EC Ruling Boosts Chance of Google Scrutiny

Posted by: Jennifer L. Schenker on June 11, 2008

Google may have gotten the green light from the European Commission for its $3.1 billion purchase of DoubleClick but the U.S. search giant could be in for a rougher ride in the future on the Continent.

On June 11, three months to the day after it blessed the merger with no restrictions, the European Commission finally released its 98-page ruling on the deal, which will allow the combined entity to place billions of ads per day on thousands of Web sites worldwide—further concentrating the online ad industry into fewer powerful hands. The March decision frustrated competitors, such as Yahoo!, Microsoft, and Time Warner’s AOL who have spent billions to snap up a variety of ad companies. It also disappointed privacy advocates worried about one company having too much data about people’s online activities.

Some industry players,however,were heartened by language in the ruling that suggests the Commission is starting to view Google through a monopoly lens.

The decision “puts Google on effective notice that its behavior will now be measured as that of a dominant undertaking”, says David Wood, a Brussels-based antitrust lawyer for the international law firm Gibson, Dunn & Crutcher, who represents an industry group called the Initiative for a Competitive Online Marketplace(ICOMP).

Article 337 of the Commission’s ruling says that “Google has a sufficient degree of market power to be able to foreclose rivals in the ad serving market.” It notes that the search giant has market shares ranging from 50% to 80% in various European countries, both in direct sale and intermediation of on-line ads. The Commission’s competition directorate concludes that “many advertisers depend on Google’s search ad services and that the revenues derived from Google’s search ad intermediation make it an almost irreplaceable source of income for many publishers.”

In its ruling the Commission found that rivals “do not seem to be a real alternative.” That may be true, but they could still end up being a real thorn in Google’s side. The group Wood advises represents some 40 organizations, including advertising agencies and software companies. The group’s initial sponsor? Google rival Microsoft, which itself has been fined billions of dollars for abusing its dominant market position.

ICOMP says it intends to ensure that issues raised by the Commission and during a separate review by the U.S. Federal Trade Commission “remain a focal point for debate.” It also says it will be “essential” for regulators to review any future cooperation between Google and other key market players – such as Yahoo!

“This has always not been about whether the transaction would be cleared but what would happen afterwards,” says Wood. “The next phase is looking at the behavior of these companies [Google and Doublclick]; let’s see if their behavior is allowed by competition law standards.”

Wood predicts that the Commission’s assessment of the market will be seized upon by national competition authorities, national courts , and data protection authorities, all of whom might use the dominant position ruling to go after Google Doubleclick if the merged entity inflates prices or mixes the databases of the two companies. With this language on the books, it's also possible that future controversies involving Google's actions could more easily escalate into antitrust cases.

“Advertising is driving the Internet and the concern is that the man in the middle – Google – will take an increasingly large slice of the cake, reducing innovation and making it much more difficult for others to engage in profitable business on the Internet,” says Wood.

ICOMP sees its role as “building concensus of views as to how this will affect the market going forward, and in particular what forms of behaviour may give rise to competition concerns,” Wood says. Looks like anti-trust lawyers and lobbyists will be kept plenty busy in the coming months.