EU engaged in antitrust gerrymandering against Google

With its $5 billion fine against Google, the European Commission (EC) just applied to the search giant an old U.S. political trick: gerrymandering; the idea that if antitrust watchdogs draw markets narrowly enough, every company can be made to look like an evil monopolist.

Evidence of competition among Facebook, Apple, Amazon, Netflix and Google (FAANG) is all over the place. Three weeks ago, Facebook launched Instagram TV, throwing the gauntlet at Google on online ads.

{mosads}But to an antitrust hammer, everything looks like a nail, and in Brussels, antitrust officials see a Google monopoly everywhere they look. Recently, the EC declared Google dominant on the Android operating system for mobile phones. Just about a year ago, it found Google dominant in general internet search services.

This new case displays an old trick well-known by antitrust experts. It frames a firm within a tightly defined market to expose a dominant share. For regulators, antitrust gerrymandering is a tempting cheat. Once the label of “dominance” is attached to a company, most of an infringement is established: the rest — proving an abuse — is just a walk in the park.

Consider this: In the present case, the EC pretends that Google Android is dominant on the market for “licensable smart operating systems.” This is akin to saying that Airbus is a monopolist. True, Airbus sells 100 percent of a unique product: a double-deck aircraft. But Airbus also faces dog-eat-dog competition from Boeing.

Besides this, antitrust gerrymandering is a convenient way to snub data. Since 2010, average selling prices for Android smartphones have steadily declined. Meanwhile, output, product introduction and app variety on both platforms have gone through the roof.

Every year, dozens of surveys measure the scale of smartphone buyers’ switch between iPhones and Android phones. This is hardly compatible with a monopoly story.

With antitrust gerrymandering, tech history also goes to the dustbin. Just about 10 years ago, everyone looked at Google’s Android launch as a direct competitive attack on Apple’s iPhone.

But the dead cannot talk, and Steve Jobs — once committed to “spend every penny of Apple’s $40 billion in the bank, to right this [Android theft] wrong” — must be rolling in his grave (or not, given that the EC decision will help Apple).

The worst of antitrust gerrymandering has, however, to do with logic. Recall that the EC found Google dominant on licensable smart operating systems. The important word here is “licensable.” 

Because smartphone producers like Samsung or LG cannot take a license on Apple’s proprietary iOS, the EC finds that Apple does not compete with Google in the relevant market.

Advice to digital platforms: Build a “walled garden.” In Europe, closed ecosystems give antitrust immunity, whereas open licensing brings antitrust scrutiny. Advice to antitrust officials: Read computer science history.

Nothing intrinsically prevents Apple from licensing its operating systems, as it did in 1995 when it (unsuccessfully) licensed the Macintosh operating system to enter the PC market.

When the antitrust gerrymandering tool is used, competition policy goes awry. Regulators miss the forest of competition for the tree of monopoly. In tech, they stay blind to the jungle of competitive initiatives daily reported in sectors like mobile payments, text messaging or online ads.

Two months ago, Google announced the launching of “Chat,” a new messaging standard designed to supplant SMS and compete with WhatsApp, Facebook Messenger and Apple iMessage. Just recently, AT&T purchased online ad exchange AppNexus in a bid to compete with Google and Facebook for digital advertising revenue.

But old habits die hard. In the ongoing German investigation against Facebook, the antitrust officials have chosen to gerrymander a market for “private social networks,” so that LinkedIn and Xing are excluded as professional platforms, and YouTube, Twitter, Pinterest and others are excluded as not being true “social networks.” 

More gerrymandering may be on the way. Rumor has it that another monopoly case against Amazon is in the making in Brussels. Winter seems to be coming for the tech industry.

In the U.S. tradition, gerrymandering is political. In antitrust, this is equally true. Margrethe Vestager, the EC antitrust chief, is reported to be eyeing a top EU job in 2019.

A seasoned politician, Vestager knows that the payoffs of whacking a tech platform are immense in a continent rife with popular distrust against corporate bigness, U.S.-style capitalism and tech platforms’ permission-less attitude toward innovation.

Nicolas Petit is a visiting fellow at the Hoover Institution at Stanford University. His current research focuses on three areas: antitrust and digital economy firms and patent protection as an engine of innovation.