From the WSJ Online:

The transaction had faced stiff opposition in Brussels from Google rivals including Microsoft Corp. and Yahoo Inc., as well as privacy advocates who fretted that a combined company would control a vast storehouse of data on Web users and their surfing habits. But European Commission antitrust officials early on ruled out examining the privacy implications of the deal, resulting in a conventional merger analysis that left fewer ways for the deal to be blocked. In the end, the EU concluded that the still-nascent online-advertising market is changing quickly enough and has enough competitors that a combined Google-DoubleClick wouldn’t be able to shut out rivals. The purchase “would be unlikely to have harmful effects on consumers,” the EU said in a statement. The EU’s approval had been expected. The U.S. Federal Trade Commission gave its blessing, in a 4-1 vote, in December.

UPDATE: Here is more from Google’s Eric Schmidt and a few excerpts from the EC’s Press Release:

The Commission’s in-depth market investigation found that Google and DoubleClick were not exerting major competitive constraints on each other’s activities and could, therefore, not be considered as competitors at the moment. Even if DoubleClick could become an effective competitor in online intermediation services, it is likely that other competitors would continue to exert sufficient competitive pressure after the merger. The Commission therefore concluded that the elimination of DoubleClick as a potential competitor would not have an adverse impact on competition in the online intermediation advertising services market.

And with respect to non-horizontal issues the Commission:

found that the merged entity would not have the ability to engage in strategies aimed at marginalising Google’s competitors, mainly because of the presence of credible ad serving alternatives to which customers (publishers/advertisers/ad networks) can switch, in particular vertically integrated companies such as Microsoft, Yahoo! and AOL. The market investigation also found that the merged entity would not have the incentive to close off access for competitors in the ad serving market, mainly because such strategies would be unlikely to be profitable.

Hanno Kaiser at Antitrust Review discusses the implications of Google’s acquisition of YouTube for the net neutrality debate. Hanno opines that the deal may increase the likelihood of a neutrality result even without legislation. While Google’s public pro-neutrality stance is well known, GMU’s Tom Hazlett (my office neighbor and fellow UCLA Economics alum) has a great column in the Financial Times highlighting the difference between Google’s “public policy” stance on net neutrality and its business model. Here’s Hazlett on Google’s now well-known position on net neutrality legislation:

The company became the leading champion of the hottest topic in technology policy over the past year, asserting that if web innovation such as theirs was to be retained, new laws were warranted. The specific fear was that internet service providers delivering last-mile broadband would shift their pricing strategies, charging not only end users for their connections but application vendors (say, search engines) for access to their customers. Worse, they might move into content and then favour their own web products over those of competitors. “Network neutrality� rules were needed, Google argued, because the architecture of the internet demanded it. That structure relies on traffic flowing freely over a network that is “open, end to end�.

But Hazlett points out that Google’s business model sends a different message — to the benefit of investors and consumers:

The internet lurches forward in spasms of business model discovery, as when Google figured out how to auction off search-targeted advertising slots, leaving banner advertisements behind. Today, Google’s absorption of its little video cousin is part of this jockeying for positions of competitive superiority. The internet really is not open – if, as Google hopes, it is doing it right.

Google has been doing it flawlessly – forging exclusive bargains nonpareil. Mr Vise [ed. — author of “The Google Story“] declares the watershed business event in the company’s history to have occurred on May 1 2002 when its search engine was licensed to AOL. “Web properties that connected more than 34m subscribers . . . had a small search box on every page that said, ‘Search Powered by Google.’â€? To land this deal, Google extended to “AOL a very large financial guaranteeâ€?, including stock options. An ISP getting paid to feature a favoured search engine? What net neutrality would presumably end is what helped launch Google.

Very interesting. The Google story reinforces an important economic lesson that exclusive contracts are frequently part of the normal competitive process. Go read it.

I am becoming increasingly interested in the antitrust-related components of the net neutrality debate, and have heard the argument that antitrust law isn’t sufficient to handle the competitive problems implicated in this space. Specifically, I have read and heard the claim that Trinko renders Section 2 enforcement impotent to deal with the harm caused by these types of contracts. As I understand it, the primary competitive concern is the use of exclusive or exclusionary contracts (or exclusion of rivals via vertical integration) to the detriment of consumers. In other words, this is a conventional “raising rivals’ cost” story. Assuming this is an accurate characterization of the competitive argument for neutrality, there is much to be said for Section 2 enforcement here if it is agreed (and I have no reason to believe otherwise) that consumer welfare is the appropriate standard for evaluating potential restrictions on these types of contracts.

One obvious point is that the antitrust is designed to identify and distinguish pro-competitive from anticompetitive contracting. Agencies and courts have been doing this for a long time. There is hundreds of years of common law and agency expertise involved in tackling this tough problem. Obviously, antitrust enforcement is not perfect. And Section 2 is arguably the source of the most lively existing debate between antitrust scholars. But this is precisely because this task is so difficult. I’m skeptical that would-be neutrality legislation offers a superior alternative.

A second point is that the content of antitrust law imposes sensible boundary conditions on enforcement efforts. For instance, the firm making use of these contracts must have monopoly power in order to establish an antitrust claim. This is a critical boundary on limitations on exclusive contracting since we know that firms without market power frequently engage in these types of contracts, which are part of the normal competitive process. It is important for consumer welfare that we not chill this form of competition.

A related, are more pertinent point in this setting, is that antitrust law also requires that the contracts generate an anticompetitive effect. Because many exclusive contracts are pro-competitive, liability under Section 2 sensibly requires that plaintiffs demonstrate an anticompetitive effect. There are other conditions, but these two suffice to make the point for my purposes. While there are conditions under which exclusive contracts may harm competition, the conditions are narrow and sometimes difficult to distinguish from the normal competitive process. This is why the anticompetitive effect requirement is such an important component of enforcement efforts.

To be clear, I’m not suggesting there are no sensible reasons why neutrality advocates might prefer neutrality legislation to Section 2 jurisprudence (and specifically, Trinko). But my sense of the neutrality debate is that there has been insufficient attention paid to the role of exclusive and exclusionary contracts in the competitive process, as evidenced by Google’s AOL deal among many others in the same space, and harm to consumers sure to follow from a rule that prohibits these contracts. Economists have identified the necessary conditions for competitive harm via exclusionary contracts. The limitations offered by Section 2 enforcement are offered to enhance consumer welfare by ensuring that enforcement does not deter pro-competitive conduct. To my knowledge, and I readily admit that I am relying on descriptions of the legislation I have read, the proposed neutrality legislation is not concerned with these types of limitations and thus appears only to be interested “cheap talk” about enhancing consumer welfare.

According to this WSJ article, Google has asked the SEC to declare that Google is not an “investment company” and therefore not subject to the Investment Company Act of 1940. This seems like an odd request, but it highlights the broad sweep of the definition of investment company. Section 3(a)(1)(C) of the ICA provides that an investment company is any issuer “engaged . . . in the business of investing, reinvesting, owning, holding, or trading in securities, and owns or proposes to acquire investment securities having a value exceeding 40 percentum of the value of such issuer’s total assets (exclusive of Government securities and cash items) on an unconsolidated basis.” The problem for Google is the “owning” language. Google currently owns about $5.8 billion in marketable securities and has total assets of $14.4 billion. Hence, it’s right at the 40% threshold. Google also has $4 billion in cash, some of which it would like to invest in marketable securities . However, moving cash to securities would result in in Google blowing through the 40% threshold, thus the exemption request. Both Microsoft and Yahoo! have faced the same issue in the past and filed exemption requests which the SEC granted.

Google’s motion to dismiss Kinderstart’s claims has been granted with leave to amend all claims. Eric Goldman provides commentary, thoughts on the defamation claim, and a link to the court’s order. As far as the antitrust claims go, I commented here that Google’s motion was likely to prevail:

Labeling conduct “anticompetitive� or “exclusionary� is simply not enough under antitrust law to render that conduct actionable under Section 2. And it does not appear that the Kinderstart claim does much more than that.

Indeed, the court noted that Kinderstart had failed “to identify any specific acts by Google that would evince an intent either to control prices in the Search Ad market or to destroy competition in the Search Engine Market, nor has Kinderstart made clear what prices Google allegedly is attempting to control.” The court also emphasized Kinderstart’s failure to sufficiently describe the markets in which it is alleging antitrust injury. I agree with Hanno Kaiser at Antitrust Review about the practice of dismissals without prejudice in instances like this:

Giving the plaintiff one opportunity after another to amend its complaint imposes significant costs on the defendant and, perversely, forces the defendant to help the plaintiff write a reasonable complaint.

Looks like Google will have to shell out a few more bucks before the inevitable dismissal of these particular antitrust claims.

In an SEC filing yesterday (see here), Yahoo! disclosed that the salary of Terry Semel, its CEO, will now be $1 per year (it had been $600,000). Hence, Semel joins Schmidt, Brin and Page of Google (see here) with a $1 salary. The big difference between Semel and the Google guys though is that in connection with his salary cut Semel was issued a seven-year stock option to purchase 6 million shares of Yahoo! at $31.59 (the closing price on the date of grant). Conversely, the Google guys got nothing.

Google’s recent proxy statement included the below shareholder proposal submitted by the Bricklayers & Trowel Trades International Pension Fund.

RESOLVED: That the shareholders of Google Inc. (“the Company�) request that the Board of Directors take the steps that may be necessary to adopt a recapitalization plan that would provide for all of the Company’s outstanding stock to have one vote per share.

Pension Fund’s Supporting Statement

The Company has two classes of common stock—Class A common stock and Class B common stock. According to the Company’s 2005 proxy statement (pages 26-27), Class A common stock and Class B common stock vote together as a single class on all matters submitted to a vote of our stockholders, except as may otherwise be required by law, and each holder of Class A common stock shall be entitled to one vote per share and each holder of Class B common stock shall be entitled to 10 votes per share.

The Company’s 2005 proxy statement also reveals that, by their ownership of 86,753,907 shares of Class B common stock, three of the Company’s executives (Eric E. Schmidt, Larry Page and Sergey Brin) controlled 66.2% of the total voting power of all the Company’s shares (page 26) even though they owned only 31.3% of the total shares outstanding (page 4).

We believe this disproportionate voting power presents a significant danger to shareholders. As Louis Lowenstein observed in What’s Wrong With Wall Street (1988), dual-class voting stocks like our Company’s reduce accountability for corporate officers and insiders. In our view, the danger of such disproportionate voting power was illustrated by the recent fraud charges brought against top executives at Adelphia Communications and Hollinger International.

Raytheon, Readers Digest, Church & Dwight and Fairchild Semiconductor have eliminated stocks with disparate voting rights in order to provide each share of their common stock with a single vote. We believe the Company should also take this step in order to align the voting power of our stockholders with their economic interests in the Company.

According to the NYT, the proposal did not pass. This, of course, is not surprising considering Schmidt, Page and Brin control 66.2% of Google voting power. If I were a beneficiary of the pension fund or a Google shareholder, I would be annoyed that the pension fund spent the time and money to bring the proposal and caused Google to expend time and money to include it in its proxy. Further, invoking Adelphia and Hollinger seems disingenuous to me, as does characterizing the Google guys’ ownership stake as “only� 31.3%. More importantly, Google has had a dual-class capitalization since day one of being a public company, so the price paid by all purchasers of its publicly traded shares, including the pension fund, reflected a dual-class capitalization discount.