Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Google and MySpace directors allegedly conspired to undervalue MySpace prior to acquisition, (Sep 17, 2014)
Organizations Mentioned:Google, Inc. | Hogue & Belong | IAC/InterActiveCorp | IAC/InterActiveCorp. | News Corp. | U.S. Department of Justice
By Linda O’Brien, J.D., LL.M.
Search engine provider Google conspired with question and answer format search engine Ask.com and two members of its board of directors to suppress employee compensation and rig the competitive process for search engine contracts in order to undervalue social media website MySpace prior to its acquisition, according to a complaint filed in the federal district court in San Jose, California (Greenspan v. IAC/InterActiveCorp., September 16, 2014).
MySpace, owned by Intermix, Inc., was a social media website founded in 2003. Brad Greenspan was an employee and shareholder of Intermix and managed MySpace until MySpace was sold to News Corp. in July 2005. Yahoo, Inc. served as MySpace’s search engine until its contract ended in June 2005.
The complaint states that, when the Yahoo contract ended, the Board of Directors—led by Geoff Yang and David Carlick—declined to renew it. Yang and Carlick also served on the Board of Directors for Ask.com, a question and answer focused web search engine. The company, Revenue Science, became MySpace’s its interim search engine provider and secretly filtered the number of searches performed through Ask.com.
During this time frame, Google, Inc. entered into an unlawful agreement with Ask.com not to compete with each other in soliciting and hiring employees, the complaint charged. Because of this agreement, Google, at the direction of Yang and Carlick, allegedly agreed not make a bid to be the exclusive search engine for MySpace until MySpace was acquired by News Corp. Search engine contracts are lucrative and provide search engine companies, such as Google, significant increases in the number of searches performed, which in turn increases the search engine company’s revenue and value. The agreement benefited Google because it was the only viable competitor after Yang and Carlick did not renew the Yahoo contract, the complaint alleges.
According to the complaint, after the Yahoo contract ended, MySpace continued to operate without a search engine contract or any revenue from a search engine contract. As a result of the agreement between Google and Ask.com, News Corp. was able to purchase MySpace at a substantial discount. News Corp. shared a common director with the single largest shareholder in Google and knew of the secret bid-rigging agreement between Google and Ask.com. Shortly after the acquisition of MySpace by News Corp., Google was able to secure the exclusive search engine contract with MySpace at a discount.
The agreement between Google and Ask.com was alleged to be part of an overarching conspiracy to suppress compensation and rig the competitive process such that MySpace was devalued at the time of its acquisition by News Corp. Thus, the agreement unlawfully benefited the defendants while simultaneously injuring MySpace, its shareholders, and the wages of Ask.com employees.
The Antitrust Division of the U.S. Department of Justice (DOJ) investigated Google’s anti-solicitation agreements with several technology companies and found the agreements to be “facially anticompetitive” and per se violations of the Sherman Act. Google subsequently signed a settlement agreement enjoining the company from make such non-solicitation agreements in the future.
Any applicable statute of limitations has been tolled, according to the plaintiff. He did not have actual or constructive notice, or could not have discovered an anti-solicitation agreement been Google and Ask.com that served as Google’s motivation to delay bidding to become MySpace’s search engine partner until May 2013, when the DOJ announced its investigation into Google’s anti-solicitation agreements.
The plaintiff asserts claims for unfair competition, and violations of Section 1 of the Sherman Act, Section 8 of the Clayton Act, and California’s Cartwright Act. The action seeks declaratory relief, damages, pre- and post-judgment interest, costs of suit, attorney fees, and any other just and proper relief.
The case is No. 5:14-cv-04187.
Attorneys: Jeffrey L. Hogue, Tyler J. Belong, and Bryce A. Dodds (Hogue & Belong) for Brad Greenspan.
Companies: IAC/InterActiveCorp.; Google, Inc.; News Corp.
News: Antitrust CaliforniaNews