ICOMP

Following widespread press coverage last week, Google confirmed on Friday that it is subject to an antitrust investigation by the US Federal Trade Commission (FTC), a significant uptick in the level of antitrust scrutiny that Google now faces around the world.

Google’s response is interesting but not enlightening. As described in an ICOMP blog post on Friday, the key antitrust complaint against Google is that it prioritises its own content over that of others when it comes to search rankings. This misleads consumers into thinking that Google’s content is the most relevant to users’ queries and pushes others’ content out of the useful rankings. It creates a fundamentally unfair playing field where Google gets to decides who wins and fails on the Internet. And the answer is: Google wins.

So how does Google respond to this central issue? Nothing. Not a word. Google merely states that it is “unclear exactly what the FTC’s concerns are” and repeats increasingly tired mantras about “putting the user first” and “competition is only one click away”.

It is extraordinary that Google claims not to understand the antitrust concerns that have been leveled against it. It has been engaged in fighting a rearguard action against various Government antitrust investigations for years. It is not credible for it to claim that it does not understand why people are concerned about the manipulation of search results and why using the gateway to the Internet to favour its own products and stifle competition is anti-competitive. It provides no answer to these concerns. Silence speaks volumes.

The arguments that Google is only “putting the user first” and that “competition is only one click away” do not hold water either.

Google is an advertising company that makes its many billions of dollars a year from selling advertising. Its primary principle (and indeed, its duty to its shareholders) is to maximize its advertising revenue. Sometimes that is maximized by doing what’s best for the user, and sometimes it is maximized by demoting or excluding rivals, both small and large, that might provide a competitive outlet for advertisers, and by punishing websites that carry advertising from rival advertising platforms.

If Google is so focused on doing what is best for the user, then why does Google have so many of the characteristics that it uses to describe other websites as “low quality,” including:
a. Has little or no original content
b. Is filled with paid links that are intended to drive ‘unnatural’ amounts of traffic to the sites paying for them and thus might serve to inflate the perceived relevance or importance of those sites
c. Frequently, whether passively or intentionally, promotes illicit websites and businesses that sell illegal drugs, counterfeit software, knockoff branded goods, and pornography
d. Collects and uses private information about end users without clearly and conspicuously informing those users and obtaining their consent. Indeed, Google has declared not that it wants what is best for the user, but instead to get as close to the “creepy line” with users as it can get away with
e. Putting links to its own sites (rather than the “best” sites) at the top of any results (Google VP Marissa Mayer has admitted as much; others continue to deny it)

The claim that competition is only a click away does not persuade either. There are many ways in which Google ensures that advertisers and users do not switch away from Google. One area of focus of the antitrust investigations is the exclusivity provisions that Google insists on in its syndication and distribution deals with websites, OEMs, mobile carriers and software vendors. Why does Google’s CFO acknowledge that the value of its investments in the Chrome browser are “guaranteed locked in users”? Why does Google’s widely distributed toolbar block attempts by end users to change search defaults? Why are AdWords advertisers restricted in the way that they can use their own data?

These and many other questions will be probed and tested in the coming months. Google will need to come up with better arguments than the ones it published on Friday if it is to emerge without a fundamentally far-reaching re-design of its business model and practices.

By David Wood, ICOMP Legal Counsel

Google has consistently argued over the years that it does not manipulate search results and that its algorithms are designed solely to deliver the most relevant results to search queries.

It has been apparent, also for years, that these statements do not reflect reality, that search manipulation does take place and that Google prioritises its own sites, and possibly those of its commercial partners, over competing sites. In other words, when you search for something, the chances are that you will not get the results that are most relevant to what you are looking for, but the results that most favour Google’s commercial interests.

This matters because Google is overwhelmingly dominant in delivering search results. In many European countries, over 90% of searches are conducted on Google. This gives Google massive power over what consumers get to see and which businesses win or lose in the online world. Given the economies of scale that lie behind search and the massive dominance of Google in search advertising, it is practically impossible to compete with Google in search, leaving Google as the sole gateway to the Internet.

Alarm at this situation has been one of the driving forces behind ICOMP. Its members, and many others, have called publicly and regularly for the need for Government investigation. The best adapted set of rules seem to be the competition law rules which require dominant companies to behave fairly and not to seek to eliminate their rivals. The application of the data protection rules has also been sought.

These calls seem to be bearing fruit. In November 2010, the European Commission launched its formal investigation into whether Google has abused its dominant position in breach of EU competition law. And yesterday it was widely announced in the press that the US Federal Trade Commission is on the verge of launching a similar investigation.

The Federal Trade Commission’s investigation seems to be focused on the issue of ‘prioritisation’. Despite its public denials, there seems to be little doubt that Google, by one means or another, ensures that its commercial services (shopping, maps, music etc) get higher rankings than similar services offered by others. Not only is this totally unclear to consumers, but it can have a calamitous effect on online businesses which compete with Google (i.e. competing shopping, map, video etc service providers).

Since a very high percentage of users click on the first few results they see, these competing businesses are effectively deprived of access to consumers, and vice versa. To try and reverse this, they turn to online advertising (i.e. Google’s commercial advertising services) and compete for the best advertising keywords or display spaces. In turn, this drives advertising rates sky high (to the benefit of Google). From the consumer’s perspective it leads to less choice, higher prices and ultimately a loss of innovation.

Competition investigations are typically slow and cumbersome. It is right that serious issues need to be seriously investigated and the actions of the European Commission and the Federal Trade Commission are to be applauded and encouraged. However, investigations are not an object in themselves. Firm action is needed urgently to ensure that an end is put to Google’s dominant position and that online consumers and online businesses are given fair and transparent access to each other.

By David Wood, ICOMP Legal Counsel

The first ever European Digital Agenda Assembly took place on 16 and 17 June. More than 1300 participants from the industry, the research community and NGOs, as well as representatives from member state governments and EU institutions, gathered in Brussels to assess progress in meeting the targets of the Digital Agenda, identify future challenges, and mobilise to meet these challenges.

The two-day event included speeches, panel debates and 24 workshops where attendees had a chance to actively help shape the future of Europe’s digital policies, from spectrum and wireless policy, to digital literacy, management of creative content, cloud computing and e-inclusion.

In her ‘Digital State of the Union’ speech, the Commissioner for the Digital Agenda, Neelie Kroes, underlined the need to invest in high-speed broadband networks and to build trust in the internet. She referred in particular to the importance of ensuring a sensible approach to cybersecurity, and of protecting children when they go online.

She also recalled that the internet is, and must remain, a place of freedom. Regulation can sometimes be necessary, but only as an exceptional last resort. Finally, Ms Kroes called for the active involvement of all stakeholders, affirming that, the goals set out in the Digital Agenda cannot be achieved without everyone´s active input – whether on ensuring broadband for all, or making copyright fit for the digital age.

ICOMP Member Mariusz Lisiecki, Chairman of the ICOMP Working Group on the Digital Agenda and co-owner of EMarketing Experts, attended the Digital Assembly and fully shares Ms Kroes´ view:

“It is great to see that the European Commission is taking a collaborative approach to shaping the Digital Agenda. ICOMP, and the Digital Agenda Working Group in particular, is pleased to have the opportunity to add its voice to the debate”.

Nevertheless, Mariusz also pointed out that a key element of the online economy still seems inexplicably overlooked:

“We remain concerned regarding the notable absence of online search in the Digital Agenda for Europe and will continue to advocate the inclusion of this critical issue in future discussions.”

For more information on the Digital Agenda Assembly, including some video recordings of the sessions, please visit: http://i-comp.org/blog/kY

Regards,
The ICOMP Secretariat

The 2011 World Copyright Summit took place in Brussels on 7 and 8 June. Organised by CISAC, the International Confederation of Societies of Authors and Composers, the event brought together 700 participants from 332 companies and organisations in 57 countries under the overarching topic “Creating Value in the Digital Economy: Create – Connect – Respect”.

Numerous subjects were addressed at the Summit, from collective licensing of works, the changing economics of the printed world and the future models for creative industries, to the role of ISPs in the creative eco-system and the development of music services in the Cloud.

At the opening of the event, Neelie Kroes, EU Commissioner for the Digital Agenda, underlined the need for an EU copyright system that is fit for the digital era and that boosts creativity, as well as the need to act quickly since technology is moving very fast. In this regard, Ms. Kroes stressed that it´s crucial to address the present challenges while leaving the door open for the future. The aim is to achieve a comprehensive legal framework for valid businesses and new business models to emerge, where cross-border distribution and digitization of works is facilitated and a real Digital Single Market is in place. Ms. Kroes gave a brief overview of the IPR Strategy recently presented by the European Commission and outlined some of the initiatives that are in the pipeline for the coming months, such as a Green Paper on the online distribution of audiovisual works, a legislative proposal on collective rights management and a review of the EU directive on IPR enforcement.

Michel Barnier, EU Commissioner for the Single Market and Services, delivered one of the closing keynote speeches and emphasized his full support towards creators and to the principles of copyright. Regarding the agenda and priorities for the coming months, Mr. Barnier specifically mentioned the issue of orphan works and the recent legislative proposal presented by the Commission in this area. He also referred to collective management of rights, specifying that, at the latest by the beginning of 2012, the Commission will propose a framework to address the problem of territorial fragmentation and legal uncertainty and to adapt the system to the digital era. This framework should include common rules about transparency and governance of collecting societies.

Overall, it was two days of debates on the future of creators and creative industries in the digital economy, during which participants underlined the value of copyright as an engine for creativity and growth, as the essential element for artists to be remunerated for their art.

Some of the business models – and in some cases the businesses – that have come to dominate the Internet threaten the very existence of the content industry online. At the Summit, numerous participants pointed out that the content industries bring more than just economic value to the digital economy. ICOMP shares this view and believes that Intellectual Property is one of the core assets of the Internet eco-system, therefore, it´s crucial for all the players in the digital value chain to respect it and preserve its value.

For more information about the 2011 World Copyright Summit, including videos of some of the sessions:
http://i-comp.org/blog/OL

Regards,
The ICOMP Secretariat