What’s at Stake in Justice Department’s Decision on Google-ITA Software Merger?

It is unlikely that DOJ will approve the merger as the parties proposed it last July (i.e. not without conditions).  Antitrust enforcers reportedly share at least two concerns expressed by some of Google’s competitors as well as Members of Congress: 1) a Google-controlled ITA will refuse to continue licensing the software relied upon by travel search websites, will put restrictions on the software, increase the licensing price, or fail to provide updates; 2) Google will utilize its dominant position in Internet searches to push competitors’ offerings down the list of search results. 

The unifying theme of these two concerns is that Google/ITA could engage in future exclusionary conduct in violation of Section 2 of the Sherman Antitrust Act.  The Merger Guidlelines note that, “Enhanced market power may also make it more likely that the merged entity can profitably and effectively engage in exclusionary conduct,” and that “rival firms may provide relevant facts . . . in cases where the Agencies are concerned that the merged entity may engage in exclusionary conduct.”  Some commentators have criticized this section of the Guidelines, with two antitrust attorneys stating, “to the best of our knowledge, the Agencies have never challenged a horizontal merger that was otherwise unobjectionable” on the grounds of possible future exclusion.  They and other experts also argue that if merged entities do engage in exclusionary conduct, federal antitrust authorities have sufficient tools, including Sherman Act Section 2, to stop such behavior.  Such after-the-fact enforcement actions, merger opponents counter, would involve years of litigation during which time technological change would quickly outpace any possible remedies.

DOJ’s opposition to the proposed 2008 Google-Yahoo search alliance, and its ongoing concerns with the terms of the Google Book Search lawsuit settlement, reflect that it is willing to challenge potential competitive threats in the online space.  But over the past several years, federal antitrust officials have not fared well in court when suing to block mergers.  It’s not surprising, then, that DOJ is reportedly looking into attaching a variety of approval conditions that could address future exclusionary conduct. 

DOJ’s conditioned approval last month of the Comcast-NBC joint venture last month may offer some clues on how federal officials might do the same with Google-ITA.  Assistant Attorney General Christine Varney noted in her remarks on January 18 that the conditions were added to “ensure that the transaction will not chill the nascent competition posed by online competitors” and that the antitrust laws offer “critical protection to . . . consumers in the digital age.”  The settlement‘s conditions aim to prevent Comcast from refusing to licence programming and other content to competitors and prohibit Comcast from imposing contractual terms on content owners which would limit their ability to negotiate with Comcast’s competitors.  While the settlement did not reference Sherman Act Section 2, the conditions address the type of exclusionary conduct that the above-referenced Merger Guidelines’ provision contemplate.

A Wall Street Journal story relates that some within DOJ have doubts whether compelled licensing could work to alleviate concerns over post-merger exclusions on ITA software.  Expedia outside counsel Thomas Barnett, who prepared a case against the Google-Yahoo ad agreement when he was DOJ’s Assistant Attorney General for antitrust, has no doubt played up these concerns in meetings, and was quoted by Reuters as saying it would be difficult for any conditions to protect licensees and their intellectual property. 

DOJ’s actions with regard to possible Google manipulation of travel search results could have ramifications well beyond this merger.  European competition officials are probing whether Google downgraded some web businesses’ in Google search results to weaken potential competitors for advertising.  In an interview with the San Francisco Chronicle, antitrust lawyer Gary Reback asserted that the Federal Trade Commission had also begun an investigation into Google’s search practices, and then backed off at DOJ’s behest, since DOJ was looking into manipulating search results as a theory of harm in the ITA merger context.  Imposing a condition which prevents actual or perceived gaming of travel search results could prove more complicated than addressing the software licensing issue, considering the shrouded and complex nature of Google’s search technology.  In an opinion piece for Huffington Post, former FTC Commissioner Pamela Jones Harbour asked, “How could an auditor determine that Google was not disproportionately favoring its own businesses, if the ITA deal closes?

There have been no press reports on the status of DOJ’s deliberations for over a week, which could reflect determined settlement efforts among the parties.  It’s likely that quite soon, DOJ will file a legal complaint in the U.S. District Court for the District of Columbia.  Whether the complaint lays out a consent decree reflecting that the parties have settled, or is a formal challenge to the merger, either outcome will be something everyone who does business on or uses the Internet should watch closely.