On antitrust, is Google the next Microsoft?

Google is facing opposition to its DoubleClick deal in what could be a repeat of the way Washington punished Microsoft a decade ago.

Declan McCullagh Former Senior Writer
Declan McCullagh is the chief political correspondent for CNET. You can e-mail him or follow him on Twitter as declanm. Declan previously was a reporter for Time and the Washington bureau chief for Wired and wrote the Taking Liberties section and Other People's Money column for CBS News' Web site.
Declan McCullagh
9 min read
Not too long ago, nearly every move that Microsoft made seemed to draw complaints that the company was abusing its market dominance.

Now another market-leading technology company is under fire in Washington as well. An unlikely combination of onetime antitrust defendants like Microsoft and AT&T and liberal consumer groups that have been their traditional antagonists are taking aim at Google.

Interviews by CNET News.com last week show that Microsoft and its occasional allies have met separately with key congressional committees that deal with consumer protection and antitrust issues--both of which announced last week that they will hold hearings on Google's plan to spend $3.1 billion to buy DoubleClick.

The Federal Trade Commission, which must review the merger on antitrust grounds, has also been meeting with Google, Microsoft and those nonprofit consumer groups, according to sources familiar with the meetings. The European Union, egged on by American consumer groups like the Electronic Privacy Information Center and the pro-regulation Center for Digital Democracy, is reviewing the merger too.

All this amounts to the first serious political threat to a company that has grown to a market capitalization of $162 billion by worrying more about serving customers than catering to the whims of bureaucrats and politicians. Longtime Washington observers believe that even if the DoubleClick acquisition is eventually permitted, federal scrutiny will only increase.

"There is certainly a lot more scrutiny of Google now that they are the No. 1 player in this space and are acquiring other companies."
--Ari Schwartz,
Center for Democracy and Technology

For its part, Google says it's confident that the threat to its business can be contained. "We're finding that the more we meet with policymakers, the more they are realizing that Google and DoubleClick are different types of companies, that we take significant steps to protect users' privacy, and that this acquisition will benefit both consumers and advertisers," said spokesman Adam Kovacevich.

In addition to its full-time staff lobbyists, also involved in Google's efforts to fend off antitrust bureaucrats are four newly hired lobbyists in the Washington office of the law firm Brownstein Hyatt & Farber (including Makan Delrahim, a former top Justice Department antitrust official). Google's earlier hires include the now-renamed PodestaMattoon, which draws its name from longtime Democratic dealmaker Tony Podesta, and King and Spalding, home to former Republican Sens. Connie Mack and Dan Coats.

A Google representative said there had not, however, been any personal visits to Washington in support of the DoubleClick deal by top executives like CEO Eric Schmidt and co-founders Larry Page and Sergey Brin, who famously showed up in blue jeans and sneakers when he arrived on Capitol Hill for meetings with politicians last summer.

Citing confidentiality concerns, an FTC representative declined to comment on anything beyond the fact that the investigation is continuing. AT&T, which has made public statements in opposition to the merger before, would not comment. Time Warner, which reportedly has voiced concerns about the deal, also would not comment.

Microsoft spokesman Jack Evans declined to offer details about his employer's attempts to sink the DoubleClick deal. "As a general rule, we don't comment on specific lobbying efforts," he said Friday. "Microsoft continues to believe the Google-DoubleClick acquisition raises a number of serious questions about the effects it will have on advertisers, publishers and consumers, and we believe it warrants closer scrutiny."

By any measure, Google is seriously outgunned in Washington. Its spending on lobbyists in 2006 amounted to a mere $720,000--a fraction of what the Google co-founders spent on their personal jet. By comparison, last year AT&T wrote checks for at least $27 million to buy political influence and Microsoft spent $8.9 million.

The disparity is even greater over a longer period. Starting in the late 1990s, when Google was moving into its first office, AT&T and Microsoft spent a combined $179 million while Google spent a mere $540,000. (That's counting lobbying and political contributions through 2005, as calculated in News.com's special report last year.)

It's no surprise that Google has paid little attention to Washington and hired a government relations director just over two years ago: it's not in a heavily regulated industry like AT&T. Microsoft, of course, began writing fat checks to lobbyists--including Rick Rule, a former top Justice Department antitrust official--only after its antitrust headaches began in 1997.

Another parallel is that the anti-Microsoft campaign also was led by rivals who found it relatively cheap to put the screws to their competitor in Washington. Oracle and Sun Microsystems founded ProComp, which argued for a forcible breakup of the software giant, and Netscape lawyer Gary Reback pressured antitrust regulators to assail Redmond. Oracle even hired private detectives to snoop through the trash of Microsoft's allies in the nation's capital.

"People said Microsoft was the new AT&T," said Ari Schwartz of the Center for Democracy and Technology, which has received money from Microsoft, AT&T and Google. "There is certainly a lot more scrutiny of Google now that they are the No. 1 player in this space and are acquiring other companies. Part of competition means people targeting the biggest player out there."

To be sure, the sentiment that Google could become the new Microsoft is not universally shared. What got the software company into trouble in the 1990s "wasn't Microsoft pushing its products--it was Microsoft making it harder for rival products to come onto the market," said Robert Lande, an antitrust law professor at the University of Baltimore. "Is Google doing anything to make it harder for rival products (to come to market?)"

Instead of Microsoft being a dominant company with no real rivals, the marketplace today is more akin to a dominant company facing a formidable upstart, said Lande, who has provided informal guidance to congressional staff on this topic. "If you watch the Olympics, it's the old athlete getting challenged by the young athlete," he said. "That's why we like it and that's why we're fascinated."

David Evans, a consultant with the firm LECG hired by Microsoft, calculates that Google currently has a 27 percent share of the market for "publisher tools." But if combined with DoubleClick, Evans says, the company would command 78 percent of the publisher tools market. (But it all depends on definitions: If regulators view the relevant market differently--say, to include non-Internet forms of media--Google's market share would hardly be significant.)

Some analysts believe Google is encountering the same problem that Microsoft did when its own size and affluence begin to attract the attention of regulators. Political economists call it rent extraction, meaning payments that people and companies make to avoid being victimized by politically harmful measures.

George Mason University economics professor Richard Wagner says regulation and taxation are common forms of threatened political disfavor. An article (PDF) by Wagner likens rent extraction to a legalized form of extortion. "For ordinary people, these kinds of activity are wrong," he wrote. "But in politics they are business as usual."

"If anything gets too big and too interesting, the federal government says, 'We're supposed to be a part of this--we're the federal government, after all,'" said Jim Harper, a former Hill staffer who is the director of information policy studies at the free-market Cato Institute.

An awkward, arms-length alliance
One irony in the DoubleClick situation is that the same nonprofit groups that have been agitating for years against Microsoft and its alleged privacy misdeeds have now found themselves making common cause with Redmond against a political adversary.

The Electronic Privacy Information Center and the Center for Digital Democracy signed a joint complaint with the FTC against Microsoft's Passport service. The 2001 complaint charged that Passport in Windows XP will unfairly "profile, track, and monitor millions of Internet users."

Now EPIC and CDD are making the same complaint against Google. A complaint they and U.S. PIRG sent the FTC in April says "the proposed acquisition will create unique risks to privacy" to "more than 1.1 billion Internet users around the world."

Marc Rotenberg, EPIC's executive director, notes that his organization is independent and accepts no money from Microsoft. (An analysis performed by News.com last year shows its budget was $1.1 million in 2004 and receives money from the Ford Foundation and the Open Society Institute.)

In the past, EPIC has occasionally been able to cause technology companies nightmares by taking its case to the FTC. Its Passport complaint eventually led Microsoft to make sweeping changes. But the FTC dismissed a 2000 complaint against DoubleClick.

Microsoft has approached EPIC about meeting on the topic of Google and DoubleClick, but Rotenberg said he hasn't returned those phone calls. "They have the right to pursue what they're interested in," he said. "We're not part of any coalition with them."

Rotenberg said he rejected Google's request for a meeting to explain its position, too.

"Our view on all of this is it's important to stay focused on the Internet privacy issue," he said in a telephone interview. "People may agree with us for their own reasons because they're trying to block Google's acquisition of another company, but that's not going to be the reason we're doing it."

Similarly, in the past, when it called for a FTC investigation into privacy issues surrounding Microsoft's Passport service, EPIC told AOL, which the privacy group said had offered to team up, "No thank you, we want to pursue this independently," Rotenberg said.

EPIC has even created a simple rectangular sticker to match the campaign, which it displays on the top of its Web site. Using Google's signature blue-red-yellow-green letters on a white background, it spells out p-r-i-v-a-c-y-?. "They look really sharp on laptops," Rotenberg said, adding that they may do double duty as party favors, and mugs are also in the works.

The Center for Digital Democracy's Jeff Chester is Google's other chief antagonist among nonprofit groups.

For the last few months, he's been busy organizing meetings with nearly anyone in a position to scuttle the DoubleClick merger. Chester says the list includes FTC Commissioners Jon Leibowitz, Pamela Jones Harbour and William Kovacic, with another scheduled with Commissioner J. Thomas Rosch. CDD and EPIC also have briefed the staffers for the House Judiciary antitrust subcommittee, the House Energy and Commerce Committee staff, and their Senate counterparts, Chester said.

CDD has also brought in a sympathetic University of Pennsylvania professor named Joseph Turow, of the Annenberg School for Communication, to brief staffers on why he believes Google's purchase of DoubleClick would lead to worrisome consolidation of the advertising industry. (CDD would not let News.com quote from the materials.)

An aide to the House Energy and Commerce Committee, who asked to remain anonymous, confirmed that staffers had met already with EPIC, U.S. PIRG (which did not return phone calls for comment), CDD and Microsoft. Separate meetings are pending, the aide said, with Google and the European Union. The committee is also planning to hold a nonpublic briefing with FTC staff on the issue.

Staffers for the Senate Judiciary Committee, which presides over antitrust issues, largely declined to comment on their meetings except to confirm both Google and Microsoft representatives have paid visits. Sen. Herb Kohl (D-Wisc.) has indicated the Senate Judiciary antitrust panel he leads plans to examine the proposed deal.

"We are keeping up a steady stream of information to all the key participants at the FTC and in the House and Senate about the problems with the merger, both in terms of the market structure issues and the data collection," Chester said.

Unlike EPIC, Chester said his organization contacted Microsoft for a briefing on the company's views, but said his group has never accepted any payments from the company and is not coordinating lobbying efforts. Chester said he has also approached major advertising-industry and media companies about where they stand on the merger and heard some concern, but would not reveal details.

"Clearly, the reason this deal has the kind of visibility it does is because Google has powerful competitors," Chester said. "Sadly, one wonders how the public interest concerns would be addressed if it weren't major vested interests."

A representative for telecommunications giant Verizon Communications said he was not aware of any efforts his employer had taken to block the DoubleClick acquisition. Yahoo, which has reportedly been hostile to it, did not respond to a request for comment.

CNET News.com's Elinor Mills contributed to this report.