House Panel Probes Antitrust Tools in Internet Era

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What does antitrust law look like in the Internet age?

A U.S. House of Representatives subcommittee on Thursday held the first of a planned series of hearings probing the state of competition in the Internet sector, raising questions about whether current antitrust laws give regulators sufficient authority to guard against abuses in the fast-moving tech economy.

“The fact is, you can’t rely on industries to police themselves,” declared Hank Johnson (D-Ga.), the chairman of the House Judiciary Committee’s Subcommittee on Courts and Competition Policy.

“In my opinion, antitrust enforcement needs a balance,” Johnson added. “The role of government should be to foster competition and drive economic growth and not stand in the way of business. We want to partner with businesses, not be their nanny.”

Several major players in the tech sphere have recently found themselves under increasing scrutiny from antitrust authorities at the Federal Trade Commission and Department of Justice.

Just last month, the FTC settled a case against Intel (NASDAQ: INTC) over alleged anticompetitive behavior in the chip market. Antitrust authorities have looked into Apple’s policy restrictions for third-party application developers. And Google (NASDAQ: GOOG) has faced a variety of inquiries, including the DoJ’s ongoing reviews of its settlement agreement with authors and publishers to build a digital library and the proposed acquisition of ITA, an online travel firm.

The lawmakers heard from an array of witnesses whose opinions ran the gamut. Scott Cleland, the president of the tech consulting and research shop Precursor who has carved out a niche as a dogged critic of Google, branded the search giant “a far more serious antitrust threat than Microsoft ever was,” and called for the DoJ to file suit to dislodge the company’s market power. Cleland, who maintains the websites Googleopoly.net and GoogleMonitor.com, also chairs NetCompetition.org, an anti-net-neutrality organization funded by some of Google’s historic foes in the policy arena, such as AT&T and U.S. Telecom.

Other witnesses countered that the Internet sector remains far too fluid for any one company to exert monopolistic power over consumer-facing applications.

“Aside from the Google-paranoia issues … in general we have a hugely competitive marketplace in the Internet space,” said Ed Black, president and CEO of the
Computer and Communication Industry Association.

“I represent hardware, software, services — a lot of people in the high-tech world — the Internet space is the most competitive part,” he added. “The barriers to entry just aren’t there.”

On hand to provide a government perspective was Richard Feinstein, director of the Bureau of Competition at the FTC. Feinstein was unequivocal in responding to the core policy question at issue in the hearing, namely, whether century-old antitrust law is in need of an overhaul to conform to the Internet economy where the traditional understanding of horizontal and vertical competition may have fallen out of step.

“The thrust of the commission’s testimony today is that antitrust laws are written sufficiently flexibly to enable us to address competitive problems in dynamic markets,” he said.

In approaching antitrust reviews at the commission, whether concerns about potential harms in a merger review or alleged past abuses such as the case against Intel, Feinstein stressed the importance of staffing the agency with experts who keep abreast of the fast-moving industry.

“There’s no question that business models are evolving. There’s no question that the technology is evolving very rapidly. Our challenge is to make sure we understand these developments,” he said.

In the case of Intel, Feinstein explained that the FTC was eager to reach a settlement rather than litigate the case in court, where the inevitable appeals would likely have delayed a final verdict by three or four years. By that time, the market would have moved on, and the business practices in question might no longer apply.

“By settling the case when we did, I think we achieve the goals of obtaining relief in real time and promoting competition and innovation in a dynamic market,” he said.

Market realities also intervened in the commission’s review of Google’s acquisition of the mobile advertising network AdMob, a $750 million deal that critics warned would cement Google’s dominance in the emerging wireless ad sector.

Last December, Google acknowledged that the FTC had decided to take a closer look at the antitrust implications of the deal. The next month, Apple announced the purchase of Quattro Wireless, a firm that was seen as AdMob’s principal rival. In April, Apple launched iAd, its own mobile advertising platform for the iPhone. The next month, the FTC cleared Google’s AdMob acquisition bid, a decision that came in direct response to the shifting conditions that made it plain that Google would have a solid counterweight in the nascent market, Feinstein said today.

“It is a constant challenge between wanting to find that balance between frankly astounding progress on one hand, promoting innovation and ensuring that competition continues to serve the interest of consumers,” he said.

Kenneth Corbin is an associate editor at InternetNews.com, the news service of Internet.com, the network for technology professionals.