Google’s Anti-Trust Problem Appears Very Real

At Google’s recent press event last week, in advance of its annual shareholder meeting, CEO Eric Schmidt seemed to brush off the notion that he might be compelled to resign from Apple’s board because of  a potential problem with an “interlocking directorate” (common directors on competing firms). This reaction is consistent with Google’s public calm, even nonchalance, in the face of an apparently growing anti-trust headache.

The government is planning to “reinvigorate” anti-trust enforcement. According to a statement put out today by the Justice Department:

Christine A. Varney, Assistant Attorney General in charge of the Department’s Antitrust Division, today announced that the Department is withdrawing, effective immediately, a report relating to monopolization offenses under the antitrust laws that was issued in September 2008. As of today, the Section 2 report will no longer be Department of Justice policy. Consumers, businesses, courts and antitrust practitioners should not rely on it as Department of Justice antitrust enforcement policy.

The report, “Competition and Monopoly: Single-Firm Conduct Under Section 2 of the Sherman Act,” raised too many hurdles to government antitrust enforcement and favored extreme caution and the development of safe harbors for certain conduct within reach of Section 2, Varney said. Varney announced the withdrawal of the report today at a speech at the Center for American Progress.

“Withdrawing the Section 2 report is a shift in philosophy and the clearest way to let everyone know that the Antitrust Division will be aggressively pursuing cases where monopolists try to use their dominance in the marketplace to stifle competition and harm consumers,” said Varney. “The Division will return to tried and true case law and Supreme Court precedent in enforcing the antitrust laws.”

In prepared remarks presented to the Center for American Progress, Varney laid out the philosophical basis for this new, more aggressive approach: preserving and protecting competition for the benefit of consumers and markets more generally.

TechCrunch ran a piece in reaction to the statement above speculating that Varney might come after Google, as an easy target and as a way to “make her name” as Assistant Attorney General. While this view is quite cynical, it is probably reasonable to assume that Varney will be watching Google and a handful of other big names in the tech sector. In addition, there will be enforcement actions and investigations where the prior administration took a hands-off or laissez faire approach.

The stated belief of the current administration is that the present financial meltdown in the US and global economies is a byproduct of little or no regulatory oversight over markets. And beyond this, the Bloomberg news service previously quoted Varney saying in public that Google was a monopoly today:

The U.S. economy will “continually see a problem — potentially with Google” because it already “has acquired a monopoly in Internet online advertising . . . ”

Varney also previously said that she did not believe Google had manipulated markets to achieve its dominance in search and search marketing. But the effect may be the same, limited competition, however benign the manner in which it came about.

It’s far from certain that Varney and her colleagues at the Justice Department will “go after” Google. However her public statement in favor of stronger enforcement to protect and promote competition, as well as her use of the “M Word” and “Google” in the same sentence, all suggest that Google may have some unpleasant legal challenges ahead.