Does Google Have A Looming Antitrust Problem?

I’ll start this with a confession: I have written and discarded about a half-dozen posts on Bitcoin, but none of them ever seemed “right”. But something else caught my eye in the mean time: a piece on Ars Technica trying to sensationalize an EU investigation into Google’s practices with Android as an “attack on open source”. I’m not sure that the author actually understands antitrust law, even in a casual sense, nor do they seem to know what comprises a predatory practice.

Open Source Doesn’t Mean Immunity

First, let’s make one thing clear. Android being open source, and companies using open source technology in general, do not make them immune from the law. If Google meets the definition of a monopoly, and it is using that monopoly power in an abusive fashion (which can and does include giving the software away for free), then Google needs to face the consequences. Just because Android is licensed using an open source model, and Google isn’t actually making the devices themselves, doesn’t make Google immune from these rules.

The one aspect of predatory pricing isn’t whether something is being given away or sold for below cost, it is the motivation and consequences behind it. The author uses Java as an example, but this is an apples and oranges comparison. There are no other commercial JVM’s available for sale. All of them are free, and have been free from the time of their existence. Additionally, Java doesn’t represent the majority of run-time environments for software. Oracle isn’t in a position of a monopoly under the law, because you can’t say the “market” is “Java Virtual Machines”. That’s too narrow. That’s like complaining that McDonald’s holds a monopoly on McDonald’s restaurants. The market for Java has to include the market for other run-time environments, which includes running software natively on the operating system. Oracle wouldn’t lose an antitrust case because there isn’t an antitrust situation in place. That means that, by definition, Oracle isn’t engaged in predatory pricing just because it gives away the JVM.

A company holding a monopoly position can’t resort to predatory pricing to eliminate competition, even if that predatory pricing is good for the consumer in the short term. They are using their dominant position in such a way that puts the competitors at a disadvantage. The same rules for this apply to anti-dumping laws when it comes to consumer products. A smaller player is welcome to give away their product. Any participant in a vibrant and competitive market, where no single participant has a majority, are welcome to price however they want. The issue is when a participant with a majority uses that majority in a way that is seen as unfair and unreasonable under antitrust law. Again, the short-term impact on the consumer isn’t part of the equation. The longer-term benefit, a vibrant and competitive market, is the one that will be considered.

But Does Google Meet The Test?

In order for Google to be in a position to be a monopoly, it has to hold a majority of the installed base of “the market”, which would be something like “smartphones” in this case. If you use the numbers that are reported in the media, it would appear that Google is in such a position. The problem is that those numbers don’t apply here. The numbers reported have to do with percentage of new smartphones sold for a given period (usually for either a quarter or a year), not smartphones in use. So, yes, Android represents between 60% and 70% of new smartphone sales in various markets.

Android, however, does not represent the majority of smartphones actually in use (yet). When you look at the actual installed base of active smartphones (the numbers vary a bit), iPhones currently represent about 25% of all smartphones in use, Android about 18-20%, and RIM still has a healthy chunk of around 25-30%. RIM’s numbers are shrinking as iPhone and the Androids catch up, but Android is currently not in a position where it represents a monopoly of active, in-use smartphones. There are smartphones in use running a variety of other, older operating systems, but they are still legitimately part of the smartphone market.

But is Google is a position where it has a “monopoly” that is being abused because the market is “Android handset manufacturers”? My take is that they aren’t, again, because the definition for a market isn’t supposed to be that narrow. You can’t say that “Android handset manufacturers” are a market, any more than you can say “Burger King restaurants” are a market. Neither are. In both cases, other entities licence the right to use the name, technology and logos to provide a product or service, and compete with other products or services in a larger market. Just like Burger King, McDonald’s or Ford can set the rules for things like signage, condition of the store, products offered, etc., Google has that same right to control how Android is used and presented, because Android competes against other systems, specifically iOS, BlackBerry, Windows Phone, Symbian, PalmOS, WebOS and Windows Mobile. Yes, some of those operating systems are no longer available, but they are still in use and represent competition for Android, in that Google and others have to entice people to abandon them for Android.

However, like the restrictions Microsoft now faces, if Android does achieve a monopoly in smartphones, then Google could face its own restrictions. Just as Microsoft is limited in what it can restrict with OEMs in terms of installed software and appearance, Google may also have similar limits imposed in the future. But that is a possible future that may never come to be. Antitrust cases aren’t about what a company might do if it were to achieve a monopoly. It is about dealing with a company that has a monopoly right now. From what I can see, Google doesn’t meet that requirement.

Sounds Like A Double Standard

The Ars Technica piece sounds very much like a double standard to me. Apparently it’s okay to prosecute Microsoft when it abused its monopoly position, but if Google were to do the same thing, then prosecution is wrong. The law doesn’t, and shouldn’t, work that way. It is entirely likely that Android will, in another couple of years, represent the majority of smartphones in use in various jurisdictions. If that day arrives, then Google has to be held to the same standards as any other company holding a monopoly. If Google were to abuse a monopoly position, then they would need to be corrected. Just because more people appear to like Google than Microsoft is irrelevant. The fact that Android is open source is irrelevant. If the open source movement can’t survive an antitrust action against a vendor who uses it, then it has a bigger problem. Frankly, I don’t see this as a danger to open source. It is on solid footing, and the concepts in open source have done a lot of good. It can withstand this “attack”, mainly because the antitrust action isn’t against open source. It is against an alleged abuse of monopoly power.

On the predatory pricing accusation, a ruling against Google does not mean that software cannot be given away for free by other companies. What it means is that Google wouldn’t be allowed to give it away for free, because it would be doing so from an unfair advantage of holding a monopoly. Again, whether Google giving software away for free is good for consumers economically, even though it harms other competitors, isn’t relevant. The first consideration is the impact on competitors and competition in the market, because there are other benefits to consumers than just saving money.

I think we can all rest easy. There is no law against giving your product or service away for free. You just can’t do that if you hold a monopoly and it appears your primary motivation is to stifle competition. Free software will still be available, even if Google were to lose an antitrust action in the EU or elsewhere.