Antitrust Pick Varney Saw Google as Next Microsoft

By James Rowley

Christine A. Varney, nominated by President Barack Obama to be the U.S.’s next antitrust chief, has described Google Inc. as a monopolist that will dominate online computing services the way Microsoft Corp. ruled software.

“For me, Microsoft is so last century. They are not the problem,” Varney said at a June 19 panel discussion sponsored by the American Antitrust Institute. The U.S. economy will “continually see a problem -- potentially with Google” because it already “has acquired a monopoly in Internet online advertising,” she said.
While the remarks were made months before Obama picked her to head the Justice Department’s antitrust division, the comments signal her approach to the job if confirmed by the Senate. The Microsoft case, brought in 1998 by the Clinton administration, could have led to the breakup of the software giant and was a landmark in antitrust law.

In her remarks at the American Antitrust Institute, Varney advocated aggressive enforcement of antitrust laws to curb the conduct of individual companies that dominate an industry. She didn’t return a reporter’s telephone call seeking comment today.

White House spokesman Ben LaBolt said that Obama nominated Varney “to vigorously enforce the law” and “is confident that she can do so in a fact-specific and evenhanded way with every matter she will face.”
Lobbying for Netscape

Varney, 53, lobbied the Clinton administration on behalf of Netscape Communications Corp. to urge antitrust enforcers to sue Microsoft. She had previously been a member of the Federal Trade Commission under the administration of President Bill Clinton where she became an advocate of online privacy.

Her comments on Google last year combined praise for the company along with her warnings. The Mountain View, California- based company, owner of the world’s most popular search engine, is a “spectacular” innovator that became the dominant online advertiser through “terrific work,” Varney said.

She also said Google had “lawfully” obtained its monopoly.

Still, Google is “quickly gathering market power in what I would call an online computing environment in the clouds,” she said, using a software industry term for software that is based on the Internet rather than in individual personal computers.

“When all our enterprises move to computing in the clouds and there is a single firm that is offering a comprehensive solution,” Varney said, “you are going to see the same repeat of Microsoft.”
Google ‘Discriminating’

As in the Microsoft case, “there will be companies that will begin to allege that Google is discriminating” against them by “not allowing their products to interoperate with Google’s products,” Varney said.
Google spokesman Adam Kovacevich said in an e-mail response the company has stiff competition that “is literally one click away” on the Internet. Nothing prevents unhappy customers “from switching to another search engine,” he said. “Cloud computing is really in its infancy,” he said. “There’s going to be rich competition in that space for a long time to come.”

A survey by ClickStream Technologies last year said Google Docs, a Web-based application, is only used by 1 percent of Internet users.

Research Report
A May 2008 research report by Merrill Lynch & Co. said Google and are “leveraged to benefit from cloud computing because their core service delivery is based on the Internet.” They were among 10 companies, including, Sun Microsystems Inc. and Microsoft, that were positioned to capitalize on the shift to Internet-based software. Still, Google’s “revenues from these services are currently less than 1 percent of total revenues,” the report said.

Varney said last June she was “deeply troubled” by Google’s acquisition of DoubleClick Inc., a maker of software for online advertising, and its proposed advertising alliance with Yahoo! Inc.

The DoubleClick purchase was cleared by the Federal Trade Commission in 2007. In November, the Justice Department blocked Google’s proposal to share online advertising with Yahoo by threatening to file a lawsuit challenging the joint venture. Google and Yahoo canceled the deal.

In its statement about the proposed alliance, the Justice Department described Google as “by far the largest provider” of advertising based on Internet searches and syndication of such search ads.

Market Share
The government said Google had a market share of more than 70 percent of both markets. Together, Yahoo and Google would have controlled 90 percent of the Internet search-ad market and 95 percent of the market for search syndication deals.

Varney had invited outside groups like the American Antitrust Institute to help the next administration find ways to enforce the anti-monopolization provision of the Sherman Antitrust Act, known as Section 2, “in a meaningful way in the coming decade given the way the economy is going.”

“Telling a liberal Democrat to go out and enforce Section 2 is a little bit like telling a Catholic ‘do not sin.’ Yeah, we want to do that,” she said.

Because the Bush administration Justice Department hadn’t brought any anti-monopolization cases, it has ceded the field to European authorities, she said. The European Commission has continued to bring complaints about Microsoft’s business practices and investigated Intel Corp. before the FTC began its own inquiry last year.

Global Competition
U.S. companies would be hurt “if we don’t have influence on the development” of global competition policy toward “dominant- firm behavior” because “the Europeans are even much more extreme than I would be,” she said.

Varney described her role representing Netscape as helping “create the political climate” for the government to sue Microsoft.

“When we went after Microsoft,” the company wasn’t “viewed in any way as a drag on innovation” and it was “very, very difficult to get consensus to get the government” to bring a case, she said.

In the Microsoft case, the Justice Department accused the company of illegally defending its operating software market by thwarting distribution of Netscape’s rival Navigator Web browser.

An appeals court upheld findings that Microsoft had abused its monopoly and set aside a judge’s order to break up the company.

The Bush administration negotiated a settlement in 2001 that required Microsoft to give computer makers freedom to promote products that competed with Microsoft’s software offerings, such as Internet Explorer and Windows Media Player.

Google fell $15.02, or 4.2 percent, to close at $342.66 in Nasdaq Stock Market trading.