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Lee Calls for Antitrust Oversight Hearings on Google

Senator emphasizes importance of a competitive Internet economy, cites concerns about Google's possible abuse of its predominant position and the need for vigorous antitrust oversight.

Mar 11 2011

Washington, DC - Senator Michael S. Lee (R-UT) today called for the Senate Judiciary Committee’s Antitrust Subcommittee to conduct an oversight hearing on Google Inc. Lee joins Chairman Herb Kohl in encouraging hearings on the business practices of the dominant search firm. Lee is Ranking Member of the Subcommittee.

In a letter to Kohl, Lee noted that those who follow the tech industry, as well as those responsible for enforcing antitrust laws, have concerns that Google could be acting to harm competition.

“The powerful position Google occupies in the general search arena creates myriad opportunities for anticompetitive behavior,” Lee writes. “The Deputy Director for Antitrust within the Bureau of Economics at the Federal Trade Commission, Howard Shelanski, recently observed that a ‘hypothetical search engine’ with various ‘scale and network economies’ might become a ‘must have’ for consumers and thereby more effectively engage in ‘anticompetitive discrimination.’”

Given its prominent position in the search and search-advertising markets, Google in some ways acts as a gatekeeper over a variety of Internet businesses.

In particular, Lee’s letter points to Google’s proposed acquisition of ITA software, which could potentially provide Google with the ability to control the travel search vertical market, currently populated by sites like Kayak, Travelocity, and Orbitz.

“Google’s position as the preeminent search engine may be abused so as to disadvantage competing vertical search sites to the detriment of advertisers and internet users,” Lee writes.

Lee adds that Google’s acquisition of personal data through searches and its many products, such as Gmail, Google Checkout, Google Books, and Google Web History, couldpresent serious privacy issues.

“Google’s powerful position as an Internet gatekeeper reduces the company’s incentive to compete with other search engines by providing enhanced privacy protection for consumers.”

“The combination of behavioral and personal information enables Google to generate consumer data that is unprecedented in scale and scope. These activities raise serious privacy concerns and may be indicative of an important market that is largely unconstrained by competition. Antitrust enforcement may unlock beneficial competition for the protection of user privacy and avert the need for additional privacy regulation.”

Utah has a growing tech sector with several large companies set to expand their businesses in the state, and was awarded Forbes “Best State for Businesses” in 2010.

“As an increasing number of companies with an online presence expand and create jobs, we want to make to maintain and competitive and business-friendly environment,” Lee said.

The full text of Senator Lee’s letter to Subcommittee Chairman Herb Kohl is included below:

 

March 10, 2011

 

The Honorable Herb Kohl
Chairman
Senate Judiciary Antitrust Subcommittee
224 Dirksen Senate Office Building
Washington, D.C. 20510

 

Dear Chairman Kohl:

 

I write to express my strong concerns relating to Google Inc.’s possible abuse of its predominant position in the general internet search arena and the need for vigorous antitrust oversight and enforcement in this area. As the new ranking member of the Antitrust Subcommittee, I look forward to working with you to hold a hearing on this important issue. I recognize and applaud your efforts in this area of vital importance.

The proper functioning of our nation’s free-enterprise system is critical during the current economic downturn. Enforcement of the antitrust laws is especially important for sectors in which the United States has been a leader, such as the e-commerce and online advertising industries. Antitrust enforcement is far preferable to the creation of inefficient government regulation and bureaucracy that could hamper innovation in these crucial industries. Internet search is of particular concern to me because Utah – recently labeled by Newsweek as the “new economic Zion” due to its growing number of high tech businesses – has a significant interest in preserving open competition in this importantarea of our economy.

Many commentators, as well as those responsible for enforcing antitrust laws, have voiced serious questions concerning whether Google has acted to harm competition. Given its prominent position in the search and search advertising markets, Google in some ways acts as a gatekeeper over a variety of internet businesses. Among other things, commentators have expressed concern that Google may be using its position to harm specialized (or so-called “vertical”) search sites. If allowed to compete free of restraints, vertical search sites – such as travel, mapping, and shopping sites – could attract users and advertisers from Google’s search platforms. Some vertical search sites have accused Google of using its power to deprive those websites of internet traffic by biasing the display of its search-advertising and search results.

Likewise, some claim that Google may disadvantage rivals in subtle, potentially undetectable, ways. Indeed, Google’s founders recognized as early as 1998 that “a search engine could add a small factor to search results from ‘friendly’ companies, and subtract a factor from results from competitors” and that “[t]his type of bias is very difficult to detect but could still have a significant effect on the market.”[1] Whether this type of behavior is occurring is a question of great practical significance. The powerful position Google occupies in the general search arena creates myriad opportunities for anticompetitive behavior. The Deputy Director for Antitrust within the Bureau of Economics at the Federal Trade Commission, Howard Shelanski, recently observed that a “hypothetical search engine” with various “scale and network economies” might become a “must have” for consumers and thereby more effectively engage in “anticompetitive discrimination.” According to Shelanski, “once one realizes there could be an application . . . that is more essential to consumers than any particular downstream network, then the locus of possible bottleneck discrimination . . . shifts upstream.”[2]

The DOJ has extensively analyzed bias in the display of airfares to travel agents on airline-owned computerized reservation systems (“CRSs”) and concluded that “[p]erhaps the most effective and insidious method by which an airline can use a CRS with market power to punish other carriers for competing with it is secretly to bias the system in favor of the host carrier.” The DOJ went on to point out that “[b]ias influences, and may mislead, the travel agent who uses CRS in such a way as to cause airline ticket revenues to shift from competing carriers to the host.”[3] In a similar way, Google’s position as the preeminent search engine may be abused so as to disadvantage competing horizontal and vertical search sites to the detriment of advertisers and internet users. As you know, the DOJ is in the process of determining whether to approve Google’s proposed acquisition of ITA Software – a deal that could potentially provide Google with the ability to control the travel search vertical market.

In addition to its consideration of the contemplated ITA acquisition, I believe the DOJ should also investigate whether Google’s powerful position as an internet gatekeeper reduces the company’s incentive to compete with other search engines by providing enhanced privacy protection for consumers. Google collects an unequaled amount of information about consumers through its search platform, including data about web searches, reactions to online advertising, and precise geographic location for both mobile devices and personal computers. Google also gathers an enormous amount of consumer information through its related products and services, including Gmail, Google Checkout, Google Books, and Google Web History. Google has admitted that for nearly three years it used its Street View mapping service – without notice or consent – to access unprotected Wi-Fi networks and amass extensive information about theinternet activities of American consumers in all 50 states. The combination of behavioral and personal information enables Google to generate consumer data that is unprecedented in scale and scope. These activities raise serious privacy concerns and may be indicative of an important market that is largely unconstrained by competition. Antitrust enforcement may unlock beneficial competition for the protection of user privacy and avert the need for additional privacy regulation.

Oversight by our Subcommittee is essential in helping free markets flourish in this important area of our economy. Ensuring robust competition will benefit consumers, spur innovation, and lead to job creation in our nation’s high-tech internet economy. Utah, ranked by Forbes magazine as the “Best State for Business” in 2010, will likewise benefit from the preservation of competition in this area. Vigorous antitrust enforcement is almost always preferable to a system of government regulations, which will inevitably be more costly and less efficient than a free market unencumbered by anticompetitive restrictions.

I very much appreciate your efforts in this regard and look forward to our work together.

Sincerely,

Michael S. Lee
Ranking Member
Senate Judiciary Antitrust Subcommittee