TradeComet’s antitrust suit against Google has been dismissed by the S.D.N.Y. Court in which the case was being heard.  The opinion is available here.

The holding:

Google has now moved to dismiss the complaint pursuant to Federal Rule of Civil Procedure 12(b)(1) and 12(b)(3) for improper venue based on a forum selection clause in the parties’ advertising contracts. Because TradeComet’s claims fall within the scope of the relevant forum selection clause that requires that this action be brought in California, and because enforcing that clause would be neither unreasonable nor unjust, Google’s motion to dismiss is granted.

Of course this does nothing to the substantive claims, but it does require that they be brought–if they are brought again at all–in Santa Clara County, CA (as the forum selection clause dictates).

Of more interest to law . . talking . . guys may be the following:

TradeComet contends that the forum selection clause is unconscionable because—it claims—Google enforces it selectively, it is found within a contract of adhesion, and it would force TradeComet to litigate its claims in Google’s “backyard.”

To me these claims are meritless on their face.  The court also had no trouble dismissing them and here–citations omitted–is the court’s complete response to the claims:

However, TradeComet offers neither evidence to support its allegation of selective prosecution nor legal authority indicating that such behavior—if true—would make a forum selection clause unconscionable and thus unenforceable. Additionally, the fact that the August 2006 Agreement may or may not be a contract of adhesion does not invalidate its forum selection provision.  Finally, although litigating these claims in California rather than New York likely will be more burdensome for TradeComet, which has its principal place of business in New York, there is no suggestion that it would be so difficult as to deprive TradeComet of a fair opportunity to litigate its claims.

I only wish the court had pointed out that Google enters into an incredible number of these agreements.  Whatever burden ex post it places on each of Google’s counterparties that the terms be identical between the contracts and that they specify Google’s “backyard” as the venue for any litigation, the magnitude of the burden it would impose on Google to separately negotiate and track terms for each advertiser and to litigate each agreement in a different court is several orders of magnitude larger.  I can see no reason whatever that a court should ever entertain an argument to invalidate such terms.  The unconscionability argument is, well, unconscionable.

UPDATE:  Aruna Viswanatha at Main Justice is also on the case, as it were.

Apologies for the late notice on this.  Last week I was on a Federalist Society panel discussing Google’s antitrust issues with Rick Rule, Susan Creighton and Scott Cleland.  The event description follows, and you can find audio of the panel here.  It was an interesting discussion, full of nice ironies in that Microsoft’s chief outside antitrust defender was attacking Google with theories similar to those used against him in the DOJ case, and Google’s chief outside antitrust defender was the author of antitrust case against Microsoft and author of the paper (on cheap exclusion) that was being used as the basis for the case against . . . Google.  Good fun.  Any thoughts from anyone who attended?

Is Google Monopolizing Something, and If So, What?

Federalist Society Corporations, Securities and Antitrust Practice Group

December 7, 2009.  Last June, Christine Varney, then a lawyer in private practice, now President Obama’s nominee to be the next Assistant Attorney General for Antitrust, warned that Google, not Microsoft, is the monopolist of the future.  “For me, Microsoft is so last century. They are not the problem,” Varney said at a June 19 panel discussion sponsored by the American Antitrust Institute. The U.S. economy will “continually see a problem — potentially with Google” because it already “has acquired a monopoly in Internet online advertising.”  Concerns of this nature ultimately led Tom Barnett, the last Assistant Attorney General for Antitrust, to threaten a Sherman Act monopolization lawsuit if Google went through with plans to buy Yahoo.  Google, on the other hand, contends that the concerns are completely misplaced.  “The nature of the Internet is just a fundamentally different world from the sale of packaged software or the bundling of software with OEMs (original equipment manufacturers),” according to Kent Walker, Google’s General Counsel.  “The standard line we have is that competition is just one click away.”

[ Full Audio]
Audio Running Time: 01:32:58

Panelists:

• Mr. Scott Cleland, President, Precursor LLC and Chairman, NetCompetition.org
• Ms. Susan Creighton, Partner, Wilson Sonsini Goodrich & Rosati, PC
• Prof. Geoffrey Manne, Founder and Executive Director, International Center for Law & Economics and Lecturer in Law, Lewis & Clark Law School
• Mr. Rick Rule, Partner, Cadwalader, Wickersham & Taft LLP
• Moderator: Mr. Montgomery N. Kosma, Vice President of Legal Services Outsourcing, CPA Global

Josh and I have just posted a draft of our new article, The Limits of Antitrust in the New Economy. We’ll be presenting it at the Searle Center Research Roundtable on the 25th Anniversary of Frank Easterbrook’s essential article, The Limits of Antitrust, next week.

Here’s the abstract:

This paper offers an opportunity to reflect on Frank Easterbrook’s seminal work on the Limits of Antitrust and to discuss its particular relevance to the problem of antitrust enforcement in the face of innovation. The error-cost framework in antitrust originates with Easterbrook’s analysis, itself built on twin premises: first, that false positives are more costly than false negatives because self-correction mechanisms mitigate the latter but not the former, and second, that errors of both types are inevitable because distinguishing pro-competitive conduct from anti-competitive conduct is an inherently difficult task in a single-firm context.

While economists have applied this framework fruitfully to several business practices that have attracted antitrust scrutiny, our goal in this paper is to harness the power of this framework to take an Easterbrookian, error-cost minimizing approach to antitrust intervention in markets where innovation is a critical part of the competitive landscape. While much has been said about the relationship between innovation and antitrust, often in the way of broad pronouncements that innovation either renders antitrust essential to economic growth or entirely unnecessary, the error-cost framework allows for greater precision in policy prescriptions and a more nuanced approach. Some of the implications are well understood in the current body of literature and others have been frequently ignored or remain entirely unrecognized.

Both product and business innovations involve novel practices, and such practices generally result in monopoly explanations from the economics profession followed by hostility from the courts (though sometimes in reverse order) and then a subsequent, more nuanced economic understanding of the business practice usually recognizing its pro-competitive virtues. This sequence and outcome is exactly what one might expect in a world where economists’ career incentives skew in favor of generating models that demonstrate inefficiencies and debunk the Chicago School status quo, while defendants engaged in business practices that have evolved over time through trial and error have a difficult time articulating a justification that fits one of a court’s checklist of acceptable answers. From an error-cost perspective, the critical point is that antitrust scrutiny of innovation and innovative business practices is likely to be biased in the direction of assigning higher likelihood that a given practice is anticompetitive than the subsequent literature and evidence will ultimately suggest is reasonable or accurate.

Given recent activities in the antitrust enforcement landscape – identifying innovating firms in high-tech markets as likely antitrust targets combined with recent discussions of error costs from leading enforcers, at the Section 2 Hearings and elsewhere – we hope to begin a more rigorous discussion of the relationships between innovation, antitrust error, and optimal liability rules that goes beyond merely selecting economic models that fit regulator’s prior beliefs.

We begin by discussing some principles for application of the error cost framework in the innovation context in Part II before discussing the historical relationship between antitrust error and innovation in Part III. Part IV concludes by challenging the conventional wisdom that the error cost approach implies that the rule of reason should apply to most forms of business conduct rather than per se rules. While we agree that per se rules should not apply to cases involving product or business innovation, broadly defined, we argue that the error cost approach should not require generalist judges to evaluate state of the art economic theory and evidence on a case by case basis. Instead, we favor an approach that is consistent with the spirit of Easterbrook’s original analysis, identifying simple filters aiming to harness the best existing economic knowledge to design simple rules that minimize error costs. We conclude with five such proposals for simple rules based on existing economic theory, empirical evidence, and acknowledgment of the institutional biases toward false positives discussed above.

Get it while it’s hot!

I recently commented on Gordon Crovitz’s WSJ column on the Microsoft-Yahoo deal arguing that antitrust was simply too cumbersome to deal competition issues in dynamic markets like search.  A short version of my take was that these concerns are often overstated in the areas of cartels and even sometimes in merger enforcement — but have their greatest bite in single firm conduct cases involving innovative markets where economic technology for detecting anticompetitive conduct is at its weakest and the stakes are highest.  Randy Picker (Chicago) chimes in on the Crovitz piece with an interesting take and a call for even-handed application of claims that antitrust is obsolete:

This misses of course one key point: absent antitrust review of search deals, this deal would not be taking place. This deal is only possible because the prior proposed deal between Google and Yahoo!—a 1-2 deal—was effectively blocked by precisely the same antitrust review process that Crovitz decries. (Disclosure: I consulted for the opposition to the Google—Yahoo! deal.) Absent that review, Google and Yahoo! would have done their deal and Microsoft would have been left on the sideline.

You can criticize whether the regulators should have blocked the Google-Yahoo! deal. That view would seem consistent with most of what Crovitz says about the difficulties of regulating these highly dynamic markets and the hope that Schmupeterian competition will suffice. But what we cannot do—and this I think is the error implicit in Crovitz’s piece—is to criticize the business review process for Microsoft—Yahoo! when it was precisely that process for Google-Yahoo! that made the new deal that Crovitz likes possible. Do reviews, don’t do reviews, but no selective criticism of this review without acknowledging the role that the review process played in creating the foundation for this deal. No reviews at all would have meant Google-Yahoo!, not Microsoft-Yahoo!.

Go read the whole thing.

Gordon Crovitz (WSJ) plays the new economy card on antitrust.  Its a familiar wrap for those in the antitrust community that hit its peak in the original Microsoft days with virtually every competition policy scholar and commentator chiming in with an opinion about whether the internet and network effects and so forth rendered antitrust obsolete.  Analyzing the Microsoft case is a bit of an antitrust Rorschach test nowadays with critics of antitrust in the modern economy viewing the Microsoft prosecution in the U.S. as disastrous and likely harmful to consumers, more moderate (but still skeptical) folks believing that the prosecution was a Quixotic and not likely to affect competition or consumers because antitrust was simply too slow to respond in dynamic markets, and proponents pointing to it as proof of antitrust’s modern relevance.  The best analysis I’ve read of the Microsoft saga, and one I recommend to anybody interested, is Page and Lopatka’s The Microsoft Case (Chicago Press).

That’s not to say there is nothing to the critique that antitrust is too slow to deal with innovative and dynamically changing markets.  There is certainly something there.  But there are at least two different criticisms one could level at the antitrust enterprise as applied to innovative markets.  One is institutional, i.e. conditional on believing that we can accurately and confidently identify anticompetitive behavior in these markets, competition enforcers cannot hope to prosecute it and install remedial measures before the market they were attacking is gone and the next big thing has arrived.  This is the angle Crovitz is pushing:

The bottom line is that by the time regulators can assess a technology market, the market has often moved on. Not long ago, Google was the upstart and the search leaders included names like AltaVista and Excite. “Regulatory intervention in the high-tech sector thwarts the natural evolution of the market,” argues Wayne Crews of the Competitive Enterprise Institute. “Worse, it distorts the response of competitors. Antitrust investigations steer the market in unnatural directions, creating instabilities in entire industry sectors.”  The antitrust laws are anachronisms when applied to industries of constant innovation. Even theories about the role of antitrust were designed for the industrial era.

For antitrust skeptics who make this institutional argument, the Microsoft case is exhibit 1:

Haven’t antitrust regulators learned from the experience battling Microsoft when its ubiquitous operating system seemed to give it unassailable power?  Microsoft is now the weakling, admitting it needs help competing with Google in search and also in areas from email to Web browsers. And while Google is “dominant” for now, what Google dominates is an open Internet where barriers to entry are low and falling.Indeed, regulators will have a hard time even defining the market they’re reviewing for competitiveness. Saying that Google has 65% of a market is misleading. The Web is about people finding what they want. This could mean searches for information, but increasingly it means looking to see what friends or colleagues think about a topic. Google, Yahoo and Microsoft are social-media laggards compared with Facebook and Twitter, which provide new organizing networks for information online.  Instead of more aggressive enforcement of a legal relic, the real question is when will technology’s ever faster cycles of creative destruction spell the end of antitrust law? Consumers benefit from competition, innovation and new technology, which regulation cannot provide but can suppress. Instead of using 19th-century tools for this century’s challenges, President Obama should tell his regulators to study the humility of technologists who understand that today’s leader can be tomorrow’s laggard.

While I’m a believer in cartel enforcement and would like to believe will go wherever the evidence in a particular merger case would take me, I am a skeptic about monopolization enforcement.  But not generally for these institutional reasons (which is not to say they don’t present real problems).  Rather, I’m not convinced that economics has generated the technology for enforcement agencies and judges to consistently and accurately identify instances of anticompetitive single firm conduct without substantial risk of false positives that might swamp any gains.  I admit, the existing evidence on single firm conduct is limited.  Its an area where a lot of work must be done.  But my view of that evidence is that the appropriate default presumption is that single firm conduct is pro-competitive until convincingly demonstrated to the contrary.  We simply are not that good at distinguishing between pro-competitive and anti-competitive single firm conduct and in the absence of strong evidence of consumer harm, given the risk of false positives, the right approach is humility and caution.  This is the essence of the error cost approach and the core of the problem with repudiating the Section 2 Report in favor of the “tried and true” old case law in this area.

Note that these problems are not limited to single firm conduct cases in the new economy.  But in my view, to the extent that the “new economy” requires recalibration of the scales, it tips in favor of more humility not less in these markets since (1) they involve innovation and errors are more likely to significantly hamper economic growth in those industries, and (2) cases involving rule of reason analysis in innovative industries is likely to require tradeoffs between multiple dimensions of competition (e.g. price and innovation) and translating them into predictions concerning consumer welfare.  I have some Demsetzian concerns about our ability to do the second of these which I’ve written up in a paper in an earlier GMU/Microsoft Conference on the Law and Economics of Innovation which I’ll be posting shortly.

PLEASE READ THIS NOTICE BEFORE PROCEEDING:

TOTM readers are encouraged at this point to pick among the following antitrust blogs for content before reading this post:

• Antitrust Review
• Antitrust & Competition Policy
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OK.  I thought that woud be funnier than it was. Moving on.

It looks like the old/new EU Microsoft browser tie-in case might be resolved through a requirement that Microsoft offers consumers a “ballot screen”  that would allow users to select and install competing browsers.  (HT: WSJ) That is, Microsoft will be offering up a menu of rival browsers to consumers.  Apparently, the EU is willing to allow Internet Explorer on the menu.  Word from the Commission on the proposal is favorable:

The Commission welcomes this proposal, and will now investigate its practical effectiveness in terms of ensuring genuine consumer choice.  As the Commission indicated in June (see MEMO/09/272 ), the Commission was concerned that, should Microsoft’s conduct prove to have been abusive, Microsoft’s intention to separate Internet Explorer from Windows, without measures such as a ballot screen, would not necessarily have achieved greater consumer choice in practice and would not have been an effective remedy.

Microsoft’s statement on the matter, along with tthe proposal at issue, are available here.

No details yet on what the menu will look like. The WSJ story reports that choices will include Google’s Chrome and Mozilla’s Firefox along with the option to turn Internet Explorer off.   Rival browser Opera’s chief technology officer thinks that the EU compulsory promotion regime for rival browsers on Microsoft’s dime is a good idea: “This is a happy day for us.”  No word yet as to whether the ballot screen will include advertisements for rival browsers featuring endorsements by Microsoft executives.

There will be plenty of time to comment on the substantive merits of this settlement if and when it happens.

But there is an interesting

In 2007 Bush administration DOJ AAG Tom Barnett offered a press release in the wake of that EU Microsoft decision calling out Nellie Kroes et al for committing the classic error of monopolization enforcement — conflating protection of competition with competitors to the detriment of consumers.   Obama administration DOJ AAG Christine Varney has also commented previously that, from an antitrust perspective, “Microsoft is so last century” and like Barnett, offered some concern that the EU was overshooting the mark with respect to monopolization enforcement.  Varney criticized the Europeans for going too far and worried publicly about the impact on consumers if the Europeans are allowed to set the bar for single firm conduct:

Europeans are setting rules, companies that are doing business globally cannot generally distribute two products, cannot generally compete in one manner in Europe and a different manner in the United States. So we may see ourselves, and this is a bad thing, if we don’t have influence on the development of dominant firm behavior, I think the Europeans are much more extreme than even I would be. So unless we have some credibility and can sit at the table and jointly continue to pursue the evolution of what we would call section 2, I think we’re going to cede this territory to the Europeans entirely and we’re not gonna have a whole lot to say about what abusive dominance looks like for a global firm.”

So here’s the question.  Is the new DOJ going to respond to this settlement?  There was much criticism (in my view, misplaced) at the time of the Barnett statement that it was somehow inappropriate to comment on matters involving EU enforcement matters and not US law.  Given the fundamental reality that, as Varney notes, the stakes here involve whether or not the territory will be “ceded” at the global level, are we going to hear from the DOJ on this?  Should we?

That’s from Firefox chief software architect Mike Connor in an interview with PCPro.  Here’s an excerpt suggesting that Mozilla fears that its recent success might lead to antitrust liability in the United States or elsewhere:

Firefox has only just tipped past the 20% mark in worldwide browser market share, and is still a long way away from achieving the 90%+ market share that Internet Explorer enjoyed in its heyday.

Yet, Firefox has a market share of more than 50% in some countries and is hugely popular among PC enthusiasts: Firefox was used by around 40% of visitors to PCPro.co.uk last month, and Connor claims the browser is used by about 80% of visitors to Digg.com.

Connor admits the prospect of achieving monopoly status – defined as two thirds of the market in the US – has been a topic of discussion at Mozilla HQ.

Perhaps there are too such things as false positives.

Its an interesting article (see also here) especially in light of the recent EU investigation of Microsoft’s bundling of IE to the operating system.  Connor also commented that Firefox did not want to be bundled with Windows as a remedy.  The most interesting line of all was that Opera’s complaint that bundling had harmed competition in the browser market was “provably false” because it is “asserting that bundling leads to market share” and “I don’t know how you can make that claim with a straight face.”

It is unknown whether Mozilla Foundation chairperson Mitchell Baker was straight-faced when he wrote this post supporting the EU’s investigation of IE bundling an, of course, offering Mozilla’s assistance in crafting the appropriate remedial response.   The most curious line in Baker’s post, however, is the rebuttal to the proposition that Mozilla’s increasing share across the world is evidence of a competitive marketplace or at least one would not impede equally efficient competitors:

Equally important, the success of Mozilla and Firefox does not indicate a healthy marketplace for competitive products. Mozilla is a non-profit organization; a worldwide movement of people who strive to build the Internet we want to live in. I am convinced that we could not have been, and will not be, successful except as a public benefit organization living outside the commercial motivations. And I certainly hope that neither the EU nor any other government expects to maintain a healthy Internet ecosystem based on non-profits stepping in to correct market deficiencies.

Leaving aside the bit about the non-profit worldwide movement “living outside commercial motivations”, wouldn’t this claim cut the opposite direction.  That is, if bundling IE couldn’t even exclude from the marketplace an apparently spontaneous collective invariant to the profit motive then surely the mere presence of the bundle couldn’t exclude a greedy, profit-seeking rival could it?  I’m not suggesting this is the appropriate way to think about the antitrust analysis here.  But I find the line of argument curious and likely counterproductive.

Randy Picker has posted The Google Book Settlement: A New Orphan Works Monopoly? to SSRN.  I have not been following the antitrust issues related to the settlement as closely as I should be and so I’m really looking forward to reading this.  Here is the abstract:

This paper considers the proposed settlement agreement between Google and the Authors Guild relating to Google Book Search. Google boldly launched Google Book Search in pursuing its goal of organizing the world’s information. Even though Google was sensitive to copyright values, the service relied on mass copying and thus Google undertook a substantial legal risk in setting up the service. That risk was realized with the lawsuits by the Authors Guild and the Association of American Publishers. The October, 2008 settlement agreement for those suits will create an important new copyright collective and will legitimate broad-scale online access to United States books registered before early January, 2009.

The settlement agreement is exceeding complex but I have focused on three issues that raise antitrust and competition policy concerns. First, the agreement calls for Google to act as agent for rights holders in setting the price of online access to consumers. Google is tasked with developing a pricing algorithm that will maximize revenues for each of those works. Direct competition among rights holders would push prices towards some measure of costs and would not be designed to maximize revenues. As I think that that level of direct coordination of prices is unlikely to mimic what would result in competition, I have real doubts about whether the consumer access pricing provision would survive a challenge under Section 1 of the Sherman Act.

Second, and much more centrally to the settlement agreement, the opt out class action will make it possible for Google to include orphan works in its book search service. Orphan works are works as to which the rightsholder can’t be identified or found. That means that a firm like Google can’t contract with an orphan holder directly to include his or her work in the service and that would result in large numbers of missing works. The opt out mechanism – which shifts the default from copyright’s usual out to the class action’s in – brings these works into the settlement.

But the settlement agreement also creates market power through this mechanism. Absent the lawsuit and the settlement, active rights holders could contract directly with Google, but it is hard to get large-scale contracting to take place and there is, again, no way to contract with orphan holders. The opt out class action then is the vehicle for large-scale collective action by active rights holders. Active rights holders have little incentive to compete with themselves by granting multiple licenses of their works or of the orphan works. Plus under the terms of the settlement agreement, active rights holders benefit directly from the revenues attributable to orphan works used in GBS.

We can mitigate the market power that will otherwise arise through the settlement by expanding the number of rights licenses available under the settlement agreement. Qualified firms should have the power to embrace the going-forward provisions of the settlement agreement. We typically find it hard to control prices directly and instead look to foster competition to control prices. Non-profits are unlikely to match up well with the overall terms of the settlement agreement, which is a share-the-revenues deal. But we should take the additional step of unbundling the orphan works deal from the overall settlement agreement and create a separate license to use those works. All of that will undoubtedly add more complexity to what is already a large piece of work, and it may make sense to push out the new licenses to the future. That would mean ensuring now that the court retains jurisdiction to do that and/or giving the new Registry created in the settlement the power to do this sort of licensing.

Third, there is a risk that approval by the court of the settlement could cause antitrust immunities to attach to the arrangements created by the settlement agreement. As it is highly unlikely that the fairness hearing will undertake a meaningful antitrust analysis of those arrangements, if the district court approves the settlement, the court should include a clause – call this a no Noerr clause – in the order approving the settlement providing that no antitrust immunities attach from the court’s approval.

UPDATE 3:  It just keeps getting better.  Now we’ve added Mike Baye, formerly Director of the Bureau of Economics at the FTC, now returned to his post at Indiana.  He’ll be moderating and I’m sure commenting on many of the papers. 

UPDATE 2: And now Susan DeSanti, newly-appointed Director of the Office of Policy and Planning at the FTC has signed on for our industry/regulator roundtable.  A not-to-be-missed event! 

UPDATE:  We’re delighted to announce that Bill Kovacic will be joining us to deliver the conference’s morning keynote, as well.  A great conference just got even better!

 For the third year, Josh and I have organized the annual George Mason Law School/Microsoft Conference on the Law and Economics of Innovation.  The conference is at the Arlington Hilton on May 7; registration is free. 

This year’s conference is on “Online Markets vs. Traditional Markets,” and once again we have a stellar line-up.  The (beautifully re-designed) conference website is here.  You can register for the conference here. 

This year features a keynote address from Susan Athey (Harvard Economics; Clark Medal winner), as well as the following presentations:

Peter Klein (Missouri Economics)– Does the New Economy Need a New Economics?
Thomas W. Hazlett (George Mason Law) – The Role of Exclusive Spectrum Rights in Wireless Network Innovations: Of Newtons, Blackberries, iPhones & G-Phones
Eric Goldman (Santa Clara Law) – The Economics of Reputational Information

Florencia Marotta-Wurgler (NYU Law) – Does Anyone Read Fine Print? A Test of the Informed Minority Hypothesis
Howard Beales (George Washington Business) – Public Goods, Private Information, and Anonymous Transactions: Providing a Safe and Interesting Internet
Peter Swire (Ohio State Law) – Privacy and Antitrust

Philip J. Weiser (Colorado Law; DOJ)— Re-evaluating the Theory and Realities of Online Contracts
Randal C. Picker (Chicago Law) — The Mediated Book
F. Scott Kieff (Wash U. Law (moving to George Washington Law)) — Commerce in the Shadow of the Commons: Business Models in Cyberspace

We’ll also have an industry roundtable to reflect on the day with representatives from Microsoft, Amazon and Facebook.

Should be a great conference–Please join us!

Predicting what antitrust enforcement regimes in the current economic environment is a tricky business.  I’ve done my best here.  One probably cannot think of a better source for such predictions than those from the soon-to-be AAG Christine Varney, who recently spoke at an American Antitrust Institute panel on Section 2 enforcement (you can hear the panel audio at the link).  I had an RA transcribe Varney’s remarks so please note that all remarks attributed as quotations here may not be exact.

Generally, Varney applauded the AAI report, noting that is “a great framework that starts it and I do endorse the conclusions.” The AAI recommendations relating to monopolization, for those who have not read the report, includes at least the following proposals:

• Embracing a generally “Post-Chicago” vision of Section 2, including Kodak-style aftermarket claims and “other consumer protection market imperfections”
• Trimming the scope of Trinko in favor of the unilateral refusal to deal jurisprudence in Aspen and Kodak 
• Revitalizing the essential facilities doctrine as an independent theory of liability
• Reject cost-based safe harbors for loyalty and bundled discounts
• Make predatory pricing law more friendly to plaintiffs
• More aggressive remedies

Here are a three comments I found the most interesting:

1.  Varney on Google as An Emerging Antitrust Threat.

For me, Microsoft is so last century.  They are not the problem.  I think we’re going to continually see a problem potentially with Google, who I think so far has acquired a monopoly in internet, online advertising lawfully.  I do not think that they have done anything other than be a spectacular and innovative company.  I am deeply troubled by their acquisition of uh, Doubleclick and I am deeply troubled by their deal with Yahoo.  I submit to you that this administration, although they may open a investigation or a review of the Google-Yahoo deal, will do nothing.  I think that this is a classic area to explore how do you apply section 2 in a highly innovative, highly networked not terribly competitive environment. …

I find this a difficult area also by the way when it comes to Google, because Google has done so much terrific work and so much of it is IP-based, but as you can see they are quickly gathering market power in what I would call an online computing environment in the clouds and as we move into that environment I think you’re going to see Google has enormous market power there, again, I’m not saying it was anything other than lawfully achieved, but I wonder what’s going to happen when all of our enterprises move to computing in the clouds and there is a single firm that is offering the comprehensive solution that’s not interoperable with other potential solutions.  Now I think you’re going to see the same repeat of Microsoft, there will be companies that will begin to allege, and Ed can tell me why I’m wrong, they will be companies that begin to allege that Google is discriminating, that it is not allowing their products to interoperate with the Google products, and I think that we ought to have learned from the Microsoft experience, what the right standards are, and the problem that we had with Microsoft, I think, as a government we went in too late.

2.  On The Non-Existence of False Positives.

“My view and, you stole my thunder, I was prepared to say there is no such thing as a false positive, you know, let’s get real. I have counseled numerous incumbents who are dominant as well as numerous new entrants. I can tell you, at least in my own experience, there is not a dominant incumbent who hasn’t done something that is lawful because they were afraid that it might be reviewed by the DOJ or a state attorney general or an FTC. I just don’t see it. Ten years back in the private sector I have never once seen it, so I think that this ruse of, you know, we have to be restrained in our enforcement because false positives will chill innovation, take an economic toll on society and overall result in negative economic consequence, slowing output, increasing cost, I just think is false. I think the more people in the bars start rejecting this idea of false positives the better off we’re going to be.”

3. On Convergence with the Europeans and Global Antitrust Leadership.

“Europeans are setting rules, companies that are doing business globally cannot generally distribute two products, cannot generally compete in one manner in Europe and a different manner in the United States. So we may see ourselves, and this is a bad thing, if we don’t have influence on the development of dominant firm behavior, I think the Europeans are much more extreme than even I would be. So unless we have some credibility and can sit at the table and jointly continue to pursue the evolution of what we would call section 2, I think we’re going to cede this territory to the Europeans entirely and we’re not gonna have a whole lot to say about what abusive dominance looks like for a global firm.”

I highlight this third comment because it was an interesting contrast to the rest of the remarks favoring much more interventionist-minded application of Section 2.  Perhaps current Article 82 enforcement places an upper bound on what we can will see in the United States with respect to Section 2?  But it is difficult to know what to make of this comment when placed in the context of the assertion that false positives do not exist, which  I find quite troublesome for a number of reasons.

First, what does it mean to assert that “there is no such thing as a false positive”?  Varney’s evidence in support of the proposition is that from her vast and impressive counseling experience she is not aware of a firm that has refrained from lawful activity because they were afraid of antitrust liability.  That is comforting.  But not responsive to the concern about false positives raised by commentators in the literature.  As one who often argues that errors and their social costs not only exist but should play a central role in how we think about antitrust analysis, let me offer a basic point: false positives are not just when a firm chooses not to engage in lawful activity for fear that it will be mistakenly found to be illegal.  No.  It is not fear that a court will fail to understand the distinction between legal and illegal behavior if given clear rules.  The error need not come from courts merely misapplying clear law and concluding that activity that should be “lawful” violates the Sherman Act.  The concept is broader.  Rather, the false positives commentators are talking about involve when a firm refrains from efficient, pro-competitive behavior because it fears antitrust liability.

The reasons these errors come about is because the task of distinguishing pro-competitive conduct from that which is anticompetitive and harms consumers is incredibly difficult.  For example, does anybody really believe that LePage’s did not result in some chilling on the margin of pro-competitive bundled discount schemes?   What about the FTC’s enforcement action in N-Data?  Varney’s assertion that false positives simply do not exist is either a mistake or wrong.  Antitrust’s history is strewn with false positives, i.e. conduct that antitrust condemned before we learned far later that it was actually typically a normal part of the competitive process.  To be sure, we’ve learned something since then.  But I’ve never heard anybody argue that we’ve learned so much (especially in the single firm conduct arena) that the fear of antitrust liability does not influence business decisions. Consider a thought experiment designing an antitrust policy which takes seriously the belief that there is no such thing as error costs.  Many of my more interventionist minded Post-Chicago friends, who might disagree with me about the relative frequency of false positives, would shudder at the thought.

In either case, the view that we ought to not think about error costs when we think about designing appropriate antitrust enforcement policy (especially in the monopolization context, but also in cartels and mergers) strikes me as one of the most provocative, interventionist, and mistaken statements on this issue that I’ve read.   Error cost analysis is now a mainstream part of antitrust analysis.  It is not a tool that belongs to the Chicago School, Post-Chicagoans, or anybody else.  To be sure, an important debate can be had on the empirical question of the relative frequency and magnitude of type 1 and type 2 errors and their social costs.   Sometimes this debate has taken an oversimplistic approach by merely counting cases.  But there has at least been debate over the relevant theoretical and empirical questions.  This debate should continue.  It is my hope that Varney’s statement was an off the cuff remark in a panel setting (though it doesn’t appear it was) and not a conceptual belief that will drive policy decisions at the Antitrust Division.

Anybody want to share a copy of the complaint?  (Email: jwrightg at gmu dot edu).

UPDATE: Here’s a copy of the TradeComet Complaint.

Thanks to an anonymous reader.

Some brief comments on the highlights of the Complaint.  Per Thom’s comment below, it looks like the thrust of the complaint is not the price hike which would be ruled out by Trinko, but exclusive search syndication arrangements allegedly entered into by Google with highly trafficked websites like AOL which deprive rivals of the opportunity to compete for minimum efficient scale.  There is other allegedly exclusionary conduct specified in the complaint, e.g. the use of “default defenders” which restrict the ability of users to switch their default search engine using Google’s toolbar (sound familiar?).   Some allegations involve the use of Google’s Landing Page Quality metric to give preferential (or disfavored) treatment to friends (or foes).  In paragraph 110, the Complaint hints at a unilateral refusal to deal theory built upon the termination of a previously profitable course of business involving TradeComet.

Here’s the press release:

TradeComet.com LLC filed in the United States District Court for the Southern District of New York, a complaint asserting Google violates antitrust laws by eliminating competition and choice. TradeComet was forced to file the lawsuit when Google refused to stop engaging in predatory conduct to block search traffic by imposing massive, unjustified price increases. Google’s anticompetitive conduct eliminated TradeComet as a competitor. Cadwalader, Wickersham & Taft, LLP, one of the world’s leading international law firms, will represent TradeComet.com.

SourceTool.com, a subsidiary of TradeComet.com, operated a thriving global business-to-business (B2B) search engine enabling buyers of industrial products to easily connect with suppliers. SourceTool.com focused on a specialized type of industrial search, which it positioned as a competitor to Google’s general purpose search engine. Due to SourceTool’s utility for buyers, sellers and advertisers, the site took off—within months reaching 650,000 visits per day. SourceTool.com also was named a ‘2006 Rising Star of Specialized Search’ by InfoCommerce and the ‘Second Fastest Growing Internet Site in the World’ by Comscore.

Google initially embraced its relationship with SourceTool.com, naming them Google’s ‘Site of the Week’; SourceTool.com was reinvesting approximately 80 percent of its revenue by purchasing $500,000 per month or more in Google keywords.

In its complaint, TradeComet.com provides details of how Google subsequently identified SourceTool.com as a competitive threat and then engaged in illegal conduct to diminish and ultimately extinguish SourceTool.com’s platform.

“SourceTool.com offered a valuable service and TradeComet.com had a thriving business before Google decided to eliminate them as a competitor,” said Rick Rule, Chair of Antitrust for Cadwalader, Wickersham & Taft, LLP, and former head of the United States Justice Department Antitrust Division. “We believe this complaint has strong merit and represents a serious antitrust violation.”

“With no notice, Google changed from cheerleader to tyrant when it realized we were a competitive threat,” said Dan Savage, founder and CEO of SourceTool.com and TradeComet.com. “For example, Google raised my prices by 10,000 percent, which strangled our business, virtually overnight. Citing an ambiguous quality score determined by a secretive algorithm to justify the price increase, Google refused to consider reductions even after SourceTool.com invested the company’s savings to make the changes that Google said would rectify the supposed problems. As a result of Google flexing its monopolistic muscle, SourceTool.com currently averages about one percent of the traffic it previously had and is no longer a competitively viable business.”

TradeComet.com aims to recover damages caused when Google’s anticompetitive conduct eliminated SourceTool.com’s primary source of search traffic.

My colleague Tom Hazlett strikes again in Barron’s on Google’s transformation from its initial reluctance to advertise and its desire to stick to the non-profit sector to an unrelenting market driven approach to its discovery that search-term clicks were … well … profitable. Here’s Hazlett:

They discovered that Google’s clean page layout provided a clean frame for mercantile ethics. Google would display “organic” search results on the left, with paid ads neatly above and stacked to the right. It assured users: Here are Google’s picks along with some commercials; let your mouse be the judge. Within months, search-term clicks became not just a cash cow for Google, but a stampeding herd.

Google’s search for revenue led them to the cash register, and society has benefited.

In a decade, the company has gone from zero to handling more than 70% of all search queries. Market forces have delivered what nonprofit institutions only dream of. As Google broadened the terms of its motivating motto, “Don’t Be Evil,” to include commercialism, dazzling innovations arose and millions of users flocked to it. Google’s advertisers today pay for your search terms, your e-mail messages and millions of lifestyle clues lurking in terabytes of personal-data storage.

In their 1998 paper, the Googlers cited Prof. Ben Bagdikian’s theory of Media Monopoly. Page and Brin swallowed the idea that U.S. media markets were controlled by a cabal of corporations, manipulating content to protect advertisers, and stifling competitive entry to protect their shareholders. According to Bagdikian, just four megacompanies share the U.S. Media Monopoly: Disney, News Corp., Time Warner and Viacom. (News Corp. is the corporate parent of Dow Jones, publisher of Barron’s.) Resistance was futile.

If Brin and Page had been deterred by the bleak forecast offered by Bagdikian, Google today would not be worth some 90% of the capitalization of the four media oligarchs combined.

The Wall Street Journal offers an update on the settlement talks with DOJ over the Google-Yahoo deal, which includes some interesting details about possible concessions to get the deal through:

In the settlement talks with the government, both companies have discussed concessions. These include capping the volume of Google ads Yahoo would use, assurances that Yahoo would continue to compete in search ads, and a reporting mechanism to ensure compliance, people close to the talks said. U.S. officials hope to impose measures that will ensure that prices advertisers must pay don’t rise significantly after the deal … .

Reworking the deal to include a reporting mechanism, could require the companies to disclose more about the mechanics of their closely-guarded search-advertising technology than they want to. And caps on how many Google-sold ads Yahoo can display could limit Yahoo’s financial gains from the agreement.  Google’s critics, including Microsoft, have forcefully argued that online search advertising is too dynamic and complex to allow a settlement that could work and be effectively policed.  If the companies reach a settlement with regulators, its principles would likely be laid out in a consent decree that would be filed in court.

While that would allow the deal to proceed, it would also be a formal recognition of Google’s market power. That could constrain the Mountain View, Calif., company’s conduct in the future and might draw private antitrust suits from competitors or advertisers.  Even as senior Justice Department officials weigh the companies’ proposals to resolve antitrust issues, its trial staff continues to prepare a lawsuit to block the deal, according to lawyers and executives contacted by the government.  Justice Department officials already have deposed Google Chief Executive Eric Schmidt and other key figures in the case. Opponents, including Microsoft, have been provided documents and depositions for use in a possible lawsuit.  The companies have been cooperating with the Justice Department’s investigation and recently agreed to delay implementing the deal until at least Oct. 22 to give federal and state antitrust officials time to complete their separate investigations.

My colleague Tom Hazlett (George Mason University) has a characteristically thoughtful and provocative column in the Financial Times on the recent Clearwire joint venture and what it tells us about the “innovation commons” and current public policy debates such as network neutrality, spectrum property rights, and municipal wi-fi. Here’s an excerpt:

Clearwire-Sprint-Intel-Google-Comcast-TimeWarner-McCaw blasts away barriers to broadband and a flock of public policy myths. Stories about the coming era of municipal wi-fi, the obsolescence of property rights to radio spectrum and the desperate need for “net neutrality” fall to pieces. For years these tales were spun from the triumphal assertion that the “innovation commons” of the post-internet economy changed everything. The “Chicago School” tools to prosperity – establish property rights, deregulate, let market competition rip – were dusty relics of a bygone era.

So broadband was a crummy cable-DSL duopoly, and local governments’ wireless networks would fix that. Mobile telephony was a crummy oligopoly, and more unlicensed spectrum – as used for wi-fi and cordless phones – would fix that. And to protect it all, the internet’s “open end-to-end” environment needed some regulatory muscle: rules prohibiting discrimination by internet service providers, control freaks who, left to their grabby impulses, would increasingly squeeze customer choices. Network neutrality rules would fix that.

But here’s “New Clearwire”. The chief advocates of muni networks are shelling out to build private networks, instead; the lobbyists for more unlicensed spectrum are paying to purchase licensed spectrum; the champions of net neutrality are getting preferential non-neutral customer access by buying the internet service provider…. New Clearwire tells us that a “fully-open, third pipe” has arrived in the broadband market – and their corporate network, crafted with exclusive spectrum and preferential access, and gobs of private capital — will deliver it. That, truly, is a great leap forward. Thank goodness for the “innovation commons”. The Chicago School could not have said it better.