Should the Google Search Engine Be Answerable To Competition Regulation Authorities?

The thought process of major competition authorities across the globe and their response to Google’s conduct in terms of manipulating its search engine is traced in this article.  

“The predominant business model for commercial search engines is advertising. The goals of the advertising business model do not always correspond to providing quality search to users . . . we expect that advertising funded search engines will be inherently biased towards the advertisers and away from the needs of the consumers.”

The above excerpt borrowed from Brin and Page (1998) is a testimony to the fact that the Google creators Sergey Brin and Larry Page foresaw the predicaments of operating a search engine prior to the launch of Google, much before it was faced with regulatory hurdles. Thus, it comes as no surprise perhaps that Google has been under the scanner of competition authorities across the globe including the Federal Trade Commission (FTC) of United States of America (US), the European Commission (EC) in the European Union (EU) and most recently the Competition Commission of India (CCI). The CCI on 8 February 2018 came out with an order imposing a Rs 136 crore fine on Google for “search bias” and potential abuse of dominance. 

Google and Competition Regulation: The US and EU Experience

The first real regulatory action against search engines was when FTC (2002) issued a letter in response to the complaint filed against the search engines of the time, namely Alta Vista Co, AOL, Time Warner Inc, Direct Hit Technologies, iWon, Inc, Looksmart Ltd, Microsoft Corp and Terra Lycos SA (Google had not emerged yet). Commercial Alert, the plaintiff, alleged that search engines failed to disclose that advertisements are inserted into the search result lists, thereby deceiving its users into believing that “search results are based on relevance alone and not marketing ploys.” 

This was the first instance of the usage of terms “paid placement” and “paid inclusion.” The former refers to a programme where individual websites or URLs can pay for a higher ranking in a search results list, with the consequence that relevance alone will not determine the ranking order, while the latter refers to a programme in which individual websites and URLs are included in a search engine’s index, available for display as search results, when in reality, that website should not have featured in the search results, but for participation in the paid programme. In the case of paid placement, the FTC argued that there needed to be clear disclosure regarding the same, as users had historically been used to search engines providing them with search results based on relevancy, and any deviation from the standard practice needed to be stated explicitly. 

As far as paid inclusion is concerned, the argument is slightly more complex; so long as paid inclusion does not result in distortion of the ranking of a website or URL, it provides benefits to the consumer in terms of increased choice in search results list. The FTC encouraged search engines to disclose the criteria for selection.

The ultimate action of the FTC to the above complaint was to abstain from undertaking any formal legal action against the search engines, and instead resorting to communicating with these search engines to impress upon them the need for “clear and conspicuous disclosures” of paid placement, and in some instances, of paid inclusion.

Advertising, Revenue and the Business of Search

To understand this contradiction between providing relevant search results and advertising, one needs to look more closely at the business model of these search engines. Google and other search engines are media companies, or what is known as two-sided markets. Their revenues come from the ad slots that they auction to different entities. And the auction of these ad slots, in turn, depends on the number of users that subscribe to the search engine. All else constant, an advertiser will be willing to advertise in a search engine with a larger number of users. Therefore, larger the number of users of a search engine, greater the volume of advertisements that it will be able to generate. Paid inclusion and paid placement are forms of advertisement, and therefore translate to revenues for search engines. Resorting to paid inclusion and paid placement are part of the modus operandi of search engines. The problem arises when users think of search results to be benign and reflecting nothing but relevance. This information asymmetry between users and search engines is what needs to be bridged through better disclosure by search engines. Nevertheless, given the present business model of these search engines, this tension is inevitable.   

A landmark regulatory event occurred in 2010 in Europe when the EC encountered critical questions regarding Google’s functioning which included the following (EC 2010). First, Google abused a dominant position in the EU in online search by allegedly lowering the rank of unpaid search results, especially the so-called “vertical search services.” Second, the issue of Google having imposed exclusivity obligations on advertising partners, with the aim of shutting down competing search engines. Third, the issue of Google having imposed restrictions on the portability of online advertising campaign data to avoid competing online platforms. 

The most serious of the above allegations pertains to Google’s unfair conduct vis-à-vis vertical search services. In this context, one has to note the difference between horizontal and vertical search services. While the former refers to search engines such as Google, Bing, Ask.com, etc, which provide general search services, the latter provide search services of a specific kind only, which includes the likes of Zomato (restaurant reviews), MakeMyTrip (travel), Amazon (e-commerce), Pinterest (images). Google itself runs several vertical search services like YouTube (videos), Google Maps (maps and GPS), Google Shopping, among others. The allegation was that Google threw up search results in favour of its own vertical searches and/or other paid entities, jeopardising other vertical search services. 

Apart from the allegations already pointed out, the EC vice president in his speech pointed towards Google possibly engaging in a practice of scraping content (such as user reviews) from the website of their competitors and using that material on its own sites without prior authorisation (Almunia 2014). While on the one hand this translates to greater information dissemination to users, as the same information is now more accessible to them, this practice of scraping content also has the effect of reducing the incentive for the vertical search services to incur costs in producing new content, in the fear that it would be scraped and posted on a Google vertical search service website. All of the above allegations seem to have a common thread of directly or indirectly disparaging the prospects of vertical search engines other than those of Google’s; by favouring its own vertical searches and imposing exclusivity agreements with advertisers, Google limited competition and created a potential entry barrier. By imposing exclusivity agreements on advertisers, funds for other vertical search services dried up, as advertisements are the major source of funding for search engines. 

Subsequently, in 2015, the EC issued a Statement of objections (the first step to officially initiate a case in the EU) stating that Google abused a dominant position by providing illegal advantages to its own shopping services, and thereby violated Article 102 of the Treaty on the Functioning of the European Union (TFEU) (EC 2015), which eventually translated into a fine of Euro 2.42 billion being imposed on Google in the 2017 judgment, the highest ever by any regulator in the world in antitrust history (EC 2017). Research by the EC revealed that the 10 highest-ranking generic search results on the first page together generally received approximately 95% of all clicks on generic search results (with the top search result receiving about 35% of all the clicks), thus making any change in the positioning of links have huge consequences. Interestingly, the EC study noted that when the first result was moved to the third rank, there was a reduction in the number of clicks by 50%, dismissing the rationale that the first few search results received huge traction as they are most appropriate!    

In 2015, the EC also initiated an investigation to scrutinise a potential abuse of dominance by Google in operating systems, applications and services for smart mobile devices, the investigations for which are still in progress.        

In the context of the US likewise, the FTC initiated an investigation to assess whether Google unfairly promoted its own vertical searches with the introduction of measures like the universal search box that displays Google’s proprietary content with prominence, and hence allegedly pushed the organic search results further below on the page (FTC 2013). The FTC also looked for an alleged manipulation in the search algorithm which potentially resulted in the demotion of vertical websites that competed with Google’s vertical properties. The alleged behaviour was in violation of Section 2 of the Sherman Act, by monopolisation or attempted monopolisation, and in violation of Section 5 of the Clayton Act, by creating a likelihood of significant injury to competition. 

The crux of the matter to be determined was whether Google brought about a change in its search results display to exclude actual or potential competitors, or to improve the quality of its search product. In 2013, the FTC dismissed the above case and did not recommend any further action against Google, as it considered the change in the search results display to be a natural evolution of search engines in providing better results to users, and that any harm caused to competitors was incidental to that purpose. The FTC stated that the adverse effects from Google’s actions to its competitors are a common consequence of “competition on the merits.” It placed on record the fact that ‘click-through’ data revealed that users benefited from Google’s changes in search results. 

Google and Unfair Conditions 

Two cases were filed against Google with the CCI in 2012. The first one (Case No. 07 of 2012) filed by Consim Info. (which runs the popular BharatMatrimony service) alleged Google of discrimination in its search services by favouring its own vertical search properties. Another allegation levied was of Google auctioning keywords to prospective advertisers, irrespective of who held the trademark for the same. The second case (Case No. 30 of 2012) was filed by the consumer activist body Consumer Unity and Trust Society (CUTS). The allegations were that Google is abusing its dominance in the online search market through its practices that lead to search bias, search manipulation, denial of access to competing search engines and creation of entry barriers (CCI 2018). 

Elaborating on the issue of Google imposing unfair conditions on trademark owners whose trademarks are being allowed to be bid as keywords by third parties in online search advertising, the plaintiff (Consim Info.) claimed that although it held the trademark for BharatMatrimony, its rival Shaadi.com was free-riding on its trademark and extracting unfairly the goodwill from the plaintiff’s brand, as it bid the highest among advertisers for the keyword “bharat matrimony.” Google in its defence pointed to the fact that if it were to block auctioning keywords only to trademark owners, its actions would reduce user choices and result in a monopoly of trademark owners. Its current practice enhances user choice and enables smaller players to compete with trademark owners. The CCI agreed with Google with regard to the aforementioned, that users may be benefited as it is easier to compare between products or services when there are several listings as results. The CCI also stated that this issue was not a competition violation as Google followed a uniform policy with all advertisers, but this nevertheless could be a trademark infringement, not under the jurisdiction of the CCI. 

The CCI in its order on 8 February, 2018 found Google guilty on three counts:

(i) It was found that ranking of Universal search results prior to 2010 was not strictly determined by relevance, and was even predetermined in some instances.

(ii) Google indulged in prominent display and placement of its own flight search services, disadvantaging other vertical search services. 

(iii) It was found that Google imposed unfair conditions on advertisers through its exclusivity clause, that is, if an advertiser lists an advertisement with Google, it is not permitted to advertise on any other search engine. All of the above violations attracted a fine of Rs 136 crore from the CCI. Two members of the CCI did not concur with the majority order and wrote a dissent note expressing their views.

What Should Regulators Do?

As is evident from above, there seems to be a lot of contention about what constitutes anti-competitive conduct among firms, and what should be accepted as benign. The US has by and large followed a jurisprudence mirroring the thoughts of the Chicago school, and remained largely non-interventionist, while the EU in this regard has adopted a rather circumspect stance and has not been shy in imposing fines on firms and labelling their conduct as anti-competitive. The Indian jurisprudence is quite nascent to come up with an understanding of jurisprudence of, has closely followed that of the EU thus far, but the jurisprudence in the country is quite nascent and in its early stages to come up with an understanding of it. Below, we summarise certain thoughts and questions that emerge from all the issues raised earlier: 

Exclusionary conduct: Antitrust focus on exclusionary conduct (includes creating all kinds of barriers to entry; in this instance, Google disabling other vertical search services to have access to advertisement revenue by lowering them on search results list) implies enhancing innovation efficiency, which provides maximum benefit to society, but the usual antitrust standard is to focus on consumer welfare, the marker for which is allocative efficiency (Brodley 1987). Allocative efficiency would mean price always equals the marginal cost of production and thereby ensures lowest prices paid by consumers in the short-run. Innovation efficiency, on the other hand, accrues over time with costs of production coming down with technological breakthroughs. In a country like India, do we focus on allocative efficiency, which is in line with consumer welfare approach or do we focus on innovation efficiency (which accrues over time)?

Revenue models: In the Advertisement revenue model of search engines paid placement and paid inclusion will continue to play a role in search results. Is there a need to bring about a change in the business model, thereby reducing the conflict between credible search results and advertisements? One approach could be to make users pay for the search results that they want to see, thereby eliminating any bias in search results. 

Competition agency: An effective competition agency must be equipped to wrestle with legal and economic ideas, handle big data and computation and also possess the expertise for periodic algorithmic audits. 

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