Senators Question Whether Google Channels Searchers to Its Secondary Internet Businesses

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

Lawmakers expressed concern about Google’s decision to expand into secondary Internet businesses and addressed charges that the Google search engine channels customers to its own businesses, during a September 21 hearing by the Senate Judiciary’s Subcommittee on Antitrust, Competition Policy and Consumer Rights.

The hearing was held to consider the competitive impact of the conduct of Google, which has been criticized for allegedly manipulating search results for its own benefit. The Federal Trade Commission is currently investigating Google’s business practices.

“Our inquiry centers on whether Google biases [Internet search] results in its favor, as its critics charge, or whether Google simply does its best to present results in a manner which best serves consumers, as it claims,” said Subcommittee Chairman Herb Kohl (D, Wis.)

“[A]s the dominant firm in Internet search, Google has special obligations under antitrust law to not deploy its market power to squelch competition,” Senator Kohl added.

"Cooperating with FTC's Investigation"

Eric Schmidt, Executive Chairman of Google Inc., defended the company from suggestions that it was hindering competition. Schmidt said that Google was “fully cooperating with the FTC’s investigation” and noted that “every decided antitrust suit that has been brought against Google regarding our search results has been dismissed.

In a statement issued following the hearing, Senator Mike Lee (R, Utah) said that he was “disappointed” by Schmidt’s testimony.

“I had hoped to hear the company acknowledge the responsibilities that accompany its preeminent position in the Internet search market and address concerns many have raised about Google’s possible anticompetitive activities,” the subcommittee ranking member said. “Unfortunately, I fear that some of the testimony in today’s hearing may only encourage those who are calling for legal enforcement or government regulation.”

Apple, Google Boards of Directors Lose Members as FTC Investigates Overlaps

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

Google announced yesterday that a member of its corporate board of directors, who was also a member of Apple’s corporate board, had stepped down.

Google did not give a reason for the resignation of Dr. Arthur Levinson. However, it follows an August 3 announcement by Apple that Google's chief executive officer, Eric E. Schmidt, was stepping down from Apple's board.

At that time, Apple said that Schmidt's departure was a mutual decision and necessary in light of growing competition between the firms.

“Unfortunately, as Google enters more of Apple's core businesses, with Android and now Chrome OS, Eric's effectiveness as an Apple Board member will be significantly diminished, since he will have to recuse himself from even larger portions of our meetings due to potential conflicts of interest,” said Steve Jobs, Apple's CEO.

FTC Reaction

In response to Google’s announcement about Levinson’s resignation, FTC Chairman Jon Leibowitz said:

“Google, Apple, and Mr. Levinson should be commended for recognizing that overlapping board members between competing companies raise serious antitrust issues and for their willingness to resolve our concerns without the need for litigation.”

Leibowitz added that the agency would “continue to monitor companies that share board members and take enforcement actions where appropriate.”

Government Challenges

The FTC disclosed in August that it was investigating Google/Apple interlocking directorates. Sec. 8 of the Clayton Act conditionally prohibits interlocking directorates in competing corporations. Yet, government challenges to the overlaps are rare.

Over the last few decades, there have only been a handful of government challenges. The most recent Department of Justice complaint alleging a Clayton Act, Sec. 8 violation was filed in 2007. In that case, the government challenged CommScope Inc.'s proposed $2.6 billion acquisition of Andrew Corporation to preserve competition for drop cable.

The government contended that the transaction would have given CommScope the ability to appoint directors to the board of Andes, a substantial competitor, in violation of Sec. 8 of the Clayton Act. The suit was resolved by a consent decree (2008-2 Trade Cases ¶76,247). (See December 10, 2007 entry, Trade Regulation Talk.)

Yesterday’s announcement by the FTC could signal a move toward greater scrutiny of interlocks, however, especially between high profile companies like Google and Apple.

The Google announcement appears here on the company website. Commissioner Leibowitz’s statement is available here.