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The George Mason Law Review Annual Symposium on Antitrust Law

Scott A. Sher Wilson Sonsini Goodrich & Rosati January 26, 2012

Search and Online Advertising

Competition in Search is Strong

• Search is a vibrant industry that continues to foster new competition. – 15 years ago AltaVista was THE Search engine. 13 years ago Yahoo! owned that title. – WolframAlpha was an unknown at the start of 2011. Today it powers Siri. Tomorrow…?

• Search engines must constantly innovate their products to retain users.

• No firm possesses monopoly power in search.

– Given the dynamic nature of the business, sufficient market power is difficult to achieve.

• The nature of the Internet economy, and search in particular, places competition a click

away.

• Search, as an industry, is not subject to network effects. Internet searchers use sites that provide them relevant information, not sites that their friends use.

• Government oversight of search is unnecessary, unprecedented and would chill

innovation.

1/26/12 Scott A. Sher, Wilson Sonsini Goodrich & Rosati

The George Mason Law Review Symposium: Fall 1996

The Future of Information: Can Any “Search Engine” Ever Compete with AltaVista?*

*See Karen R. Diaz, Reference Sources on the Internet: Off the Shelf and onto the Web, 1997 (“AltaVista is unrivaled for handling complex search strategies and for providing comprehensive results. It can often locate instances of obscure terms buried within a document.”).


The King is Dead. Long Live the King. Will Yahoo! Ever Be Dethroned from its Leadership in Search?*

*See Randall Stross, How Yahoo! Won the Search Wars, Fortune Magazine, March 2, 1998, available at http://money.cnn.com/magazines/fortune/fortune_archive/1998/03/02/238576/index.htm (“This much is clear: Yahoo! has won the search-engine wars and is poised for much bigger things.”).



http://money.cnn.com/magazines/fortune/fortune_archive/1998/03/02/238576/index.htm

MySpace: THE Social Network?*

*See Pete Cashmore, Feeding the MySpace Beast, http://mashable.com/2006/04/19/feeding-the-myspace-beast/, April 19, 2006 (“Believe me: you can’t build the next MySpace. You may think you can, but you can’t. And don’t go thinking you can win by having more features: social software doesn’t work like that.”).



http://mashable.com/2006/04/19/feeding-the-myspace-beast/







While the Subject of the Debate Consistently Changes

One Constant Remains…

There Was and Remains Only One Option to Prepare Our Presentations (in a new box, of course)


Three Indicia of Monopoly Power: All Absent Here

• Sufficiently high market share

• Lock-in and high switching costs

• Network effects

• Generally, where a firm has monopoly power in a technology market, that market experiences a decline in innovation or a slowing of price declines


Claim: Google Possesses Sufficiently High Market Share in Search

• “We can provisionally define a dominant search engine as one with over 40 percent market share. Google clearly satisfies this criterion in the U.S. and much of Europe.”

• “Nor are users able to avoid the search engine’s power. The relevant market, while not completely monopolistic, is dominated by a very small number of players.”

1/26/12 Scott A. Sher, Wilson Sonsini Goodrich &

Rosati

Fact: Google’s Market Share Does Not Meet the Presumption of Monopoly Power

• “Absent additional evidence, such as an ability to control prices or exclude competition, a 64 percent market share is insufficient to infer monopoly power.” -- PepsiCo, Inc. v. Coca-Cola Co., 315 F. 3d 101, 109 (2d Cir. 2002)

• “It is doubtful whether sixty or sixty-four percent” market share would be

enough to constitute monopoly power. -- United States v. Aluminum Co. of America, 148 F. 2d 416, 424 (2d Cir. 1945)


Claim: Google is the Gatekeeper of the Internet

• “Internet sites have much riding on search engine results: as Nissenbaum & Introna memorably put it, ‘to exist *online+ is to be indexed by a search engine.’ While users can locate relevant information on the Net in other ways, search engines now constitute the dominant platform through which content producers and audiences can reach each other.”

• “Users may, for example, try to guess a URL for a trademarked company’s site or products, and a guess like www.cocacola.com will lead to the company that owns the mark COCA-COLA. There are also web-based directories like those maintained by Yahoo! and the Open Directory project. But the vast majority of searchers use search engines, and it is hard to imagine this changing any time soon.”


http://www.cocacola.com/

Fact: Google is not the “Gatekeeper” of the Internet

Users are Increasingly Spending their Time at Sites Other than Google….

Available at: http://www.comscoredatamine.com/2011/02/2010-us-digital-year-in-review/


Especially Facebook

• “Facebook has become synonymous not only with social media, but with Web use more generally, as Americans spend more time on Facebook than any other site.” (Nielsen Q3 2011 Social Media Report)

0

10

20

30

40

50

60

Series1

Top 10 U.S. Web Brands by Total Minutes, in Billions (May 2011)


Claim: Search Users are Locked-in to Google

• “There are many reasons to think that Google will continue to dominate the general purpose search field. Sure, searchers and advertisers can access a vibrant field of also-rans. But most users will always want a shot at Google for serious searching and advertising, just as mobile internet connection is no substitute for a high bandwidth one for many important purposes.”

• “While competition occurred in the past, the current search engine market has features that make robust and dynamic competition unlikely . . . Search engines have very high fixed costs and a relatively low marginal cost. This, in turn, results in substantial economies of scale, creating a market with a declining average cost per unit and high barriers to entry.”


Fact: Competition is a Click Away

• Search existed before Google – Yahoo!, Lycos, and AltaVista were all considered search leaders at one point. – In 1998, for example, the San Francisco Chronicle declared “The contest to become the

dominant search engine is close to over, with Yahoo being the winner.”

• The next generation of search – social search – is upon us.

– Google lags behind other search providers here.

– Google lacks access to key data feeds (Facebook, Twitter).

• Google continues to face competitive pressure from Bing, which will only

intensify with further Bing/Facebook integration.


Fact: No Firm Has Locked Up Search Syndication

• Three primary search syndication partners: – Yahoo! (16.3% market share) – Ask (3% market share) – AOL (1.3% market share)

• No firm will any longer be allowed to compete for

the right to syndicate Yahoo!’s search.

• Google competed with Microsoft for – and won – the right to syndicate search for Ask and AOL.


Claim: Internet Searchers are not Sophisticated Enough to Recognize Censored Results

• “*A+bsent highly publicly manipulation – which search engines’ notorious secrecy makes unlikely – user defection is not likely to correlate with manipulation . . . . A defection option matters little when users are not aware of the manipulation or its effect. The fact that users can and do receive relevant information from other sources, like portals, social networks, traditional media, or word of mouth, supplies some opportunities to avoid – and perhaps detect – a manipulative search engine. Nevertheless, for the near future, search engines are likely to remain a dominant source of information and one that is both opaque and irreplaceable.”


Fact: Search Engine Users Multihome to Find the Information They Seek

• Users are faced with minimal switching costs if they choose to find information through a means other than Google.

• Users have a number of options by which to find information online.

• Google recognizes this and is constantly innovating search.


Evidence that Search Users Multi-Home

• 2009 Nielsen Study: “72 percent of all heavy internet searchers use more than three different search engines in a month . . . while it shouldn’t surprise anyone that Google is the search engine to beat, it is critical that all the major search players, including Google, recognize that they exclusively own only a minority of their users.”*

• 2009 Forrester Research Study: A survey of more than 4,800 US adult online users found that the percentage of users who use multiple search engines every week had increased from 49% to 55% and that only 20% of users were using Google exclusively.**

• Performics 2010 Search Engine Results Page Insights Study: 79% of internet searchers will try a different search engine if they do not find what they are looking for initially.***

• 2011 Microsoft Study on User Preference: “The barrier to switching Web Search engines is low and multiple engine usage is common.”****

***http://www.mediapost.com/publications/?fa=Articles.showArticle&art_aid=136907

****http://research.microsoft.com/en-us/um/people/ryenw/papers/guosigir2011.pdf

*http://arstechnica.com/web/news/2009/06/nielsen-fickle-search-engine-users-could-benefit-bing.ars

**http://searchengineland.com/another-survey-incorrectly-predicts-google-could-lose-search-crown-16473


http://www.mediapost.com/publications/?fa=Articles.showArticle&art_aid=136907

http://research.microsoft.com/en-us/um/people/ryenw/papers/guosigir2011.pdf



http://arstechnica.com/web/news/2009/06/nielsen-fickle-search-engine-users-could-benefit-bing.ars















http://searchengineland.com/another-survey-incorrectly-predicts-google-could-lose-search-crown-16473



















Natural Experiment: January 31, 2009 Malware Incident

Due to a coding error, all Google search results returned with a malware warning. For the hour in which this error was in effect, Yahoo! search traffic doubled even though access to the results through Google was not blocked.

Noted One Commentator: “It was horrible! I was on a photo search job. I couldn't do anything for 30 minutes. I switched to Yahoo!(last time I used Yahoo was in 2001) Searching pictures via Yahoo was terrible. I hope it wont happen again.” -- http://googlesystem.blogspot.com/2009/01/google-flags-all-search-results-as.html


http://googlesystem.blogspot.com/2009/01/google-flags-all-search-results-as.html











As a Result, Search is a Highly Innovative Industry

Google Maps

My Search History

Customized Homepage

Personalized Search

Google Blog Search

Google Calendar

Book Search offers Public Domain Works

Archive Feature Added to Google News

Custom Search Engine

Patent Search

Universal Search

Street View in Maps

Google Health

Site Search

Google Suggest

Google Adds Magazines to Book Search

Google Voice

Search Option Panel Added to Images

Place Pages for Google Maps

Social Search

Stars in Search

Google Places

Caffeine Indexing System

Realtime Search

Google Instant

Place Search

Update to Social Search

Update to Search Algorithm

Google Maps Navigation

Google+ Launch

November-2004 April-2006 August-2007 January-2009 May-2010 October-2011

Selective Google Search Release Dates


Especially Compared to Internet Browsers After crippling Netscape, Microsoft failed to release a single

new browser between 2001 and 2006

“The damage Microsoft has done to competition, innovation, and the pace of the Web development itself is both glaring and ongoing.“ -- Mitchell Baker, Mozilla Foundation Chairman


Claim: The Government Needs to Protect the Public and Regulate Search

• “If search engines are to be accountable at all, if their interest is to be balanced against those of various other claimants involved in search-related disputes and if social values are to be given any weight, some governmental agent should be able to peer into the black box of search and determine whether or not illegitimate manipulation has occurred.”

• “On the administrative side, an institution modeled on the courts instated by the Foreign Intelligence Surveillance Act (FISA) might be helpful. The reviewing body could, like the FISA court, examine potential cases of manipulation and independently verify whether the results had been manipulated in a given case.”

• “I would recommend the formation of an Internet Intermediary Regulatory Council (IIRC), which would assist both the FCC and FTC in carrying out their present missions . . . [T]he IIRC would follow up on complaints made by competitors, the public, or when it determines that a practice deserves investigation. If the [IIRC] failed to reconcile conflicting claims, it could refer complainants to the FTC . . .”


Fact: Objective Search Engines Do Not Exist

• Search engines incorporate signals to determine the ranking of results. – Whether to weigh one signal heavier than another reflects upon the “search bias” of the

engine.

• All search engines weigh the various signals to determine the most relevant manner of displaying results. – A recent study* conducted by Josh Wright, Professor of Law and Economics at George

Mason University, found that Bing generally favors Microsoft content more frequently, and far more prominently, than Google favors its own content. According to the findings, Google references its own content in its first results position when no other engine does in just 6.7% of queries, while Bing provides search result links to Microsoft content more than twice as often (14.3%) in similar circumstances.

– This bias extends beyond just the first result. As the report noted, “in our replication of Edelman & Lockwood, Google refers to its own content in its first page of results when its rivals do not for only 7.9% of the queries, whereas Bing does so nearly twice as often (13.2%).”

* http://www.laweconcenter.org/images/articles/definingmeasuring.pdf


http://www.laweconcenter.org/images/articles/definingmeasuring.pdf

http://www.laweconcenter.org/images/articles/definingmeasuring.pdf

The Relevance of Search Engine Results is Subjective

• Search results are hierarchical by nature

– Not every search result can be ranked #1, though all can provide support for why they should be.

– Google’s goal is to connect users with information. If Google ranks irrelevant sites highly, users will switch to an alternative search engine.

• In MyTriggers v. Google, the court determined that Google ranking policies could not, as a matter of law, harm competition even though it was alleged that Google caused select websites to be ranked lower than others.

– “To prove antitrust injury, the key inquiry is whether competition — not necessarily an competitor — suffered as a result of the challenged business practice.”

– The fact that Foundem, myTriggers, TradeComet, etc., may rank lower because of Google’s algorithms is not relevant by itself. Must show harm to the market.


Even With Subjective Results, Users Have Certain Expectations of the Results

• Fresh content

• Diverse information

• Basically, they want to find something more like this:

And Less Like this…

• The description of this one

phone is repeated 15 times

on one page and 130 times

total in the search results


Promoting Relevant Results Benefits Users, and Is Entirely Permissible Under Antitrust Law

• Antitrust laws erect a strong presumption that firms may make necessary improvements to their business, regardless of their impact on rival third parties, so long as there is no prior course of dealing. – For example, in LiveUniverse, Inc. v. MySpace, Inc., LiveUniverse alleged that MySpace

violated a duty to deal because “before MySpace redesigned its platform, users were able to link to *particular+ content,” but could not after.

– The court determined that “a prior course of dealing between MySpace and its users” did not amount to “agreement or even an implicit understanding, between MySpace and LiveUniverse regarding the functionality of embedded links.”

• While Google does not possess market power, its actions would not violate antitrust laws even if it did. – Google has not entered agreements with parties about how it will rank their websites.

– Google makes no warranty about its ranking algorithm and makes no guarantees that the algorithm will not change.

– In fact, it is well known that Google’s ranking results constantly evolve, and that as they do, some results will rise and others will fall.


Restricting Search Engines Freedom in Ranking Results Would Stifle Innovation and Hurt Consumers

• Courts have long recognized that product innovation, particularly in “technologically advancing industries . . . *is+ the essence of competitive conduct.” -- Foremost, 703 F.2d at 542 – To this end, the antitrust laws have generally been read to avoid interpretations “which

might chill competition, rather than foster it.” Spectrum Sports, 506 U.S. at 458

• Requiring search engines to submit algorithmic changes for external review and comment would severely hamper business operations. – The external review process would be lengthy and would hamper the firm’s ability to

respond to changes in the market.

– Every website, save for the first result, would object to their placement and require review.

• Such a remedy would be inadministrable. – No precedent for the government overseeing EVERY aspect of a private business.

– The government lacks the intellectual resources to perform this function.

– There is no guarantee that this panel would not exercise (knowingly or unknowingly) its own search bias.


Conclusion

• Search regulation is inadministrable – How would regulated search results appear?

• Alphabetically? • In date order? • By relevance? Determined by whom? The government?

– Who would be regulated? Just Google? Just Google, Bing, and Yahoo!? What about the new Internet gateways?

• Search regulation would stifle innovation while providing no attendant benefits to consumers – If all search is regulated, how would competitors differentiate their products? – If all search is regulated, why would new companies enter the field?

• There is ZERO legal basis for search regulation

– No search firm possesses sufficient market share to exercise market power – Search, as an industry, is highly innovative. New business models – social search, for

example – arise from obscurity and alter the approach established firms take


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