Posts Tagged ‘Department of Justice’

“Competition is one click away:” can the Internet ever be a dominated market?

January 4, 2013

After a lengthy investigation and several compromises on Google’s part, the Department of Justice has announced that it is dropping its antitrust probe into Google’s advertising model. Throughout the investigation, a catchphrase among Google’s various agents involved in the investigation was that, no matter how restrictive their agreements with sites and advertisers, no matter how far the reach of Google’s algorithms, Google’s competitors were always just “one click away.” But is this actually a sensible defense to the kind of antitrust investigation that the Department of Justice was running? And if it is, is it ever actually possible to commit an antitrust violation on the internet?

The DoJ’s investigation in Google was on a wide variety of issues, but most of the important issues orbited the question of whether or not Google had been abusing its dominant market share in search engine traffic to leverage unfair or overly restrictive arrangements with advertisers. Note that the question is not whether Google has dominant market share, or even if Google actually is a monopoly (it isn’t), since, contrary to a widespread misunderstanding of antitrust law, it is not illegal per se to be a monopoly or to hold dominant market power. The inquiry is into the methods used to acquire the power, and how that power is used once it has been acquired. Conversely, a firm does not need dominant market share or monopoly power in order to be guilty of most antitrust crimes: two tiny boutique firms that sign an agreement not to compete in a certain city (a “geographic market distribution” violation) or mutually agree not to price below a certain level (a “horizontal price-fixing scheme,” the only antitrust violation that more or less guarantees criminal penalties on top of civil ones) are just as guilty as a giant firm.

The question becomes stickier when it comes to mergers, but fortunately for the complexity of this post, the DoJ investigation that recently ended is separate from the investigation into Google’s acquisition of Motorola, which caused quite a stir in the DoJ and forced Google to make certain concessions in the European Union.

Antitrust laws are targeted to anything that harms competition – not competitors. Google’s acquisition of a huge market share through ingenuity, good products, and dumb luck has surely been ruinous to several competitors along the way, but that’s all in the nature of the free market and is beyond the purview of the antitrust laws. What was more interesting to the Department of Justice was Google’s manipulation of search engine rankings according to deals made between Google and its advertisers. Combined with certain restrictive non-compete agreements with this advertisers made the DoJ increasingly nervous that Google was making deals in “restraint of trade-” the money phrase for antitrust violations. Google reminded the investigators simply that, for consumers looking for a better deal, competition was only “a click away.”

But the simple fact is that the antitrust laws do not really much care about the impact on consumers. The subject of yesterday’s post wrote a widely-read treatise on antitrust laws called The Antitrust Paradox making precisely the point that antitrust laws often result in worse outcomes for consumers, completely missing the point of antitrust laws, which is to protect no people, no businesses, and no products: just competition itself. Whether or not the average internet user got a better browsing experience, or if advertisers saw better returns on their marketing investments, is immaterial to the question of whether or not Google violated the antitrust laws.

In addition to being largely irrelevant, Google’s claim that its competitors are but a click away is usually simply false: Google’s advertising pervades the internet. Even if one might get to a different search engine some other way, many other search engines actually incorporate Google results into their algorithms, and the site that one actually accesses after using a search engine are often consumers of Google advertising deals. Google’s competitors were simply having a tough time getting a word in edgewise because many web content providers (including, until a couple of years ago, this blogging platform) were under exclusive deals to contract with Google’s AdSense.

Another sign of weakness in Google’s one-click defense is that Google actually made several concessions throughout the investigation; Google either knew the DoJ wasn’t going to buy its defenses, thought that it might not buy them, or had actually been told that the DoJ wasn’t going to buy them. In either event, over the course of the investigation, Google “voluntarily” changed many of its back-end practices and the structure of some of its advertising deals to make the market more accessible to competitors.

It remains an open (and legally irrelevant) question as to whether or not consumers will benefit from these deals, and if so, which consumers – advertisers? Web users? Search engine providers? The theoretical underpinning of antitrust law is that protection of competition is protection of consumers, since our laws are built to protect an economic model that assumes that competition yields the best market outcomes. Whether or not that is true is entirely beyond the purview of the antitrust laws or this post, but the fact is that the antitrust laws assume that one follows from the other. It remains to be seen whether or not consumers will fare better, or even notice, the products of the Department of Justice’s investigation of Google.

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BP tries a Hail Mary pass around claims of ‘gross negligence’

September 5, 2012

BP plc, formerly British Petroleum, nee Anglo-Persian Oil Company, may be coming to the end of the long, rocky road toward ultimate settlement for damages relating to the 2010 Deepwater Horizon explosion and blowout. The proffered $7.8 billion settlement to the various parties to an enormous class-action suit currently meandering its way through the Eastern District Court of Louisiana must, like most class action settlements, be approved by a judge before the money actually goes out and the claims are settled. Misleading news headlines report that the Department of Justice is formally accusing BP of “gross negligence” in a new brief filed this week, but when you read the DOJ’s brief and come to understand the procedural issues at stake in the new brief, you’ll see that it’s actually BP that is making an accusation to which the DOJ is responding. Namely, BP’s accusation is that it was not grossly negligent in handling the events leading up to and following the Deepwater Horizon disaster.

Firstly, the Department of Justice is not opposed to the $7.8 settlement to quiet the plaintiffs in the class-action suit; indeed, while the settlement was not strictly made between BP and the DOJ, the DOJ maintained a close eye on the negotiations and had many opportunities to step in and press-gang plaintiffs into pursuing stronger settlement terms or even a trial, none of which it took. They have taken no steps to intervene in the settlement, nor should they, since the settlement represents a good-faith negotiation between attorneys’ plaintiffs and the defendants.

Secondly, the DOJ’s memorandum filed this week is actually a response to a recently-filed BP memorandum, not a motion in and of itself. BP’s recent memorandum calls for the judge overseeing the settlement order to make a finding that BP was not grossly negligent in the Deepwater Horizon disaster. This is the ‘Hail Mary’ pass to which the title of this post refers. A little procedural background, first.

As I’ve said, a judge must approve whatever settlement ultimately emerges in many class-action settlements. That is because the procedural law of United States courts treats class-action lawsuits as being fundamentally different from individual or small group lawsuits. And rightfully so: class-action lawsuits can involve thousands or tens of thousands of parties, each of whom individually has a completely different set of facts that bring them to court. For example, in the instant case, both an oyster fisherman whose business was harmed by environmental damage to the Gulf and the owner of a tourist beach resort whose shores were damaged by tarballs washing up on her shore might have claims against BP, but those two parties have radically different harms to themselves, with claims as factually different from each other as the sea is from the shore. But both parties’ grievances clearly stem from the same cause, namely the Deepwater Horizon explosion (and potentially the gross negligence that led to it; we’re getting there), so it’s just more efficient to glue their cases together and press them both against BP at the same time.

When lots and lots of seemingly different cases start getting glued together into a single action, it becomes time to give serious thought to a class-action suit. Unlike a regular lawsuit, where one party files their complaint, the other party responds, and battle begins under the neutral eye of a court, a class-action lawsuit requires certain positive interventions by the court in order to be allowed to proceed. For example, the court must certify the class, meaning that the court determines that the current action adequately includes most or all of the potential parties to the suit, since the whole point of the class-action (efficiency) is lost if straggler plaintiffs keep filing their own cases after the class-action ends. The court wants to minimize the number of stragglers. But the court also doesn’t want to force people into the class-action suit who don’t want to be there (maybe they don’t trust the lawyers handling the case, or maybe they just think that they’re in a unique position to get a better reward than they could through the class-action), so the court must make sure that an adequate opt-out procedure is in place for those people that want to be those straggler plaintiffs.

And the kind of intervention the court is faced with now is reaching into the deal reached between the parties and approving the settlement. This is the step that the BP settlement has reached, and it is from this position that the long arm of the BP legal team is reaching back to hurl its Hail Mary. In approving the settlement offer, the court must issue a written decision, and the BP memorandum to which the DOJ is responding is urging the Eastern District Court of Louisiana, the current home of the class-action, to include in its approval document the assertion that BP was not “grossly negligent” in its operation of the Deepwater Horizon spill.

Now, why does this even matter? Isn’t the case coming to a close anyway? Isn’t that the whole point of BP’s settlement – to end the lawsuits? Not quite. The settlement BP has reached is purely on the damage caused by the explosion of the rig. The current case involves no accusations whatsoever of misconduct amounting to gross negligence on BP’s part; the plaintiffs are essentially only alleging that “BP hurt me, and I want them to fix me.” What BP wants is language in a court document somewhere, anywhere, saying that “BP was not grossly negligent.” That’s because it is in subsequent cases that allegations of gross negligence will be made, probably when larger parties and state actors like the EPA and the DOJ itself, with more far-reaching investigatory powers, will have better access to the information needed to build a case that BP failed to exercise “ordinary care” in following safety regulations and its own internal safety procedures.

These future efforts are distinct from either the present class-action case or the stragglers from it, since the present class action is addressed merely to the fact that BP equipment harmed a lot of people and did a lot of damage to the economy and environment of the Gulf of Mexico. The case is built just on that fact alone, not on findings about the actual behavior or misbehavior by BP officials.

BP’s Hail Mary pass is to preempt all of these future actions and to close off any discussion of its ultimate negligence or even gross negligence by having the Louisiana court find now, in approving the nearly $8 billion settlement at hand, that BP did not act grossly negligent. The DOJ correctly advises the court that since such allegations are not a meaningful component of the present case, it would be inappropriate for the court to go out of its way to make such a finding, a finding which civil procedure requires to be done in a separate hearing or set of hearings, possibly even in a completely separate case or class-action. Essentially, BP wants a favorable ruling today on a case that starts tomorrow, opportunistically manipulating the good-faith settlement process into getting language from a judge foreclosing on future efforts to rectify harms that might have been caused by sloppiness, stupidity, or even maliciousness in BP’s quest for cheap domestic oil as fast and as abundantly as possible.

And thirdly, BP is making as a backup claim that its several co-defendants (the various subsidiaries and contractors responsible for building and installing the actual Deepwater Horizon rig) managed the rig in a way that so attenuated BP’s management of Deepwater Horizon that BP isn’t even responsible for what happened in the first place, regardless of any negligence on its part. In short, BP wants the court to make, again without any evidence or formal hearings on a point that isn’t being pressed by either side in the actual settlement negotiations, that BP was so distantly involved in the Deepwater Horizon disaster that its own care or negligence aren’t even candidate questions for future lawsuits. In shorter, BP wants to throw its business partners under the bus to save its own neck.

This disingenuous claim invokes a nuanced understanding of agency law, and questions about whether BP’s subsidiaries and contractors were ever “agents” of BP (in which case BP would be bound by their official acts in the ordinary course of business) or not. But the long and short of it is that, while the rig was working properly, BP was happy to draw enormous income from its thousands of barrels a day of oil production, but now that it actually comes time to take responsibility for the consequences of the rig, it wants to act like it was just watching the whole operation from a helicopter’s-eye view.

So as you read the news, remember these takeaways:

  • The Department of Justice is not now, and has never, formally accused BP of gross negligence.
  • The Department of Justice wants you to have the right to press BP for gross negligence in the future.
  • BP wants a court to rule, in complete absence of any evidence on the point in a case completely unrelated to the allegation, that BP showed proper care in its oversight of the greatest environmental catastrophe in human history.
  • BP wants to show other major energy companies that an end-run around the procedural rules of American courts is both easy and profitable.
  • BP wants to sacrifice its own business partners to protect itself from taking responsibility for its mistakes.