Antitrust Suit Filed Against Google
Posted by: Rob Hof on February 17, 2009
Google is fast replacing Microsoft as everybody’s favorite antitrust target. Even the U.S. Justice Department last fall indicated it was ready to file an antitrust lawsuit against the search giant if it went ahead with its proposed search ad deal with Yahoo (which it didn’t).
Today, a company called TradeComet.com, which operates a business-focused search service called SourceTool.com, filed an antitrust suit against Google, alleging that the much larger company engaged in illegal, predatory behavior intended to drive the smaller company out of business. I’m doubtful it’s a slam dunk case, but first, the particulars from TradeComet’s press release:
TradeComet was forced to file the lawsuit when Google refused to stop engaging in predatory conduct to block search traffic by imposing massive, unjustified price increases. Google’s anticompetitive conduct eliminated TradeComet as a competitor. ...
SourceTool.com, a subsidiary of TradeComet.com, operated a thriving global business-to-business (B2B) search engine enabling buyers of industrial products to easily connect with suppliers. SourceTool.com focused on a specialized type of industrial search, which it positioned as a competitor to Google’s general purpose search engine. Due to SourceTool’s utility for buyers, sellers and advertisers, the site took off—within months reaching 650,000 visits per day. SourceTool.com also was named a ‘2006 Rising Star of Specialized Search’ by InfoCommerce and the ‘Second Fastest Growing Internet Site in the World’ by Comscore.
Google initially embraced its relationship with SourceTool.com, naming them Google’s ‘Site of the Week’; SourceTool.com was reinvesting approximately 80 percent of its revenue by purchasing $500,000 per month or more in Google keywords.
In its complaint, TradeComet.com provides details of how Google subsequently identified SourceTool.com as a competitive threat and then engaged in illegal conduct to diminish and ultimately extinguish SourceTool.com’s platform.
“SourceTool.com offered a valuable service and TradeComet.com had a thriving business before Google decided to eliminate them as a competitor,” said Rick Rule, Chair of Antitrust for Cadwalader, Wickersham & Taft, LLP, and former head of the United States Justice Department Antitrust Division. “We believe this complaint has strong merit and represents a serious antitrust violation.”
“With no notice, Google changed from cheerleader to tyrant when it realized we were a competitive threat,” said Dan Savage, founder and CEO of SourceTool.com and TradeComet.com. “For example, Google raised my prices by 10,000 percent, which strangled our business, virtually overnight. Citing an ambiguous quality score determined by a secretive algorithm to justify the price increase, Google refused to consider reductions even after SourceTool.com invested the company’s savings to make the changes that Google said would rectify the supposed problems. As a result of Google flexing its monopolistic muscle, SourceTool.com currently averages about one percent of the traffic it previously had and is no longer a competitively viable business.”
TradeComet.com aims to recover damages caused when Google’s anticompetitive conduct eliminated SourceTool.com’s primary source of search traffic.
Although Google won't comment on the case except to say that "advertisers have a huge range of choices," it seems likely the company considers SourceTool an example of "advertising arbitrage." That's when a Web site provides little more than pages full of links to other sites in order to sell Google ads on it. Increasingly, Google has viewed those sites as a bad experience for its users, who get little more than the privilege of having to click again and again (on pages with more Google ads) to find the information they really want.
SourceTool.com's travails were outlined in a piece by Joe Nocera in the New York Times last September. Nocera made the case that although he believed Google was operating in good faith, its commanding position in search and search ads made it cavalier in dealings with complaints from companies such as TradeComet.
The situation gets a little more complicated given that SourceTool rival business.com is a "content network partner" with Google, meaning business.com gets additional ad revenue from Google.
I haven't yet had a chance to talk to independent antitrust experts about the case, and since antitrust law can be exceedingly murky and situational, I wouldn't presume to judge the case just yet. Still, I'm dubious at the outset for a number of reasons.
Mainly, I find it difficult to believe SourceTool is a significant competitor to Google. After all, SourceTool's business has to be tiny next to Google's. What's more, SourceTool's business model is to run Google ads, which suggests it's more partner than competitor. Indeed, as Mike Masnick at Techdirt notes, Google makes money from SourceTool as well, so it's not in its immediate financial interest to put it out of business.
Also, Business.com offers actual articles, not just lists of links. You can argue how useful those articles are, but it doesn't seem completely unreasonable for Google to infer that this content makes Business.com at least somewhat more than an ad arbitrage play and therefore more useful to more searchers.
In any case, does Google's dominance in search mean that it can no longer make such value judgments? Maybe. Again, I can't judge the legal particulars of the case yet. But whatever the merits, I can't see that limiting Google's ability to make judgments about the best user experience would be best for consumers.
One thing that would help Google in all this is greater transparency in how its famous algorithms choose which sites are deemed best and which are shunned. There are obvious competitive challenges with such transparency, as well as the potential for other sites to game the system to the detriment of searchers.
But that's the problem with becoming so dominant: Suddenly, your actions are judged differently. Whether or not this particular case goes anywhere, Google now faces some of the same challenges Microsoft did in trying to stay aggressive and avoid legal scrutiny at the same time.
In fact, there's another Microsoft connection in this case: Rick Rule, the attorney on the case, earlier represented Microsoft in its antitrust case settlement with Justice and several states, and he has advised the software giant last year on its proposed acquisition of Yahoo and on antitrust issues related to Google's acquisition of online ad firm DoubleClick. Rule's firm, Cadwalader, also represents Microsoft’s online services group.