With the Google Senate hearings yesterday, we noted that the inquisitors seemed to focus on the fact that Google is big as if that is a problem. Senator Franken specifically made that point: the "bigness" of Google is a concern. And, certainly, it is true that big companies tend to be more able to use their position to make decisions that are harmful to consumers. But that's a correlation, not a causal relationship -- and just because a company is big, doesn't mean it's automatically doing bad things. Mathew Ingram has the most insightful analysis I've seen so far of the hearings, in which he analyzes the points raised, and whether or not there's been any evidence of Google actually harming consumers. What struck me was how Senator Blumenthal specifically asked if Google would make its own product less functional. Why would it want to do that? That seems like the exact opposite of what an antitrust investigation should be about. As Ingram notes:
The hard part comes when Barnett says that Google’s dominance in these areas affects consumers because they will face higher prices and reduced innovation. This is the core of an antitrust case (which the Senate hearing isn’t technically part of, but which is currently underway at the Federal Trade Commission and possibly the Justice Department as well, since both share responsibility for antitrust). It’s not enough that a company like Google has a dominant or even monopolistic market position — as judge Learned Hand has written: “The successful competitor, having been urged to compete, must not be turned on when he wins.”
And it’s not even enough to argue that a company with a monopoly is using that position unfairly. It has to be proven that consumers or the marketplace as a whole are being harmed by that behavior, either through higher prices or reduced choice, or both.
The problem with a company like Google — as opposed to a company like Microsoft, the last major antitrust investigation in the technology sphere — is that users don’t actually pay for the vast majority of its products and services. Microsoft’s behavior arguably affected physical goods like computers and software, which people had to pay for. What does Google’s behavior affect? I’m not paying any more to use Google Maps than I would to use some other service, nor am I paying more to use Yelp because it has somehow been disadvantaged by Google’s attempts to “scrape” its content for local recommendations.
Certainly, "big" companies may become companies that abuse their position and harm consumers, but nowhere has anyone shown any actual evidence of harm. To date, the focus has basically been on the fact that Google is big... and on how some competitors don't like it that they can't keep up. But the evidence of higher prices? Just not there.
Well, the second part of the Senate's anti-Google hearings have wrapped up, and like the first part, they seemed pretty misguided. It was a lot of repeating things about how Google is big. There were some reasonable points that do bear more scrutiny, concerning some of Google's business dealings with partners, but, on the whole, people seemed to be making a big deal out of nothing.
For example, one Senator continually quizzed WSGR lawyer Susan Creighton over whether or not Google "scraped" content. Creighton seemed to stumble over the question, but the proper answer is of course it does, because that's how search engines work. Yelp's CEO Jeremy Stoppelman complained about Google taking the same content it indexed for search, and then using it elsewhere. But no one mentioned the basic concept of fair use. If it's a problem for Google to scrape and use content -- as was implied repeatedly in the hearing -- doesn't that make any search engine illegal?
But, the most ridiculous testimony came from Thomas Barnett, a lawyer for Covington & Burling, who was representing a bunch of Google competitors who put together an operation called FairSearch. When asked about whether or not Google was a monopoly player, Barnett flat out lied, claiming that Google is dominant and can't be unseated "because it got there first."
Woah!
I know they say that the history books are written by the winners, but this seems like a case where the history books are being revised by the losers. Anyone who was actually paying attention when Google came on the scene thought Google was a joke. The search engine market was locked up and there was no room for competition. We had Altavista, Lycos, Inktomi, Excite and a few others as well. People thought Google was a crazy idea. Who would possibly enter the search market -- especially since Yahoo really seemed to have the market wrapped up (without its own search engine, but partnering with Altavista and Inktomi, before later partnering with Google)? It was a dead business.
Google wasn't first. It was seriously late to the party.
And that's really the point that's important here. Markets that look locked up in the tech/internet world very rarely stay locked up for long. Five years ago, MySpace absolutely dominated the social networking space. Where are they today? Ten years ago, Yahoo was the dominant destination site. Fifteen years ago AOL was how people got on the internet. Fifteen years ago, Netscape was how you surfed the web. All of these players were dominant with huge market share. How are they all doing today? Which one needed government regulation to break their hold on the market? Things change. Markets change. Rewriting history and bitching about Google because it's big misses the point. If Google does bad things, there are hundreds of entrepreneurs out there just waiting to take parts of the market away from the company.
The Senate hearings to tar and feather Google are still ongoing, but the first round grilling of Eric Schmidt didn't present many surprises. Basically, a lot of Senators who don't really understand technology are upset... because Google is big. Senator Franken even admitted that his concern was over the "bigness." Senator Blumenthal, bizarrely, talked about how Google was a wonderful story of American corporate success... before asking how best to dismantle that. For example, he even suggested that Google remove Google Maps results from searches on addresses. That's ridiculous. For folks like myself who like getting the Google Maps result at the top, that would make my life worse. But the most ridiculous comment may have been from Senator Lee, who complained about Google's own results messing up "natural search results." But as Rob Pegoraro points out, this seems to assume that there is such a thing as "natural" search. Everything that Google puts on a page is a choice, and if those choices harm consumers, we'll go elsewhere.
The other annoying thing was everyone kept pointing to "search" as if that's the entire market. Senator Kohl even suggested that when it came to news, the only places to find news are Google or Bing. He flat out claimed that if Bing went out of business, the only way to find news would be Google. Huh?!? As we've noted in the past, we actually get a smaller and smaller percentage of our traffic coming from Google these days. Instead, more and more is coming from social networks and other systems. StumbleUpon, Reddit, Twitter and Facebook have all taken significant referral share from Google -- and reports from other sites suggest the same thing.
With Eric Schmidt in DC today to be grilled by a Senate commission about antitrust issues, it's interesting to see that Rich Skrenta, the founder/CEO of an upstart competing search engine, Blekko, come right out and tell DC to keep its hands off Google:
We don’t need federal intervention to level the playing field with Google. Innovation and competition are far more powerful instruments to battle companies that have grown powerful and influential. Which has been more detrimental to Microsoft's business? The lawsuit brought by the Department of Justice in the 90s, or the innovative products Apple has brought to the marketplace?
The success of Google should be applauded on Capitol Hill, not derided.
Let’s let entrepreneurs, technology and good old-fashioned innovation deal with Google. Consumers will always be the winners in that scenario.
If a company is holding back innovation through market control, I'll be the first to worry about it, but I'm at a loss to see where Google's choices have directly harmed consumers. It's nice to see Skrenta making this point when it would be easy to score a cheap political point by jumping on the bandwagon. No doubt that a broken up Google would present an opportunity for Blekko to take more marketshare -- but real entrepreneurs know that getting the government to attack your competitors is no way to build a truly innovative company.
A year and a half ago, we wrote about a bizarre antitrust lawsuit filed in Ohio state court by a small shopping search engine company most people haven't heard of called myTriggers. The details were particularly odd. First, myTriggers set up a line of credit with Google to buy AdWords advertisements. Then... it didn't pay. The company claimed that a rejiggered algorithm made the ads much more expensive than it expected. But that doesn't explain why it racked up a $335,000 bill that it refused to pay. You can put limits on your spend. Either way, Google went to court in Ohio to try to collect on the money owed.... and bam, myTriggers suddenly used that as an excuse to launch a giant antitrust lawsuit against Google in Ohio. And, on top of that, this tiny company in Ohio that no one had heard of somehow magically hired Microsoft's chief antitrust counsel, Rick Rule, who does not come cheap. As Eric Goldman noted at the time:
Assuming myTriggers even has the money, writing a $335k check to Google (and I bet Google would have taken less!) is almost assuredly cheaper than paying three law firms to mount an antitrust assault on a $20B/year behemoth. Assuming that myTriggers wants to maximize profits, then either (1) myTriggers thinks its odds are good enough that it will win AND make enough money to pay the 7 lawyers on the counterclaim's signature page plus their teams, or (2) the law firms struck an unbelievably sweet deal on fees.
Or... you know, perhaps someone else was financing the whole thing. Google has been pretty vocal about the fact that it suspects Microsoft is behind this. But, the bigger issue is that the case itself is a joke. Google can set up its ad ranking algorithms however it likes, and while this case was purposely filed in response to Google's attempt to collect in Ohio, since whoever was behind it knew that would keep it in an Ohio state court rather than a federal court, it turns out that the court might not have been as clueless as those who filed the lawsuit expected. That's because the case has been dismissed.
You can read the full ruling below. It consists of two key issues. First, Google tried to have the case dismissed under Section 230 of the CDA, claiming that as a service provider, it's not responsible for blocking or demoting ad content. This is a slightly different part of Section 230 than we usually discuss. This is the part that is designed to encourage companies to voluntarily filter "objectionable" content, and to not face liability for doing so. Here, the court ruled that ads don't qualify as objectionable content. The caselaw it relies on here is a little murky, but for the most part, this did seem like a bit of a stretch as an argument. So that wasn't very effective.
However, the case was still dismissed on a much bigger issue: which is that myTriggers failed to properly allege an antitrust violation. You would think that with all those big, fancy and expensive lawyers, they would have done a bit better. The problem, of course, is that to show antitrust you have to show harm to competitors. But, as the court notes, all myTriggers did was show (potential, possible) harm to myTriggers. In fact, part of myTriggers' own argument was to show how other vertical search engines performed much better in Google, which undermines myTriggers' argument:
"[T]o prove antitrust injury, the key inquiry is whether competition--not necessarily a competitor--suffered as a result of the challenged business practice."
Here, the counterclaim only alleges harm to myTriggers itself. In addition, myTriggers' counterclaims contain allegations that other competitive vertical search sites were indeed favored by Google. In paragraph 12 of its counterclaim, myTriggers alleges that "Google has entered these favorable agreements with Shopping.com, shopzilla.com, PriceGrabber.com, bizrate.com, NexTag.com * * *." Such an allegation undercuts myTriggers' argument that competition as a whole within the relevant market is being injured.
The court also notes that just because myTriggers thinks its been blacklisted, that's not a real claim. It's just a random guess by myTriggers.
There are a few other claims by myTriggers, and in each and every case, the court points out that it failed to establish a legitimate claim. It's a pretty complete rejection of the lawsuit, though you have to expect it'll be appealed/amended. This marks the second of a trio of such cases that has been tossed out by courts. One wonders if grandstanding politicians using these silly claims as evidence of Google antitrust violations may start to quiet down.
Wow! Well, this is a bit of a surprise. The US government, who had been rubber stamping various mergers for a while now, especially in the telco/broadband space, may finally have had enough. The Justice Department has officially moved to block the merger, technically filing a lawsuit against it on antitrust grounds. From the beginning, most people had assumed that no one would block the merger, though in the last few weeks there were definite rumblings suggesting that the tides were shifting. Even so, having the DOJ jump in with a lawsuit is a surprise. AT&T insists that the move was a surprise to it as well, which is also a bit odd. Typically, the DOJ tends to telegraph this kind of move, in order to either pre-emptively end the merger attempt or to get much greater concessions. It's not entirely clear what pushed the DOJ off the fence on this one, but AT&T accidentally revealing that it had lied about the key reasons for the merger couldn't have helped...
Wow! We keep pointing out how bills like Senator Amy Klobuchar's S.978 anti-streaming bill and Senator Patrick Leahy's PROTECT IP Act will be abused by US law enforcement, and we keep being told that those bills aren't "intended" to be used the way they could be. I think part of the problem is that people don't realize how the Justice Department and US Attorneys will sometimes stretch and twist the law just to go after someone.
Last month, we wrote about the absolutely ridiculous case by the US against former Cisco engineer Peter Adekeye. The details have to be read to be believed, but most of it only came to light because a Canadian judge absolutely blasted both Cisco and the US Attorneys for what clearly appeared to be an unnecessarily vindictive criminal prosecution against Adekeye because he filed an antitrust lawsuit against Cisco, after Cisco tried to block third party companies (such as one of Adekeye's) from accessing necessary patches to service certain Cisco equipment.
The whole story was horrifying, but we thought it ended in May when the judge let Adekeye go and gave the Justice Department a pretty big slap for its actions. But... no. Slashdot points us to the news that the Justice Department has just unveiled a new indictment against Adekeye over the same issue: basically someone at Cisco gave Adekeye a login to download patches, and he did exactly that. This is not, in any way, a matter that should involve the Justice Department. The judge in Canada made that clear. The story about Adekeye shows the Justice Department acting for bad reasons -- either incompetence, corruption or malice (pick any two!). And you would think that someone there might think twice before pushing ahead with bogus prosecution against Adekeye (who's finally back in Switzerland after being stuck in Canada for a year), but that's not how the US works.
And this is why we get very afraid when Congress looks to pass broad new legislation that may impact criminal statutes and the kinds of things that US Attorneys can charge people over. I'd like to believe that US Attorneys are good people trying to stop and punish crimes, but we've seen too many cases where it appears that their actions are incredibly questionable. I'm still hopeful that it's just a few bad seeds among the ranks of US Attorneys, but if we keep seeing stories like this...
I haven't written anything about the ongoing FTC investigation of Google, because the details are still a bit iffy, but Charlotte Kiang points us to a piece she wrote up comparing the investigation of Google to the similar antitrust legal fight against Microsoft a little over a decade ago. In that case, the evidence of Microsoft's "predatory" practices seemed a hell of a lot stronger than anything against Google, but the key point that the article makes is that in the rapidly changing tech world, what may seem like a dominant position is pretty difficult to keep in the marketplace. For example, the crux of the government's argument against Microsoft was in how it offered up Internet Explorer bundled with Windows, and that was somehow unfair. And yet, the failure of Microsoft to invest much in IE for years resulted in Firefox, Chrome and Safari taking away significant market share, simply by competing. While I understand the political pressure against Google, I'm at a loss to see how its actions have harmed consumers, and it's nice to see some others pointing that out.
Whenever we talk about the very serious risks and likely abuses of new laws favored by the entertainment industry -- such as PROTECT IP and the felony streaming bill, S.978, supporters of those bills insist that we're crazy for suggesting that the laws will be abused or that there will be any unintended consequences. We're told, over and over and over again that these laws are designed for and targeted only at the "worst of the worst." They're targeted at "rogue" actors, who must be stopped.
And yet, we've seen all too often how US officials have abused other such laws to attack and protect certain US companies from competition. A whole bunch of you have been sending over this incredibly frightening example of the Justice Department conspiring with Cisco to effectively try to destroy a former exec's life for daring to file an antitrust claim against Cisco, due to Cisco's desire to block competitors from servicing some of its products. Unfortunately, I actually found the version of the story at the Ars Technica link above a bit confusing (and it buries many of the key points). A much better way to understand just what Cisco and some federal prosecutors appear to have done is to read the ruling, embedded below, from a Canadian judge, who explains the whole thing clearly and bashes Cisco and the US Justice Department for its incredible overreach, for no reason other than to try to destroy the life of Peter Adekeye.
Adekeye, born in Nigeria, but a UK citizen, had apparently been a quite successful Cisco exec in both the UK and the US for many years. In 2005, he left Cisco and started a couple of companies himself, including one, Multiven, that offered to help provide maintenance services for various Cisco equipment. Apparently, Cisco tried to force customers into purchasing maintenance contracts only from them by denying third parties, such as Multiven, access to various bug reports and fixes. Because of this, Multiven sued Cisco, claiming antitrust violations. Cisco then countersued, including suing Adekeye directly, claiming that Adekeye had accessed Cisco's internal network illegally over 90 times. Adekeye does not appear to deny accessing Cisco's internal systems, but notes that he was given the login information from a Cisco employee, which he believed meant he was now authorized to use the system. It sounds like he used this access to get some of the info that Cisco had been denying Multiven. As part of its "hardball" litigation strategy, Cisco also sought to get the federal government to file criminal charges against Adekeye based on the exact same issue.
Separate from all of this, Adekeye had been dealing with attempts to get a work visa to be in the US for Multiven. The court ruling documents the incredibly ridiculous bureaucratic nightmare that Adekeye went through over the period of a few years in an attempt to seek proper visas to work in the US. At no time does it appear that Adekeye violated the various visas he did have. In fact, it sounds as though Adekeye bent over backwards (and then some) to always comply with US immigration and visa rules, even when it resulted in absolutely ridiculous circumstances, such as when he wasn't allowed back into the US, even though he'd been granted his H-1B visa. That story is crazy, but tangential to the point here -- though I suggest reading the ruling to get a sense of the ridiculousness of US immigration and visa policy.
In part because he was unable to get back into the US, Adekeye moved to Switzerland where a new Multiven office was opened, and continued his efforts to get his immigration status cleared up. As part of the ongoing legal dispute, Cisco wanted to depose Adekeye. Adekeye applied for permission to enter the US to do that... but was denied, and he was told if he went anyway, it could harm his chances of getting his visa status fixed. And Cisco used this to their advantage:
Notwithstanding this entirely reasonable explanation for his inability to attend a U.S. deposition, Cisco had the unmitigated gall to commence contempt proceedings for the applicant's "failure" to attend a U.S. deposition. It was, of course, unsuccessful, but it speaks volumes for Cisco's duplicity.
Eventually, all of the parties agreed to handle the deposition in Vancouver. It was outside the US, but close to Cisco's offices here in Silicon Valley. There was a separate (again tangential) issue involving the belief (which may not have been accurate, apparently) that a US deposition could happen in Canada without having to alert Canadian officials. It was at this deposition hearing in Vancouver on May 19th of last year that things got crazy. Cisco, knowing full well where Adekeye was and why he was in Vancouver -- and that he had tried and failed to get to the US -- apparently told the US Attorneys, who they'd been pushing to file criminal charges, about Adekeye's presence in Vancouver. The Justice Department then filed its criminal charges -- once again totally abusing the Computer Fraud & Abuse Act (CFAA) to make Adekeye's actions sound much worse than they actually were, and had a warrant issued for Adekeye's arrest.
They then sought rather extraordinary efforts from the Canadian government to arrest Adekeye immediately. Part of that, according to the Canadian judge who issued this ruling, appeared to involve a US Attorney leaving out key information, making blatantly false insinuations about other facts, and in some cases, what appears to just be lying:
The affidavit made no mention of the fact that United States immigration authorities had refused the applicant entry to the United States. No mention was made that the applicant had no criminal record. No mention was made that the United States Federal Court had ordered a deposition in Vancouver, presided over by a "special master" at which six or more United States lawyers would be present. No mention was made that the criminal complaint "mirrored" a counterclaim brought by Cisco in the main action in which the applicant was seeking large damages in an antitrust suit.
Sinister inferences were suggested, leading to an inference that the applicant would be a flight risk. The affidavit stated that the applicant "is a Nigerian citizen who claims to have citizenship from the United Kingdom", and that he possibly had British citizenship, and that he was in Canada on a Nigerian passport. The latter reference invited an inference he might flee to Nigeria, a country from which extradition was highly unlikely. In fact, U.S. authorities well knew and had a duty to disclose to the issuing judge that the applicant was a citizen of the United Kingdom and possessed a British passport, on which passport he had entered Canada. They also knew and had a duty to disclose that he had been a resident of England, but was currently residing with his wife and child in Switzerland, and that he had travelled from Switzerland to Canada for purposes of the deposition.
What happened then was somewhat astounding. In the middle of the deposition, RCMP officials walked into the room, interrupted the deposition in progress and arrested Adekeye in the middle of the proceedings. The beginning of this is on videotape. Adekeye, his lawyers, and the "special master" clearly have no idea what's going on, but what's notable is that, while people repeatedly ask for the recording to be turned off, Cisco's lawyers immediately say that the recording should be left on. It appears they knew exactly what was going on and wanted the humiliating arrest on the deposition tape. You can see the video below. As the judge in this ruling notes, the police's actions "could be compared to entering a courtroom and arresting a person during the course of his or her testimony. It is simply not done in a civilized jurisdiction that is bound by the rule of law."
Believe it or not, the situation then gets even worse and even more egregious. Adekeye was, in fact, arrested -- and the charges could have resulted in almost 500 years in jail, all for accessing a Cisco network with a password given to him by a Cisco employee. As you can see, he was removed from the deposition, much to the confusion of the special master appointed by the US court. After being arrested, he asked for bail, and Richard Cheng, an Assistant US Attorney for the Justice Department, sent a letter that was chock full of false and misleading information, which the judge in this case goes through step by step. It falsely implies that Adekeye did not really have British citizenship and that he did not really live in Switzerland. It stated that he used his Nigerian passport to enter the US under an E visa, which was not true. It claimed that the US had denied all of Adekeye's attempts to obtain a visa to visit the US since 2007, which as the ruling now notes "is simply not true." It also falsely stated that Adekeye had fled from law enforcement in the past. Again, the ruling noted "this statement was completely untrue."
And yet, federal officials continued to seek extradition. Even then, months after the arrest, the civil suit between Cisco and Multiven were settled, in a manner that everyone agrees was a "win" for Multiven, with Cisco changing its policy. So the key matter over which this highly questionable criminal charge was brought was settled. And yet, the feds continued to push forward. It was only in May of this year, a year after his arrest, that this new ruling came out and freed Adekeye to leave Canada and go back home.
Honestly, the whole story is really terrifying and makes me depressed to think that my government would do something like this. However, it should seriously call into question whether or not new laws like S.978 and the PROTECT IP Act should be allowed. It seems clear that the Justice Department has no problem using very questionable means to act as the private bullies of certain large companies. It should also call into question some of the recent efforts by other US Attorneys from the Justice Department, such as the efforts in coordination with Homeland Security/ICE to seize domains on questionable evidence, the attempt to extradite Richard O'Dwyer from the UK over very questionable charges and, of course, the recent charges against Aaron Swartz.
All of these cases have key factors in common. They involve what at best should be minor civil issues between private parties in court -- but in which, due to the presence of certain large industry interests, the Justice Department steps in and starts throwing its considerable weight around, including insane possible punishment, all because of dubious and often extremely misleading claims from these private interests. It's possible that the Justice Department officials here are simply incompetent (and honestly, that's an only slightly more comforting idea than the alternative) and unable to realize they're being manipulated by companies seeking to stamp out competition. But it's certainly demonstrating a really horrifying pattern of questionable behavior by the Justice Department and US Attorneys not to focus on real criminal behavior, but to abuse the criminal justice system to take vindictive action against potential competitors for big US industry players.
Last week, Wikileaks and Datacell threatened to sue Mastercard, Visa and Paypal if it didn't stop blocking payments to Wikileaks. The claims were basically collusion charges, in that all of the major payment companies were blocking payments. Things got strange today, however, when suddenly Datacell announced that payments worked again, and clearly implied that the companies had lifted the blockade. Except, Visa is insisting that it has not lifted its ban on Wikileaks and has no idea how payments are getting through. The details seem a bit sketchy. Some careful wording by Datacell's CEO suggest that he really just found an alternative payment gateway provider, which likely means this is a very temporary loophole, before the payment companies block again.
