In D.C. antitrust circles, how Google became the hunted

About this time a decade ago, Google CEO Eric Schmidt was praying that the U.S. Justice Department would file an antitrust lawsuit against Microsoft.

"I've competed against Microsoft for years, but I never quite appreciated how big Microsoft has become, not just as a company, but as a brand and as part of the national consciousness," Schmidt said in 1998, four months before the suit was filed. "It's the products, the Microsoft marketing juggernaut, Bill Gates's wealth, all those magazine cover stories. It's everything."

That was when Schmidt was the chief executive of Novell, a Microsoft archrival that alleged anticompetitive activities and eventually filed its own private antitrust lawsuit.

Now the situation is reversed. Instead of competitors urging the Justice Department to pounce on Microsoft, the onetime monopolist (and its allies) are wielding the political process to hamstring Google. And Microsoft's position in the 1990s as the innovative West Coast company that captured the public's imagination -- with a wealth of new products, sappy magazine cover stories, and newly minted riches -- has been largely usurped by Google.

There are differences, of course: Google is only 10 years old today, while Microsoft was 23 years old when federal authorities decided to mount what ultimately proved to be an unsuccessful effort to carve it up into more manageable pieces. In addition, the Web makes switching away from a search engine or an advertising platform much easier than ditching Windows for a Mac or Linux; any network effects are far weaker than they are in the software world.

And Google says, as you might expect, that there's no reason for the feds to investigate its Yahoo advertising deal on antitrust grounds. The company provided CNET News with a statement on Tuesday saying: "While there has been a lot of speculation about this agreement's potential impact on advertisers or ad prices, we think it would be premature for regulators to halt the agreement before we implement it and everyone can judge the actual impact. We are confident that the arrangement is beneficial to competition, but we are not going to discuss the details of the regulatory process."

Yet the similarities are nevertheless striking.

In 1998, the Justice Department hired David Boies, a high-profile litigator who had founded his own law firm a year before, to be its lead trial counsel. In 2008, the government has hired Sandy Litvack, a high-profile litigator who recently left a law firm, according to a report in Tuesday's Wall Street Journal.

Microsoft's enemies used shady tactics, including hiring investigators to dig through the trash of pro-Microsoft groups in Washington, D.C. Today Google's enemies are using shady tactics, including hiring D.C. groups to plant articles and engage in a so-called astroturf campaign against the search company.

A decade ago, Microsoft had spread little money around Washington political circles: its political action committee handed out only $212,000 to politicians in the 1998 election cycle, a sum that leaped to $1.2 million by the time the antitrust trial was over. Similarly, Google's PAC spent only $156,936 in political favor-buying this election cycle, compared with, say, $3.8 million by AT&T.

To be sure, Google denies any allegation that its pending advertising deal (or any other activities) will impinge on competition. David Drummond, the company's top lawyer, told a Senate committee in July that the Yahoo advertising deal "will maintain and expand that competition," and co-founder Larry Page told a Washington audience that Google is in favor of openness and competition.

They may honestly believe that a lawsuit is unlikely. And it's true that no lawsuit may ever be filed. But many executives at Microsoft and a long list of antitrust defendants -- including American Airlines, Archer Daniels Midland, Bayer, Kimberly-Clark, Texas Instruments, Sony, and Visa -- probably felt the same way right up until they were served with a copy of the federal complaint.

The way the political establishment of the East Coast treats the technology firms of the West Coast in some ways resembles a shakedown racket: Tech firms and their CEOs are viewed as rich sources of untapped revenue for politicians. (It would be a shame if something happened to that nice, shiny search engine you've got there, wouldn't it?)

AT&T (itself once broken up by a federal antitrust action) has a larger market capitalization than Google, with the lion's share of U.S. DSL customers, and grew by gluing together former Ma Bell assets including Southwestern Bell and BellSouth. But thanks to its generous political giving (or, more charitably, a genuine confluence of ideologies), AT&T's mergers have won the applause of Republicans including Rep. Joe Barton of Texas, who personally lobbied the Federal Communications Commission to "act expeditiously on the AT&T-BellSouth application so that consumers will have an opportunity to reap the benefits."

When it comes to Google, though, Barton is an antitrust enthusiast. He repeatedly assailed the DoubleClick merger. He publicly complained that his aide had received a "chilly response" when trying to arrange a visit to the company's Mountain View, Calif. headquarters. One reason for this animus, perhaps, is that Barton opposed extensive Net neutrality regulations and has received millions from like-minded telecommunications companies; Google was on the other side.

This not only provides political cover to the Bush administration; it's also an indirect threat as well. Research has shown that one additional congressional hearing raises the probability of a Federal Trade Commission merger challenge, for instance, by approximately 4.2 percentage points. What's more, the political influence tends to happen at the higher levels of the agency. It turns out that Washington bureaucrats are political creatures after all.

All this should give Google's employees, who have opened their wallets to fund Barack Obama's presidential campaign (making them the sixth-largest donor, behind Harvard University), something to think about.

When Obama showed up for a campaign stop at Google, he promised more aggressive antitrust enforcement. His technology campaign platform pledges to "reinvigorate antitrust enforcement" and "step up review of merger activity." He complained to the American Antitrust Institute that "the current administration has what may be the weakest record of antitrust enforcement of any administration in the last half century."

If the Bush administration's current antitrust probe of Google, coupled with this week's apparent threat of a federal lawsuit, amounts to a "weak" record, imagine what antitrust true believers in an Obama administration might do. (A three-way split of Google into search, applications, and display ads, anyone?)

That threat may be enough to convince the legions of vaguely progressive computer geeks who inhabit the recycling-focused, solar-powered Googleplex to rethink their enthusiasm for Obama. After Microsoft was targeted on antitrust grounds, employees there halved the percentage of contributions flowing to Democrats. It may even -- who knows? -- be enough to prompt Eric Schmidt, a longtime Democratic donor, to vote Libertarian.

Disclaimer: Declan McCullagh is married to a Google employee