FTC’s Google Memos Underline the Need for Legislation to Balance the Online Marketplace

In mid-March, Politico published a powerful piece of investigative reporting titled “How Washington fumbled the future,” detailing the Federal Trade Commission’s (FTC) 2012 investigation into Google’s anticompetitive conduct and the agency’s failure to bring a case against Google.

The report is both revealing and damning, exposing how clear the evidence against Google was already nearly ten years ago and how the FTC’s refusal to take action has allowed Google to further entrench its dominant position in the online ecosystem. By laying out the many ways in which Google stifles competition, the memos serve as further evidence of the unequal playing field between Google and news publishers.

The memos published by Politico include a 170-page analysis drafted by the FTC’s antitrust lawyers, a memo by two of the agency’s economists, as well as other documents addressing the claims made against Google by other companies ranging from competitors like Microsoft and Yahoo! to others who rely on Google, including Amazon, TripAdvisor and Yelp.

The FTC’s standard practice is to request two analyses of the case in any antitrust investigation, one by antitrust lawyers and one by economists, with the economists seen as the more conservative and cautious of the two. Here, although both groups made some clearly unfounded assumptions – including noting that behavioral advertising has only “limited potential for growth” – and the economists recommended not pursuing the case, the lawyers made a convincing argument and found Google’s behavior deeply troubling in many instances.

The lawyers’ memo focuses on four main complaints against Google: self-preferencing of Google’s own content in search results, scraping of vertical rivals’ content to improve Google’s own products, contractual restrictions regarding the use of AdWords, and exclusionary terms in syndicated search and search advertising service agreements.

While the documents do not discuss news publishers in particular, news organizations have long experienced first-hand the effects of many of the issues highlighted in the memos. Scraping of content is not limited to Yelp and TripAdvisor reviews; Google regularly scrapes news content to answer user queries in both search and audio, diverting readers from news sites. Similarly, publishers were effectively forced to adopt Google’s AMP format or risk their content being downgraded in mobile search results, leading to reduced visibility for high-quality news content.

With regards to Google’s exclusionary agreements for search and search advertising, the memos paint a picture of a company willing, at least in some cases, to indirectly force others to abandon any efforts to develop or do business with competing products and services. As one example, the lawyers’ memo discusses efforts by CityGrid – a property owned by IAC, which at the time owned more than 50 different websites, including Ask.com and Newsweek – to mix-and-match search advertising providers in addition to developing its own digital advertising platform. Not only did its efforts to use other providers alongside Google’s AdSense seem to have failed, with CityGrid eventually being “forced” to sign onto the IAC’s umbrella agreement with Google that did not allow it to use other networks, Google’s exclusivity provisions made developing a “niche competitive alternative” to AdSense difficult.

CityGrid’s experience exemplifies the challenges faced by publishers and others when dealing with Google. The combination of aggressive acquisitions and lax antitrust enforcement has allowed Google to achieve a dominating position where publishers are forced to use Google’s services in order to take part in the digital marketplace, while accepting terms that clearly disadvantage them at the benefit of Google. CityGrid’s difficulties establishing a competitive ad platform may present just the tip of the iceberg – it is possible that Google’s unfair terms, together with its market position, have dis-incentivized or even downright squashed the development of other ad platforms that would provide publishers with better terms and services than Google’s own offerings.

In 2012, Google was a much smaller company than it is today. In the intervening years, it has cemented its position as the dominant actor in the digital advertising ecosystem while news organizations across the world are struggling to survive in the face of dwindling subscription and advertising revenues. Its exponential growth has also made it harder to regulate, with Google using its position and influence globally to fight any efforts to regulate its activities or to demand payments to news publishers for the use of their content. One only needs to look at the campaigns against the European Copyright Directive and the Australian media bargaining code for evidence of these strategies.

These global news compensation efforts are now trying to patch the damage caused by Google’s unregulated expansion and dominance over the last decade. In addition to Australia and Europe, Canada is reportedly considering adopting an Australia-style bargaining code while U.S. Congress is debating a safe harbor bill that would help level the playing field by allowing news publishers to collectively negotiate with the online platforms. At the same time, regulators in the United States and abroad have brought multiple antitrust suits against Google for anticompetitive conduct in search and advertising.

These legislative solutions and enforcement actions are not easy to develop or adopt, especially taking into account Google’s market power, and will not fix the problem completely, but they are the only way to protect a competitive digital marketplace and ensure a future for high-quality journalism. The online economy is at a critical juncture and it is vital we do not repeat the mistakes made by the FTC almost ten years ago.

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