Paul Sakuma/Associated Press

Now that Google is reportedly on the prowl for the next Groupon, it’s time to revisit the debate of whether Google should be allowed to add to its empire.

Last week, we spoke to Gary Reback, the lawyer that led the antitrust crusade against Microsoft in the late 1990s. Drawing parallels to the Microsoft case, Mr. Reback accused Google of abusing its dominance in search to suppress the content of competitors and elevate its own. “Microsoft bundled the browser with the operating system and gave preference to their own, a lot of people worked very hard to break that monopoly, and now Google is getting away with everything that Microsoft did,” Mr. Reback said.

This week, lawyer Glenn Manishan, came out swinging in defense of Google. In a note to DealBook (pasted below), Mr. Manishan argues that Google has not engaged in anticompetitive practices and does not have a stranglehold on the search market. He takes a few swipes at Mr. Reback, who he says has an “apparent vendetta against Google.”

Not surprisingly, Mr. Reback disagrees with Mr. Manihan’s points. His rebuttal is also below.

Watch out, the claws are out.

For full disclosure: according to Mr. Manishan’s Web site, Google is a client but he has not represented the company in antitrust cases. Mr. Reback is not involved in any current court cases involving Google but he has represented several companies that have complained about the search giant’s conduct. “My work is open with regard to this fact — I am not neutral and do not present myself as such,” Mr. Reback said.

Mr. Manishan:





Evelyn Rusli’s article in DealBook last Wednesday (“Is Google Too Big to Shop?” — 12/15/10) is right that the current antitrust attention being given to Google is “about more than just a handful of acquisitions.” She was unfair, however, in according lawyer Gary Reback a forum to publicize his apparent vendetta against Google without even a reference to the opposing and rebuttal arguments.

Mr. Reback’s antitrust position is based on the false syllogism that Google of 2010 is like Microsoft of 1995, unlawfully maintaining a monopoly. His logic breaks down completely when one looks at the two different markets. Unlike Microsoft, Google (1) does not have a share of search, or advertising, even approaching the 95 percent Redmond held on PC operating systems when Microsoft’s antitrust scrutiny began in earnest, (2) enjoys no “network effects” enticing users to its services and raising the costs of switching to rivals, (3) has not engaged in exclusive dealing, tying, intimidation, deception and other bad acts to forestall search competitors (like Microsoft’s own Bing) from doing business with Google users or advertisers, (4) has never implemented a technological lock-in device, like Microsoft’s bolting of Internet Explorer into Windows 95 and 98, to foreclose competitors, and (5) does not have any market power in adjacent markets, like “office suite” software, that are dependent on search access.

Mr. Reback’s view that Google’s vertical integration into new services represents a Sherman Act offense of monopolization is incorrect because Google has done nothing exclusionary or anticompetitive. His concept of “search neutrality” is premised on the fabrication that Web search has some objective reality in which editorial judgment – even when embodied in mathematical algorithms – is inapplicable. Adding links to Google-sponsored services at the top of search results is no different from what every Internet search engine and directory have done for years, and has no more anticompetitive effect (i.e.,none!) than the addition of paid, “sponsored” links on search pages.

Google’s only competitive advantage is the quality, reliability and usability of its searches. It succeeds only by out-performing and out-innovating its rivals. No rational business would sacrifice that advantage, and the billions of dollars it generates yearly, for a fleeting lift in nascent markets far from the firm’s core competence. Since in the United States, antitrust policy and law presume that businesses are rational economic actors, Reback’s efforts to shame American competition authorities into embracing the paternalistic approach of the European Union to antitrust is destined for failure.

Mr. Reback’s objection to Google is no different from the concern mom-and-pop retailers have with Wal-Mart; that its size and efficiencies may displace smaller, independent competitors. That’s invalid as an antitrust theory and represents a discredited view of oligopoly market structure that every serious antitrust scholar today rejects. Most consumers relish the convenience and low prices scale economies provide, in cyberspace and big box retailing. Looking to Circuit City, Blockbuster, Sears, Best Buy and the like, however, shows that the market will severely discipline even the biggest companies if they cannot move with the times. Except perhaps for bailed-our financial markets,bigness is no protection in our economy.

Note: Mr. Manishin was counsel-of-record in both United States v. AT&;ampT and United States v. Microsoft. Neither the author nor his law firm represent Google in connection with antitrust or other matters in the US, Europe or elsewhere.

Gary Reback:

I note that Mr. Manishin’s Web site says that Google is (or at least was) a client and I also note that just yesterday he wrote a defense of Google in response to Steve Pearlstein’s column in The Washington Post. Perhaps, as the holidays approach, he is just getting civic-minded.

In any case, Mr. Manishin is entitled to his opinion, but I wish he would be a bit less cavalier with the facts. I don’t have time right now to point out every error and misleading argument, but here are a few of the most glaring examples:

1. Google’s market share: Many reputable services list Google’s North American market share at over 85%. Here is one example.

Google prefers to use ComScore, which lists Google’s share a bit lower. Not clear exactly why ComScore has a slightly lower share, but likely because they haven’t included search syndication (Google powering search on third party sites). Everybody seems to agree that Goog’s worldwide share exceeds 90 percent and its European share exceeds 95 percent. Any of these numbers suffice to make out a monopoly maintenance claim.

2. Network effects: Mr. Manishin neglects to point out that on the advertising side everyone (I think even Google) admits the presence of strong network effects — because of Google’s lead in online search advertising, new advertisers are “enticed” (to use Mr. Manishin’s word) to use Google. As in all network markets, Google’s lead in advertising makes it imperative that new advertisers also use Google, otherwise they run a tremendous competitive disadvantage because they don’t get coverage. In addition, there are published studies indicating that Google gratuitously makes it difficult for midsize advertisers to use campaigns prepared for Google on other search services.

3. Bad acts: Mr. Manishin is really out to lunch here. The investigations in Europe and among the states here focus on Google’s bad acts. For example (using Mr. Manishin’s examples):

(a) Exclusivity – Google used exclusivity agreements for syndicated search on publisher sites in order to deny search competitors business they needed to achieve sufficient scale;

(b) Deception – Google puts its own comparison shopping results first among organic results without even identifying them as Google’s results; they are just labeled “shopping results” leaving the user ignorant of the fact that Google is preferencing its own results. Second example: Despite public protests, Google continues to say on its Philosophy page (corporate Web site) that its goal is to move users off its site and on to other sites providing relevant results as quickly as possible. Yet, there is little doubt Google is now doing everything to keep users on its site, including preferencing its own vertical results (even when they are inferior). This kind of behavior — misleading third parties with deceitful promises of neutral treatment — constitutes one of the charged and proven offenses in the Microsoft case. 253 F. 3d 34, 76 – 77 (D.C. Cir. 2001).

(c) Intimidation – well, let’s see: Google tried to buy Yelp and when Yelp declined, Google started using Yelp’s content without permission. There are plenty of other examples that smaller competitors have complained about.

4. No power in adjacent markets: This assertion by Mr. Manishin is also a lulu. Google has used preferencing to give itself dominance in adjacent markets , just like Microsoft and Office. How about Maps as an example.

Contrary to Mr. Manishin’s assertion, the issue is not some vague concept of “search neutrality,” (which I never raised with you in any case) — but, rather, whether Google should be able to use the pretext of improving search results to punish its competitors while preferencing its own results. Manishin’s analogy of mom-and-pops complaining about big box retailers is way off point. The big box retailers never had market power like Google’s nor did they (or could they) punish those trying to compete against them. Had they engaged in this kind of behavior, they would have been liable under the antitrust laws. A big chewing tobacco company (80 percent share) lost a billion-dollar case for this kind of behavior just a few years ago.

Apparently, Google has chosen to argue these issues in the press using surrogates like Mr. Manishin and assumed (frequently erroneous) facts. We shouldn’t have to take Mr. Manishin’s word — or that of Google — for the bona fides of its conduct. In the face of what is now a torrent of complaints, our Justice Department needs to formally investigate to find out what the facts are, just like the European Union and the State of Texas are doing. The Department’s continued refusal to even take a hard look at this stuff speaks volumes about the failures and conflicts of the Obama Administration.