Technology and I.P.

  • October 6, 2011
    Guest Post

    Editor’s Note: This is the final post in an ACSblog debate on antitrust scrutiny of Google between Harvard Business School Professor Benjamin G. Edelman and George Mason University School of Law Professor Joshua D. Wright. This online debate follows a recent U.S. Senate hearing on whether Google’s business practices “serve consumers” or “threaten competition.” See all the posts here.


    By Joshua D. Wright, Professor of Law, George Mason University School of Law


    Professor Edelman’s opening post does little to support his case.  Instead, it reflects the same retrograde antitrust I criticized in my first post.

    Edelman’s understanding of antitrust law and economics appears firmly rooted in the 1960s approach to antitrust in which enforcement agencies, courts, and economists vigorously attacked novel business arrangements without regard to their impact on consumers.  Judge Learned Hand’s infamous passage in the Alcoa decision comes to mind as an exemplar of antitrust’s bad old days when the antitrust laws demanded that successful firms forego opportunities to satisfy consumer demand.  Hand wrote:

    we can think of no more effective exclusion than progressively to embrace each new opportunity as it opened, and to face every newcomer with new capacity already geared into a great organization, having the advantage of experience, trade connections and the elite of personnel.

    Antitrust has come a long way since then.  By way of contrast, today’s antitrust analysis of alleged exclusionary conduct begins with (ironically enough) the U.S. v. Microsoft decision.  Microsoft emphasizes the difficulty of distinguishing effective competition from exclusionary conduct; but it also firmly places “consumer welfare” as the lodestar of the modern approach to antitrust:

    Whether any particular act of a monopolist is exclusionary, rather than merely a form of vigorous competition, can be difficult to discern: the means of illicit exclusion, like the means of legitimate competition, are myriad.  The challenge for an antitrust court lies in stating a general rule for distinguishing between exclusionary acts, which reduce social welfare, and competitive acts, which increase it.  From a century of case law on monopolization under § 2, however, several principles do emerge.  First, to be condemned as exclusionary, a monopolist's act must have an "anticompetitive effect.”  That is, it must harm the competitive process and thereby harm consumers.  In contrast, harm to one or more competitors will not suffice.

    Nearly all antitrust commentators agree that the shift to consumer-welfare focused analysis has been a boon for consumers.  Unfortunately, Edelman’s analysis consists largely of complaints that would have satisfied courts and agencies in the 1960s but would not do so now that the focus has turned to consumer welfare rather than indirect complaints about market structure or the fortunes of individual rivals. 

  • October 6, 2011
    Guest Post

    Editor’s Note: This is the third post in an ACSblog debate on antitrust scrutiny of Google between Harvard Business School Professor Benjamin G. Edelman and George Mason University School of Law Professor Joshua D. Wright. This online debate follows a recent U.S. Senate hearing on whether Google’s business practices “serve consumers” or “threaten competition.”


    By Benjamin G. Edelman, Assistant Professor, Harvard Business School


    Professor Wright questions whether Google biases results towards its own services, and asks whether consumers are harmed even if Google does bias its results.  I don’t find these questions so difficult, and while Professor Wright suggests we’d struggle to identify appropriate remedies, I see some straightforward solutions.

    Let’s start with the question of whether Google biases its results towards its own services.  On a whim, I ran a search for pop superstar Justin Bieber.  Google’s top-most link promoted Google News (in oversized bold type).  Down a few inches came a “Videos” section where three thumbnails and three video titles all linked to YouTube clips.  (Less prominent links identified other services showing these same videos – links added only after critics flagged the problem of Google always directing this traffic to its own video site.)  Lower, Google presented a block of Google Images results.  In the analogous context of extra-prominent links to Google Finance, Google’s Marissa Mayer argued that the company should be permitted to put its own links first.  “It seems only fair right, we do all the work for the search page and all these other things, so we do put it first.”  Marissa doesn’t dispute that Google favors its own links – and she couldn’t, when Google’s links widely appear in prominent ways no other service enjoys.

    And what of the consequences of Google’s bias?  Professor Wright posits an “efficient bias” wherein Google usefully offers consumers its full suite of services.  Certainly it’s handy to have a single Google password providing access to personalized search, finance, videos, and more.  But this misses the serious harms of Google’s ever-broadening panoply of services.

  • October 3, 2011
    Guest Post

    Editor’s Note: This is the second post in an ACSblog debate on antitrust scrutiny of Google between Harvard Business School Professor Benjamin G. Edelman and George Mason University School of Law Professor Joshua D. Wright. This online debate follows a recent U.S. Senate hearing on whether Google’s business practices “serve consumers” or “threaten competition.”


    By Joshua D. Wright, Professor of Law, George Mason University School of Law


    The theoretical antitrust case against Google reflects a troubling disconnect between the state of our technology and the state of our antitrust economics.  Google’s is a 2011 high tech market being condemned by 1960s economics.  Of primary concern (although there are a lot of things to be concerned about, and my paper with Geoffrey Manne, “If Search Neutrality Is the Answer, What’s the Question?,” canvasses the problems in much more detail) is the treatment of so-called search bias (whereby Google’s ownership and alleged preference for its own content relative to rivals’ is claimed to be anticompetitive) and the outsized importance given to complaints by competitors and individual web pages rather than consumer welfare in condemning this bias.

    The recent political theater in the Senate’s hearings on Google displayed these problems prominently, with the first half of the hearing dedicated to Senators questioning Google’s Eric Schmidt about search bias and the second half dedicated to testimony from and about competitors and individual websites allegedly harmed by Google.  Very little, if any, attention was paid to the underlying economics of search technology, consumer preferences, and the ultimate impact of differentiation in search rankings upon consumers.

    So what is the alleged problem?  Well, in the first place, the claim is that there is bias.  Proving that bias exists -- that Google favors its own maps over MapQuest’s, for example -- would be a necessary precondition for proving that the conduct causes anticompetitive harm, but let us be clear that the existence of bias alone is not sufficient to show competitive harm, nor is it even particularly interesting, at least viewed through the lens of modern antitrust economics.

    In fact, economists have known for a very long time that favoring one’s own content -- a form of “vertical” arrangement whereby the firm produces (and favors) both a product and one of its inputs -- is generally procompetitive.  Vertically integrated firms may “bias” their own content in ways that increase output, just as other firms may do so by arrangement with others.  Economists since Nobel Laureate Ronald Coase have known -- and have been reminded by Klein, Crawford & Alchian, as well as Nobel Laureate Oliver Williamson and many others -- that firms may achieve by contract anything they could do within the boundaries of the firm.  The point is that, in the economics literature, it is well known that self-promotion in a vertical relationship can be either efficient or anticompetitive depending on the circumstances of the situation.  It is never presumptively problematic.  In fact, the empirical literature suggests that such relationships are almost always procompetitive and that restrictions imposed upon the abilities of firms to enter them generally reduce consumer welfare.  Procompetitive vertical integration is the rule; the rare exception (and the exception relevant to antitrust analysis) is the use of vertical arrangements to harm not just individual competitors, but competition, thus reducing consumer welfare.

  • October 3, 2011
    Guest Post

    Editor’s Note: This is the first post in an ACSblog debate on antitrust scrutiny of Google between Harvard Business School Professor Benjamin G. Edelman and George Mason University School of Law Professor Joshua D. Wright. This online debate follows a recent U.S. Senate hearing on whether Google’s business practices “serve consumers” or “threaten competition.”


    By Benjamin G. Edelman, Assistant Professor, Harvard Business School


    The Senate Antitrust Subcommittee recently held a hearing to investigate persistent allegations of Google abusing its market power.  Witnesses Jeff Katz (CEO of Nextag) and Jeremy Stoppelman (CEO of Yelp) demonstrated Google giving its own services an advantage other sites cannot match.  For example, when a user searches for products for possible purchase, Google presents the user with Google Product Search links front-and-center, a premium placement no other product search service can obtain.  Furthermore, Google Product Search shows prices and images, where competitors get just text links.  Meanwhile, a user searching for restaurants, hotels, or other local merchants sees Google Places results with similar prominence, pushing other information services to locations users are unlikely to notice.  In antitrust parlance, this is tying: A user who wants only Google Search, but not Google’s other services, will be disappointed.  Instead, any user who wants Google Search is forced to receive Google’s other services too.  Google’s approach also forecloses competition: Other sites cannot compete on their merits for a substantial portion of the market – consumers who use Google to find information – because Google has kept those consumers for itself.

    But Google’s antitrust problems extend beyond tying Google’s ancillary services.  Consider advertisers buying placements from Google.  Google controls 75% of U.S. PC search traffic and more than 90% in many countries.  As a result, advertisers are compelled to accept whatever terms Google chooses to impose.  For example, an advertiser seeking placement through Google’s premium Search Network partners (like AOL and The New York Times) must also accept placement through the entire Google Search Network which includes all manner of typosquatting sites, adware, and pop-up ads, among other undesirable placements.  While these bogus ad placements defraud and overcharge advertisers, Google’s U.S. Advertising Program Terms offer remarkable defenses: these terms purport to let Google place ads “on any content or property provided by Google ... or ... provided by a third party upon which Google places ads” (clause 2.(y)-(z)) -- a circular “definition” that sounds more like a Dr. Seuss tale than an official contract.  Even Google's dispute resolution provisions are one-sided: An unsatisfied advertiser must complain to Google by “first class mail or air mail or overnight courier” with a copy by “confirmed facsimile.” (Despite my best efforts, I still don't know how a “confirmed” facsimile differs from a regular fax.)  Meanwhile, Google may send messages to an advertiser merely by “sending an email to the email address specified in [the advertiser's] account” (clause 9).  This hardly looks like a contract fairly negotiated among equals.  Quite the contrary, Google has all the power and is using it to the utmost.

  • July 25, 2011
    Guest Post

    By Eduardo M. Peñalver, Professor of Law, Cornell Law School


    If one definition of insanity is doing the same thing over and over while expecting a different result, then the “Protect IP Act” surely counts as confirmation (as if any were needed at this point) that our IP system and its beneficiaries have become genuinely unhinged.  The bill’s name is supposedly short for the “Preventing Real Online Threats to Economic Creativity and Theft of Intellectual Property Act of 2011,” but can anyone doubt that the sponsors came up with the acronym first and then brainstormed ways to generate it?  It is backed by the usual industry suspects, including the Motion Picture Association of America (MPAA), the Recording Industry Association of America (RIAA), and Viacom. 

    Protect IP attempts to provide new legal tools for going after websites located outside the United States who post infringing material.  Sponsored by (among others) Democratic Senator Patrick Leahy, it empowers federal courts to, in effect, “disappear” web sites that are “dedicated to infringing activities.”  Most significantly, the bill creates a procedure by which the Department of Justice can bring an action in federal court to request an order that, if granted, it can then use to compel domain name servers, search engines, and even (arguably) websites that link to the offending site, to delete references to the blacklisted site, apparently with the aim of making it impossible for users to reach the infringing content. 

    Much of the criticism of the proposed law has focused on the vagueness of its terms and the threat this may pose to First Amendment values.  What does it mean for a site to be “dedicated to infringing activities”?  Would the law, for example, make it possible for the U.S. government to block access to WikiLeaks by, among other things, punishing anyone who links to the site?  Commentators have also criticized the lack of procedural safeguards before a blacklist order may issue.  Although I agree with all of these concerns, I am more interested in the evidence the bill provides that a significant contingent of content providers (and therefore members of Congress eager to do their bidding) remain convinced that the solution to the problem of online piracy lies in reflexively ratcheting up the legal sanctions for infringement.