Competition on the Internet Hearing Committee On
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COMPETITION ON THE INTERNET HEARING BEFORE THE TASK FORCE ON COMPETITION POLICY AND ANTITRUST LAWS OF THE COMMITTEE ON THE JUDICIARY HOUSE OF REPRESENTATIVES ONE HUNDRED TENTH CONGRESS SECOND SESSION JULY 15, 2008 Serial No. 110–193 Printed for the use of the Committee on the Judiciary ( Available via the World Wide Web: http://judiciary.house.gov U.S. GOVERNMENT PRINTING OFFICE 43–524 PDF WASHINGTON : 2009 For sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800 Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001 VerDate Aug 31 2005 11:13 Jan 16, 2009 Jkt 000000 PO 00000 Frm 00001 Fmt 5011 Sfmt 5011 H:\WORK\ATRUST3\071508\43524.000 HJUD1 PsN: DOUGA COMMITTEE ON THE JUDICIARY JOHN CONYERS, JR., Michigan, Chairman HOWARD L. BERMAN, California LAMAR SMITH, Texas RICK BOUCHER, Virginia F. JAMES SENSENBRENNER, JR., JERROLD NADLER, New York Wisconsin ROBERT C. ‘‘BOBBY’’ SCOTT, Virginia HOWARD COBLE, North Carolina MELVIN L. WATT, North Carolina ELTON GALLEGLY, California ZOE LOFGREN, California BOB GOODLATTE, Virginia SHEILA JACKSON LEE, Texas STEVE CHABOT, Ohio MAXINE WATERS, California DANIEL E. LUNGREN, California WILLIAM D. DELAHUNT, Massachusetts CHRIS CANNON, Utah ROBERT WEXLER, Florida RIC KELLER, Florida LINDA T. SA´ NCHEZ, California DARRELL ISSA, California STEVE COHEN, Tennessee MIKE PENCE, Indiana HANK JOHNSON, Georgia J. RANDY FORBES, Virginia BETTY SUTTON, Ohio STEVE KING, Iowa LUIS V. GUTIERREZ, Illinois TOM FEENEY, Florida BRAD SHERMAN, California TRENT FRANKS, Arizona TAMMY BALDWIN, Wisconsin LOUIE GOHMERT, Texas ANTHONY D. WEINER, New York JIM JORDAN, Ohio ADAM B. SCHIFF, California ARTUR DAVIS, Alabama DEBBIE WASSERMAN SCHULTZ, Florida KEITH ELLISON, Minnesota PERRY APELBAUM, Staff Director and Chief Counsel SEAN MCLAUGHLIN, Minority Chief of Staff and General Counsel TASK FORCE ON COMPETITION POLICY AND ANTITRUST LAWS JOHN CONYERS, JR., Michigan, Chairman RICK BOUCHER, Virginia STEVE CHABOT, Ohio ZOE LOFGREN, California RIC KELLER, Florida SHEILA JACKSON LEE, Texas F. JAMES SENSENBRENNER, JR., MAXINE WATERS, California Wisconsin STEVE COHEN, Tennessee BOB GOODLATTE, Virginia BETTY SUTTON, Ohio CHRIS CANNON, Utah ANTHONY D. WEINER, New York DARRELL ISSA, California DEBBIE WASSERMAN SCHULTZ, Florida TOM FEENEY, Florida LAMAR SMITH, Texas, Ex Officio PERRY APELBAUM, Staff Director and Chief Counsel SEAN MCLAUGHLIN, Minority Chief of Staff and General Counsel (II) VerDate Aug 31 2005 11:13 Jan 16, 2009 Jkt 000000 PO 00000 Frm 00002 Fmt 5904 Sfmt 0486 H:\WORK\ATRUST3\071508\43524.000 HJUD1 PsN: DOUGA C O N T E N T S JULY 15, 2008 Page OPENING STATEMENTS The Honorable John Conyers, Jr., a Representative in Congress from the State of Michigan, and Chairman, Task Force on Competition Policy and Antitrust Laws ..................................................................................................... 1 The Honorable Steve Chabot, a Representative in Congress from the State of Ohio, and Ranking Member, Task Force on Competition Policy and Antitrust Laws ..................................................................................................... 2 The Honorable Zoe Lofgren, a Representative in Congress from the State of California, and Member, Task Force on Competition Policy and Antitrust Laws ...................................................................................................................... 3 The Honorable Lamar Smith, a Representative in Congress from the State of Texas, and Ex Officio Member, Task Force on Competition Policy and Antitrust Laws ..................................................................................................... 3 WITNESSES Mr. Michael J. Callahan, Executive Vice President, General Counsel and Secretary, Yahoo! Inc. Oral Testimony ..................................................................................................... 6 Prepared Statement ............................................................................................. 9 Mr. Brad Smith, Senior Vice President, General Counsel and Corporate Sec- retary, Microsoft Corporation Oral Testimony ..................................................................................................... 19 Prepared Statement ............................................................................................. 21 Mr. David C. Drummond, Senior Vice President, Corporate Development and Chief Legal Officer, Google Inc. Oral Testimony ..................................................................................................... 35 Prepared Statement ............................................................................................. 38 Mr. Frank Pasquale, Professor, Seton Hall University School of Law Oral Testimony ..................................................................................................... 46 Prepared Statement ............................................................................................. 48 Mr. Tim Carter, President and CEO, Askthebuilder.Com Oral Testimony ..................................................................................................... 62 Prepared Statement ............................................................................................. 64 Mr. David Sable, Vice Chairman and Chief Operating Officer, Wunderman Oral Testimony ..................................................................................................... 68 Prepared Statement ............................................................................................. 70 LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING Prepared Statement of the Honorable Sheila Jackson Lee, a Representative in Congress from the State of Texas, and Member, Task Force on Competi- tion Policy and Antitrust Laws ........................................................................... 5 (III) VerDate Aug 31 2005 11:13 Jan 16, 2009 Jkt 000000 PO 00000 Frm 00003 Fmt 5904 Sfmt 5904 H:\WORK\ATRUST3\071508\43524.000 HJUD1 PsN: DOUGA VerDate Aug 31 2005 11:13 Jan 16, 2009 Jkt 000000 PO 00000 Frm 00004 Fmt 5904 Sfmt 5904 H:\WORK\ATRUST3\071508\43524.000 HJUD1 PsN: DOUGA COMPETITION ON THE INTERNET TUESDAY, JULY 15, 2008 HOUSE OF REPRESENTATIVES, TASK FORCE ON COMPETITION POLICY AND ANTITRUST LAWS COMMITTEE ON THE JUDICIARY, Washington, DC. The Task Force met, pursuant to notice, at 1:41 p.m., in room 2141, Rayburn House Office Building, the Honorable John Conyers, Jr. (Chairman of the Task Force) presiding. Present: Representatives Conyers, Lofgren, Jackson Lee, Waters, Cohen, Sutton, Wasserman Schultz, Smith, Sensenbrenner, Good- latte, Chabot, Cannon, Keller, Issa and Feeney. Staff Present: Anant Raut, Majority Counsel; Matt Morgan, Ma- jority Staff Assistant; and Stewart Jefferies, Minority Counsel. Mr. CONYERS. The Committee will come to order. We are delighted that all six of witness are as distinguished and recognized and well-known and favorably received in the Congress as they are. This Antitrust Task Force is concerned about competition on the Internet because this technology has changed the way people inter- act with the world around them, and what started as a research project in the Department of Defense 40 years ago has now become not just a pervasive element of our society, but has worldwide im- plications. Over a billion people use the Internet. Seventy-one per- cent of all Americans use the Internet. Every year, we send in this country somewhere in the neighborhood of three trillion e-mails; and it is also quite lucrative. But, today, we have three of the most significant players on the Internet testifying before us: Yahoo, Google and Microsoft, each one of whom dominates a different aspect of the Internet. A half million users come to Yahoo’s Web pages, Google has become synonymous with on-line research, and Microsoft continues to be the most domi- nant software company on Earth. For the last 6 months, Microsoft and Yahoo have been in frus- trating negotiations. Microsoft initially attempted to purchase Yahoo and was not favorably received. Last month, Yahoo and Google reached an agreement to display Google ads on Yahoo Web pages. Microsoft had a response for that. They brought in Carl Ichan to try buying Yahoo and break it up. Given how these powerful companies are in any consolidation has raised the potential of anti-competitive effects. The Depart- ment of Justice is scrutinizing the Google-Yahoo deal. So are doz- (1) VerDate Aug 31 2005 11:13 Jan 16, 2009 Jkt 000000 PO 00000 Frm 00005 Fmt 6633 Sfmt 6601 H:\WORK\ATRUST3\071508\43524.000 HJUD1 PsN: DOUGA 2 ens of attorneys, State attorneys across the country, and Attorney Generals. And so we come here this afternoon to consider what im- pact the proposed Yahoo-Google deal could have on competition. For their part, Google and Yahoo note that their transaction is nonexclusive and that any company, including Microsoft, is free to pursue a similar arrangement. But then you need to ask why is it that the Members of this Committee cannot be trusted to see the signed agreement, and why we were offered access to the agreement, but only if we viewed it at a law firm with no notes allowed and a signed non-disclosure agreement? By contrast, the Committee was given more ready access to the documents surrounding the President’s terrorist surveillance pro- gram. Every Member was allowed access. We were allowed the right to review it. We were allowed to take notes. We weren’t