Google Is ‘Serial Offender,’ Cleland Tells House Panel

"We start this hearing on a fundamental question critical to this subcommittee’s jurisdiction and that is what should be the role of antitrust law in emerging industries,” said Chairman Hank Johnson, D-Ga. “The reason that we have antitrust law in the first place is that competition without any restraints can harm consumers. When companies compete against each other for market share they innovate and that keeps prices low and consumers win.”

Johnson said the constant change in digital markets leads some to argue for more relaxed antitrust enforcement. “The company on top today, may in fact be gone tomorrow,” he said. “Some say that enforcing the antitrust laws too strictly in these markets will only discourage innovation and new competitors.” But the record shows that industry cannot be relied on to police itself, Johnson said. “Ten years ago we took the leash off of Wall Street,” he said. Everyone assumed that the banks would compete more vigorously with each other and wouldn’t do anything to endanger themselves or the market. Just the opposite happened.” Antitrust law has to be a balancing act, he said. “I for one don’t want companies to fear our actions today,” he said. “We want to partner with businesses, not be their nanny.”

Rep. John Conyers, D-Mich., chairman of the Judiciary Committee, said the committee will hold a series of hearings on competition in evolving markets. “The online and mobile adverting space is too concentrated and is even getting more so as we speak,” he said. “This is not an anti-Google remark that I'm making.” He also said antitrust law must evolve to address questions raised by the digital world “where vertical acquisitions are even more worrisome than before.”

Rep. Lamar Smith, R-Texas, ranking member of the committee said smartphones are creating a market for software that did not exist two years ago, and consumers are benefiting. “However, new models and business models also raise questions about how companies are competing and whether their actions are procompetitive or anticompetitive,” he said. The question Congress must ask is “what level of antitrust enforcement is appropriate” for this “developing industry still in its infancy.”

Smith said he’s a believer in strong antitrust laws. “However antitrust enforcement is not without risks,” he said. “Over-enforcement … can deter business practices that would ultimately help consumers. On the other hand, under-enforcement could allow companies to become firmly entrenched through anti-competitive practices that hurt their rivals and ultimately hurt consumers.” Much has been made of Google’s recent acquisition of mobile adverting network AdMob and travel software company ITA, Smith said. “An antitrust review is appropriate,” he said. “However, just because a company is big does not mean it is bad. Just because it enters into new lines of business does not mean it is going to dominate those new markets."

Richard Feinstein, director of the FTC Bureau of Competition, said antitrust laws are adaptable and do not need to be changed because of the growth of Internet-based companies. “Despite the profound changes in the American economy since the passage of the Sherman Act in 1890, our antitrust laws remain basically the same and they have proven that they can still do the job,” he said. “Some have argued that there should be different rules for markets characterized by rapid technological development, but Congress drafted the antitrust laws in general terms to accommodate changing markets and new products, and the laws are flexible enough to meet the challenges of the high-tech era."

Cleland, who has an anti-Google website, Googleopoly.net, used his testimony to complain about one of his favorite targets. “Competition needs property rights and people respecting them for it to work,” Cleland said. “Every now and then a bad actor comes along and uses innovation as a shield.” Twelve million books were copied illegally according to the Google Book Settlement, he said. Viacom has sued Google’s YouTube for hundreds of thousands of videos posted in violation of copyright. Apple is suing HTC and Google for violating patents for the iPhone and Oracle for violations to Android patents. “There is a bad actor out there that is … not using intellectual property rights like other people,” Cleland said. “Privacy and intellectual property can be anticompetitive in the hands of a bad actor who is a serial offender."

"At this point I think everyone knows that Mr. Cleland stopped being a neutral analyst years ago and is now paid by Microsoft and AT&T to be a full-time Google critic,” Google spokesman Adam Kovacevich said in response to Cleland. “His criticism of Google is about as surprising as a fight between two of the Real Housewives."

The committee also heard concerns about Google and other high-tech companies from the Association for Competitive Technology and the Consumer Federation of America. “Over the past two decades it has become clear that the challenge of ensuring that high technology markets, particularly digital technology-based sectors, remain vigorously competitive is one of the most important and difficult tasks facing antitrust and competition authorities,” said Mark Cooper, CFA director of research.

But Ed Black, president of the Computer & Communications Industry Association, said Cleland’s comments did not match up with reality. “If Google came up with a cure for cancer I'm sure Scott would find a reason that it’s bad for society,” Black said. “Our world is so much more complex. We have so many competitors so many companies. The kind of behavior that we have seen in all of the major antitrust cases that are important to our industry showed an inclination to lock people in, to block interoperability, to prevent openness. Those are all things that are, frankly, contrary to the way that Google has operated.”

Google has a big presence in the market, but one that is “very fragile,” Black said. “It’s not established and locked in” in the same way IBM is on hardware, Intel is on chips or Microsoft is on operating systems, he said. “I feel like I'm in … Alice in Wonderland when I hear the Internet described by some people. It just isn’t the way the Internet is operating.”

Geoffrey Manne, executive director of the International Center for Law and Economics, said Google has become the “high-tech bête noir” of the moment. “Close scrutiny of the complex economics of Google’s technology, market and business practices reveals a range of real but subtle, pro-competitive explanations for features that have been held out instead as anticompetitive,” Manne said. “While some have suggested that our antitrust enforcers are asleep at the switch, I would suggest that if anything they're too aggressive,” he said, citing a lengthy list of antitrust investigations in the high-tech sector. “Activity here is hardly moribund.”