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EU investigates Google

We look at the European Commission's competition law investigation into Google and its biggest secret – its search algorithms.02 Dec 2010

A text transcription follows.

This transcript is for anyone with a hearing impairment or who for any other reason cannot listen to the MP3 audio file.

The following is the text spoken by OUT-LAW journalist Matthew Magee.

Hello and welcome to OUT‑LAW Radio, the talking shop of the OUT‑LAW empire where we discuss the pressing technology law issues of the day with the finest experts around.

Remember, you can read breaking news at OUT‑LAW.COM, where we keep you bang up to date with news, snippets and insight into what matters most in the world of technology law.

It is 2 December 2010, my name is Matthew Magee and this week we discuss the European Commission's competition law investigation into Google.

There was a certain changing‑of‑the‑guard feeling about this week's announcement from the European Commission that it was starting an antitrust investigation against a major American technology company that is so utterly and completely dominant in its field that it poses a threat to consumers' interests.

It used to be that the Commission's ire was focused on PC operating system behemoth Microsoft. But this week the mantle of number one tech target passed to Google.

The Commission said that it will investigate whether the way that Google ranks search engine results is anti‑competitive. It will investigate claims by rivals that they are deliberately downgraded by the search engine, and will look at whether deals cut by Google are exclusive and anti‑competitive.

Google says it has done nothing wrong, but rivals are pleased at the action. Two search engines Foundem and and Microsoft‑owned price comparison site Ciao were the source of the original complaints on which the Commission has based its investigation.

ICOMP is a lobby group of which Microsoft is the trustee and a funder, and of which Foundem is a member. Its legal counsel David Wood told us that it welcomed the investigation because Google was so big that public authorities had the right to know how Google went about its business.

Wood: There is a great lack of transparency and understanding of how search algorithms manual intervention and so on work in relation to search and that could have implications across the board, but above all it is important that a competition agency like DG Competition get to grips with what is going there because you need powers in investigation to do that. Some online businesses find that they cannot get into search results although they are perfectly good sites perfectly competent they are being pulled closed from the market by getting a low search ranking and there is no effective appeal from that. Those third party competitors are being pushed down the search results because Google is using its own platform to promote its own commercial services and you might say well why not? Why should not someone who owns a platform use that to further their other commercial activities? The answer is that this is the only route to business route to market for many companies.

Competition laws have often been used where a business is abusing a market dominance it achieved by unfair advantage. Former state monopoly telecoms companies or energy suppliers who have a massive network paid for over decades, for example, or companies who hold monopolies over commodities needed to compete with them.

Google's dominance of the online search market is surely down only to the quality of its search engine results. So is market dominance not the natural reward for that success? Should competition authorities even be involved here, I asked Wood.

Wood: That may be in the past that they have been dealing with more physical infrastructures, but infrastructures now they have moved on in the digital age. Not just things like search but financial services markets are built on data now and have been for the last 20 years. So I think to try and make a distinction between the digital world and the physical world actually leads you astray. The very same principles apply to the search and search advertising as they do in the old bricks and mortar world. The search is a massive scale business. You cannot really compete in the search business unless you can get the results and you cannot get the results unless you have people using the searches. So it is quite circular. It is a trial and error system that operates; so the more searches you have the more and better results you get. So any search engine you can find something like you know last night's football score. If you want to find some kind of esoteric answer then you are going to have to go to the search engine that has the most data and has the most searches and so scale plays a huge advantage for the kind of valuable searches that people are making.

The complaints against Google claim that the company manipulates its search results to promote its own services and to make the services of competitors harder to find. Up to a point, this is Google's prerogative. But once it has a dominant market position, competition law controls its behaviour more closely.

Google told us in a statement that it rejected all the charges made against it, and that its search rankings have only one aim, to deliver users the best results.

The statement said: "We built Google for users, not websites, and the nature of ranking is that some websites will be unhappy with where they rank. Those sites have complained and even sued us over the years, but in all cases there were compelling reasons why their sites were ranked poorly by our algorithms. For example, Foundem, one of the sites that has complained publicly and to the European Commission, duplicates 79% of its website content from other sites, and we have consistently informed webmasters that our algorithms disadvantage duplicate sites. Google has never taken action to intentionally hurt competing services."

So clearly there is disagreement about whether there should even be an investigation at all by the European Commission's Directorate General for Competition.

But there are also questions about how effective such an investigation can be. The Commission spent 11 years investigating Microsoft over concerns that it was abusing its dominant position by including certain types of software with its operating systems, amongst other issues.

The first case began at the height of the company's influence in 1998; a second did not end until 2009, by which time it was widely agreed that the software maker was no longer the dominant, controlling force in consumers' lives that it was once. Many put that down not to the Commission's actions or those of a US government investigation, but to the natural shifts in a feverishly developing market for consumer technology services.

Another issue is complexity. This case will have to probe the very innards of Google's search algorithms, the secret code that runs one of the most complex computing functions the world has ever seen. Is the Commission up to it? Wood thinks so.

Wood: Well absolutely yes. They have been looking at these markets for several years already going back to the Google double click merger. Earlier this year looking at the Microsoft Yahoo alliance, the merger cases, they got a vast amount of data as to market shares and information about market practices. This case team is probably the most experienced case team in the world for looking at these high technology markets. They had a succession of cases where they have investigated. Sometimes they have taken negative infringement decisions sometimes they have closed cases but they have looked at Microsoft they have looked at Intel they have looked at [Polcom] they have looked at Rambus. I mean they are vastly experienced in these kinds of investigations.

The investigation will also examine the relationships that Google has with its advertisers and business partners and claims that the company forces them to deal only with it.

Google denies the claim and said that it stopped using exclusive contracts for its advertising services two years ago.

But it does cover interesting ground. Wood said that past cases show that real abusive market control comes when companies cut backroom deals that consumers will never know about to keep a grip on a market power they may well have won perfectly legitimately in the first place.

Wood: Very often the competition authorities have found that underpinning dominant positions there are illegal agreements which is why when you look at say the Commission's practices over the last few years there are far more cases about rebates exclusivities than there are about obligations to provide inter‑operability because the real concern is not that people cannot get into the market, but once they are in the market and they have got a dominant position they underpin it, they maintain that dominance through a web of otherwise unlawful activities and we see the DG companies is clearly investigating those. That is part of what its statement said yesterday and you can effectively entrench a dominant position through a variety of means which economists without which you might expect that monopoly to be less stable.

So what does Wood want to see happen? If it finds that Google has behaved badly, what should the European Commission do to fix the problem?

Wood: I think it is obviously early to talk about remedies. I think that contracts, exclusivities, clearly they can look at those. They can unwind those kinds of provisions. They can bring about more transparency about how the algorithm works, what is going on inside the black box. They can maybe give people some kind of right of redress some appeal mechanism if they feel that they have been unfairly treated.

The Commission is going toe to toe with a tech industry giant for the third time in a decade, having also recently taken on chip maker Intel. But this time people might look at the case and think that to a much greater degree than with PC chips and operating systems, consumers can just stop using Google and use a rival search engine if they want the kind of transparency that Wood is calling for.

But he is adamant that this is a case where competition law should, and must, be applied.

Wood: We do place limits on how people exercise their powers when they arrive in a dominant position because we understand that that may be good for the individual company but it may be bad for the economy and for consumer welfare as a whole. That is exactly what is going on at the moment. It is looking at whether the practices are good.  I mean they are clearly for Google but are they good for everybody else.

That is all we have time for this week, thanks for listening. Why not get in touch with OUT‑LAW Radio? Do you know of a technology law story? We would love to hear from you on radio@OUT‑

Make sure you tune in next week; but for now, goodbye.

OUT‑LAW Radio was produced and presented by Matthew Magee for international law firm Pinsent Masons.