EC Investigates Google for Abuse of Dominance

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

The European Commission (EC) announced today that it has opened an in-depth antitrust investigation into Google Inc.'s methods for displaying search results.

According to the EC announcement, the investigation will look into whether Google abused a dominant market position in online search by:

(1) Lowering the ranking of unpaid search results of so-called vertical search services and by according preferential placement of its own vertical search services;

(2) Lowering the “Quality Score" for sponsored links of competing vertical search services and thereby influencing the price paid for advertising and the corresponding rankings;

(3) Imposing exclusivity obligations on advertising partners that prevent certain types of competing ads; and

(4) Restricting the portability of online advertising campaign data to competing online advertising platforms. The EC is attempting to determine whether Google engaged in this conduct in an effort to shut out competitors.

Complaints by Search Service Providers

The EC said that the formal investigation followed complaints from search service providers. While not named in the EC announcement, the three complaining firms have been identified as U.K.-based search service and price comparison site Foundem, French legal search engine eJustice, and Microsoft-owned shopping site Ciao.

The EC noted that the investigation did not imply it had proof of any infringements.

IComp, the Initiative for an Online Competitive Marketplace, in a November 30 statement, expressed hope that the EC decision “will contribute towards the development of a healthier and more competitive online marketplace.” Foundem is among the members of the Internet business organization.

Google Response

In response to the EC announcement, Google posted a statement on its European Public Policy Blog, saying that it would “work closely with the Commission to answer their questions.” According to the post, Google “will continue to review complaints about Google's search and search advertising.”

Antitrust Enforcers Reportedly Set to Probe Apple’s License Agreement

This posting was written by John W. Arden.

According to published reports, the Federal Trade Commission and Department of Justice are negotiating to determine which agency will pursue an antitrust inquiry of Apple Computer Inc.’s new license agreement, which requires software developers to use Apple programming tools to create applications for the iPhone and iPad.

Apple’s license agreement would prevent developers from employing other tools—such as Adobe Systems Inc.’s Flash format—used to create web videos, games, and other interactive features.

Antitrust enforcers will address the issue of whether this policy injures competition by forcing developers to choose between designing applications that can run only on the iPhone and iPad and creating applications that are “platform neutral” and can run on operating systems produced by Google, Microsoft, and others.

A story ("An antitrust app") in Monday’s New York Post said that federal antitrust enforcers are “days away from making a decision about which agency will launch the inquiry,” which could lead to a full fledged investigation.

None of the players in the scenario—the FTC, the Department of Justice, or Apple Computer Inc.—has publicly commented on the news reports. However, Apple CEO Steve Jobs posted a piece (“Thoughts on Flash”) on the company website, explaining “why we do not allow Flash on iPhones, iPods and iPads.”

Rather than being “primarily business driven,” the decision was “based on technology issues,” according to Jobs. Contrary to Adobe’s claims, Flash is actually “a closed system,” while Apple has adopted “open standards” like HTML5, CSS and JavaScript, Jobs wrote.

While Adobe contends that Apple mobile devices cannot access “the full web” because 75% of the video on the web is in Flash, Jobs maintained that “almost all this video is also available in a more modern format, H.264, and viewable on iPhones, iPods and iPads.”

Jobs further cited reliability, security, and performance issues, arguing that Flash has a poor security record, causes Macs to crash, and does not perform well on mobile devices. In addition, Jobs criticized Flash for using too much battery power, for not being designed for “touch” screens, and for having “major technical drawbacks.”

The Wall Street Journal (“Apple Attracts Scrutiny From Regulators”) pointed out that the “growing interest in Apple’s activities by antitrust authorities shows the extent to which the Cupertino, Calif., company has become a powerful player in mobile devices like smartphones, which many people see as the next dominant computing platform after personal computers.”

The article compares Apple’s conduct with the tactics by Microsoft Corp. that drew attention from antitrust enforcers in the 1990s.

“Apple is playing right out of Microsoft’s playbook—and it’s one they complained about a lot,” said David Balto, a senior fellow at the Center for American Progress and former attorney for the FTC and Department of Justice.

Do Market Concentration, Pricing Practices Warrant Antitrust Probe of “Big Beer”?

This posting was written by John W. Arden.

By announcing plans to raise beer prices during a recession, while beer demand slumps, the two major beer producers in the U.S. are “almost begging for an antitrust review of the industry,” according to an article posted August 31 on Slate magazine’s “The Big Money” blog.

Both Anheuser-Busch InBev and MillerCoors have announced price increases for the coming months, despite flat sales. The two companies increased prices at about the same time last year. The planned increases could raise the price of a 12-pack by about a dollar in some markets.

But “with 80% market share, it’s pretty easy for them to raise prices without seeing too many volume decreases,” Dinesh Gauri, assistant professor of marketing at Syracuse University, told the Wall Street Journal.

Declining Volume, Increased Prices

Despite beer volumes declining at the sharpest rates in more than a decade, both beer giants reported strong profits this year. Adjusted income for MillerCoors rose 27% in the first six months of 2009, as compared to the first six months of 2008. Anheuser’s North American division experienced a 29% increase in earnings in the first half of the year.

Although both companies cite rising expenses as the cause of their planned increases, critics have noted that “key price drivers”—such as hops and barley—are not seriously increasing in price. Nevertheless, beer prices have risen faster (up 4.6 percent) than consumer goods overall (down 2.1 percent) this year.

The parallel price increases “raise a red flag,” according to Aliza Rosenbaum and Rob Cox, writing on the “Big Money” blog. The companies’ ability to raise prices, “while their customers are hurting most, highlights the tremendous pricing power that has accompanied consolidation in the industry in recent years.”

Waning Competition

Between 1947 and 1995, the number of U.S. brewers decreased by more than 90 percent. When the “big three” (Anheuser, Miller, and Coors) were still around, there was competition in the U.S. market, according to Rosenbaum and Cox.

However, the June 2008 joint venture of Miller and Coors and the July 2008 acquisition of Anheuser Busch by global brewing giant Inbev changed the landscape of the industry. Since then, the “big two” have shown no interest in competing on price.

If the Obama Administration takes a stricter approach to antitrust enforcement, “big beer” may be in its sights, according to the article. An antitrust investigation may be politically popular, particularly since the big brewers are “for all intents and purposes, foreign-owned.”

The article (“Breaking Up Big Beer: Should Obama go after the bloated brewers?”) appears here on “The Big Money” website.