing reviews of narrower issues.
It has already endured probes focused on specific deals. In 2007, the FTC reviewed Google's plan to buy online advertising firm DoubleClick. After subpoenaing thousands of documents, the FTC eventually cleared the deal, but warned it would pay close attention to competition in online advertising.
A second review was more bruising. In June 2008, after Microsoft broke off merger discussions with Yahoo Inc., Google agreed to sell ads for some Yahoo searches. Critics led by Microsoft blasted the plan, saying it would give Google greater control over a market it already dominated.
A lobbying firm that frequently works for Microsoft helped organize a letter to Congress by farmers' groups opposing the Google-Yahoo deal. The letter said the issue was "of immense importance to rural communities that we represent."
When contacted recently, however, some signatories seemed less than worried. Larry Matlack, president of the American Agriculture Movement, said, "From my view, I wouldn't know if they've got 10% of the market or 99%. I use Google, but I'm a Kansas farmer and the president of a small manufacturing concern, and I'm computer-illiterate other than the things I have to do." He said a lobbyist had suggested he sign the letter.
Microsoft said it wasn't behind the letter. A lobbying firm called LMG, which regularly works for Microsoft, gave a different account. "We did work on this letter on behalf of Microsoft," said an LMG spokesman. "But the fact is, the groups that signed it, signed it. These are their positions. We certainly had a hand in informing people and helping people organize, but that does not mean there's anything bogus about this."
In any case, the Justice Department threatened to sue, saying Google had over 70% of the market for search advertising and providing search results to other Web sites. Attaining such power isn't necessarily illegal, but using it to disadvantage competitors can be. Google and Yahoo abandoned their plan to cooperate. Soon after, Yahoo teamed with Microsoft on a search deal.
So far, Google has managed to deflect most other efforts to slow its expansion. In November, it charged into the field of cellphone advertising by agreeing to buy a firm called AdMob. Anticipating scrutiny, it coupled the announcement with a defense of the competitiveness of the deal. The FTC is reviewing it.
Santa Clara University's Mr. Goldman expects Google will have to keep navigating a legal and regulatory minefield. "If everyone starts piling on, Google might have to change its basic business."
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