Cross-posted at Forbes.com’s On the Docket
Two months ago we opined about what was at stake in the Justice Department’s review of a merger between Internet search and advertising leader Google and ITA, a company which created and maintains a leading airfare pricing and shopping software system (known as “QPX”). On Friday, April 8, the government approved the merger with conditions. DOJ filed both a civil complaint and a proposed final judgment with a federal court in Washington, D.C. Google professed satisfaction while competing online companies applauded the conditions being imposed emphasizing, of course, that the settlement was a “win for consumers.”
What are the takeaways from DOJ’s action here? Some thoughts:
1. On exclusionary conduct. Even though this wasn’t formally a horizontal merger, some expert commentators wondered whether DOJ would embrace a new part of the government’s Horizontal Merger Guidelines which flagged future exclusion as a factor in assessing a combination. It’s unclear whether the Guidelines had any role in DOJ’s analysis, but regulators paid attention to the concerns of online competitors and users of the QPX software that a merged entity could deny them access to updates, refuse to continue licensing, or fail to protect proprietary information contained in ITA servers. Antitrust officials followed the approach they took in the approval of the NBC-Comcast joint venture, dealing with future concerns of exclusionary conduct by compelling cooperative marketplace behavior.
2. Compulsory licensing as a viable remedy. As noted in our February post, some experts expressed serious doubts about whether a compulsory licensing scheme could be implemented to forestall future exclusionary conduct. DOJ didn’t share those concerns, laying out a remarkably detailed set of terms. Under those terms, over the next five years, Google “shall negotiate” an extension for QPX licenses for current licensees and any future licensees; may not prevent QPX licensees from using competing software products; must provide updates “without additional charge;” and shall maintain ITA’s current financial commitment to upgrading QPX, and “make commercially reasonable efforts to respond to Customers’ requests for development of QPX.” One very important additional term requires the merged entity to negotiate agreements to utilize “InstaSearch,” a new travel search technology ITA was developing at the time of the merger. Finally, to allay QPX users’ worries about Google having access to confidential data, the agreement compels creation of a hard firewall to protect such information. All these conditions have multiple levels of qualifiers and requirements full of terms like “fair” and “reasonable,” which are very much open to interpretation and debate. Those debates may play out in the detailed arbitration process the settlement lays out to be utilized if licensor and licensee can’t come to agreement.
3. “Fairness” in travel search results not a factor. In addition to exclusion from the QPX licensing, competitors and others, including U.S. Senator Herb Kohl, argued that post-merger, Google could utilize its dominant position in Internet searches to push competitors’ offerings down the list of search results. Quite notably, neither the Complaint nor the Proposed Final Judgment address these worries, but . . .
4. Five years of “compliance inspections.” This is the main reason why entities like Fair Search aren’t too disappointed with the end result. Upon written request of DOJ, Antitrust Division attorneys can access Google records, interview employees, and require Google to conduct internal audits. Will Antitrust Division officials utilize this access to learn more about Google’s business practices, to lift the proverbial veil on their search and advertising technologies? That is the hope of some, including travel search competitor Kayak, one of whose executives stated, “There’s quite a lot more to happen on this.”
5. What “more” is going to happen? Could allegations of travel search manipulation be examined under the rubric of the merger settlement consent decree? Unlikely. More likely, DOJ’s intervention into the ITA merger will whet the appetites of federal antitrust regulators, whose job it is, after all, to regulate. Perhaps now they will take the next, much larger step into investigating whether Google uses its search and search advertising dominance to undermine pro-consumer competition online. If so, we will be treated to the spectacle of battling agencies, as some press accounts relate, with DOJ and FTC fighting over who will be the Big Google Overlord.
The road (flight plan?) forward is very uncertain, but for sure, regulators and the regulated should be asking two questions before taking any more steps:
- Can government law enforcement activity keep up with the pace of technological change in the digital economy?
- Is regulating through enforcement and consent decree in areas such as competition and privacy in the online space the most effective, efficient, and transparent way to creates the rules of the road?