The Google logo is seen at its offices in Mountain View, Calif., July 5, 2019. (Photo by Yichuan Cao / Sipa USA) (Sipa via AP Images)
Last week, President Biden signed a decree which obliges administrative agencies of the federal government to promote fair competition in the market. The order comes against the backdrop of the largest resurgence in antitrust enforcement in almost a generation, most focused on Big Tech. Building on the Benchmark of the House Antitrust Subcommittee 450 page report released in October, federal and state antitrust authorities launched a successful case against Google and Congress presented five bipartisan bills directly targeting Google, Facebook, Apple and Amazon.
As federal administrative agencies enforce Biden’s order and Congress subjects its antitrust legislation to a lengthy review process, federal antitrust authorities like the Department of Justice and the FTC should consider a faster remedy that does not. has not been used much lately: compulsory licenses.
Compulsory licenses require a company to share certain intellectual property with all interested parties. History shows that compulsory licenses help with other solutions, such as constraining the markets a business can enter, creating a dynamic market with significant new competitors. Google would be a particularly strong candidate for compulsory licenses.
Do you even have to ask?
Google is taking advantage of its near-total domination of the search engine market to extract very favorable terms from companies dependent on its services. For example, Google requires phone makers who want to use their Android smartphone’s operating system to make their search engine the default provider for mobile searches. Android thus allows Google to extend its dominance of search from desktops and laptops to mobile phones around the world.
Google also uses its search engine to prioritize its own services. According to the House Antitrust Subcommittee report, Google services cover almost 100% of the screen for mobile searches and around 25% for desktop searches. In 2007, Marissa Mayer, then head of Google admitted that Google intentionally ranked its own services ahead of other sites.
Google’s digital advertising strengthens its search monopoly as the data it collects on users refine search results. This process strongly urges users to stay on its search platform, allowing Google to continue collecting data and further refine its service. The same feedback loop exists with Google’s YouTube video algorithm.
At the center of Google’s search engine is its index.
An index is what allows a search engine to respond to a user’s search query. Search indexes are compiled by indexing robots that scan websites and record the content of a web page into one main ledger. The search engine takes a search query and pulls the relevant content from the ledger. The precise way in which Google determines the ranking of the sites displayed depends, according to some estimates, hundreds of factors, such as the number of words linked to a user’s search query or the number of hyperlinks on a web page.
In 2000, Google had indexed only 500 million pages. In December 2020, Google had indexed between 500 and 600 billion. In comparison, Microsoft’s Bing, Google’s only real competitor in the search market, indexed between 100 and 200 billion pages. Because of the internet bandwidth limits and website owner preferences, websites limit the number of bots allowed to index their sites, thus raising the barrier for competitors to enter the search engine market.
Google’s search engines and index are united in a network of intellectual property protections, including patents, copyrights and trade secrets. It is not clear to what extent Google relies on each type of intellectual property protection for its search engine index, or to create the algorithm that determines which results to show. Google will say only that it is based on an amalgamation of “trade secrets and other intellectual property”. But Google’s original search ranking system (known as “PageRank”) was called “One of the most famous and valuable of all modern software patents” by a former company patent attorney.
The heyday of compulsory licensing occurred in the 1940s to 1970s. During this period, compulsory licenses were used in more than 100 antitrust cases against companies like IBM, DuPont and General Electric. More than 40,000 patents have been filed covered through compulsory licensing requirements.
The most notable example was a 1956 Department of Justice settlement with AT&T, then a monopoly supplier of telephone services and equipment to the United States. The government sought to prevent AT&T from using its control over telephone wires to exclude competitors or enter the then nascent computer industry. To this end, the Justice Department has banned the company from providing any service other than public transport telephone services. It also forced AT&T to share its huge patent portfolio through a compulsory license agreement.
The result of this agreement was a wave of innovation. AT&T knew as early as the 1920s that the public would want a device to record phone calls, and in 1934 they invented one. (The technology wasn’t that complicated.) But it didn’t come out until 1951; in the meantime, AT&T prevented other companies from doing so by prohibiting the connection of ancillary devices to the telephone network.
Years later, the public will discover that AT&T has also retained the telephone answering machine (which only appeared in the 1970s) for fear that it dissuade customers to use their phone. Likewise, AT&T refused for years to use its wireless patents because they threatened the monopoly profits of landline phones.
A common argument against compulsory licenses is that they reduce innovation. In fact, the opposite is true. Once small businesses gained access to AT & T’s patents, they generated revenues equivalent to $ 5.7 billion in today’s dollars. Gordon Moore, founder of Intel, said AT & T’s antitrust lawsuit and the resulting compulsory license agreement were what enabled the US semiconductor industry “to really start. ”
A notable study covering 69 companies found that companies found patent protection to be much less important than investing in their sales channels, creating efficient production systems and diversifying company operations. The same study found that companies that signed compulsory licensing agreements suffered “little or no adverse impact” on research and development decisions. Other proof showed that when authorities force companies to share patents, these companies spend even more on research and development and generate up to 30% more patents.
Compulsory licensing was killed off in the 1970s by the rise of Chicago School of Economics, which shifted the focus of antitrust to keeping prices low. The Chicago school preached deference to corporate consolidation as long as the result created economic efficiency.
Four decades later, the Chicago school has lost much of its luster; even conservative Republicans rarely bother to articulate libertarian principles to justify policies that favor politically powerful corporations. This creates an opening for policy makers to re-launch compulsory licensing as an antitrust enforcement tool. Legal obstacles to this are few, as judges already benefit broad authority impose antitrust remedies.
Imposing a compulsory license on Google could bring benefits comparable to those obtained through the agreement reached in 1956 between the DOJ and AT&T. As the federal government argues against Google’s exclusionary conduct, it should consider a broader approach that includes this largely forgotten tool. Enforcing antitrust laws is difficult and complex, but compulsory licensing is simplicity itself. All it takes is for the government to force Google to open the coffers and share some secrets.