Episode 28: Competition

Synopsis

Summit TV speaks to Sean Riley from South African internet company Intelligence about the complaint they’ve lodged with the Competition Commission against internet giant Google.

Transcript

Summit TV speaks to Sean Riley from South African internet company Intelligence about the complaint they’ve lodged with the Competition Commission against internet giant Google.

Stephan Lamprecht: Welcome to the Intellectual Property Show. Google is a multi- billion dollar global phenomenon with more than 90% of the South African internet search market alone. In true David and Goliath style Cape Town based web company Intelligence is taking on Google for alleged anti-competitive behaviour. To talk about the Competition Act and the work of the Competition Commission Bruce Lister from Adams & Adams is at the Summit TV studio, as well as Sean Riley chief executive of Intelligence. Sean, let’s start off with you - what is Intelligence and what do you do?

Sean Riley: We were established in 1999 - we do web development and online marketing that encompasses paid advertising, as well as improving the natural rankings of our clients online.

Stephan Lamprecht: Tell us about Google - what’s happening?

Sean Riley: It’s been fun and games. As you’ve probably seen we were awarded the online marketing contract with Yellow Pages in June 2008. In that time something happened with Google - they interfered with our accounts, they altered the cost per click without our approval or authorisation - which effectively skewed the costs. We corrected that within a day but we were obviously quite unhappy about that - we escalated it within Google but didn’t get much of a response back. Then later on we discovered that Google was actually pitching for the Yellow Pages account. The managing director of Yellow Pages asked Google to respect our agreement that’s in place with Yellow Pages and not to interfere - but Google told us directly they want that business, and that they don’t respect our agreement with Yellow Pages. They’ve now shut down one account, and the next account shuts down shortly - completely preventing us from being able to service Yellow Pages.

Stephan Lamprecht: What did you do in terms of dealing with the situation?

Sean Riley: Obviously any kind of legal action against someone who is quite key to our business is a last resort - we have tried to mediate the situation, I flew to Dublin and met with Google Ireland. We’ve tried to create a dialogue, but we haven’t been very successful to the point where we’ve now had to file a complaint with the Competition Commission of South Africa.

Stephan Lamprecht: Talking about anti-competitive behaviour the Competition Commission was put in place to look after the interests of all stakeholders. What is it more or less about - how do they operate?

Bruce Lister: The Competition Tribunal is a body that was set up in terms of Competition Act. People are entitled to lodge complaints if they feel there’s been a breach of one of the provisions of the Competition Act. Typically the Competition Act would deal with horizontal behaviour between vendors, vertical behaviour, and then in this case perhaps the abuse of a dominant position. The Competition Act is there to stimulate competition in the marketplace - the courts recognise that competition is very important for a healthy economy, and the Competition Act and Tribunal is one way that health can be protected.

Stephan Lamprecht: Often we hear about start-up enterprises saying we want to enter into a supply chain that has dominant players - the big companies - how do I get into it? The Competition Act says that you can lodge a complaint if you believe that you are not afforded an equal opportunity to show what you can do - is that the case?

Bruce Lister: Yes, that would be a Section 8 transgression - in the event of there being an abuse by a dominant firm. It’s worth mentioning that the Competition Act probably echoes certain provisions in the Intellectual Property statutes - for example in the Patent Act there’s Section 90 that prevents abuse by dominant players. So the Competition Act is not the only route to follow in the case of IP but it’s one of the ways.

Stephan Lamprecht: Give us a practical example from the Intellectual Property Act point of view in terms of looking after such anti-competitive incidents…

Bruce Lister: Say for example a company has a patent that could be used for an AIDS vaccine or an AIDS health mechanism and they’re not doing so for whatever reason - the Competition Act may be a route to follow to force that company into a compulsory license. The Patent Act has a similar provision. At least you’ve got a second door through which you can try and get through to force that company to release that patent and that technology into the market for the benefit of the public as a whole.

Stephan Lamprecht: Sean, from your point of view take us through the process in lodging this complaint with the Competition Tribunal…

Sean Riley: It’s been fairly straightforward. We met with our attorneys and advocates to draft our official complaints. From what I understand it’s quite important to make sure that you get all the facts right in that complaint. In our situation the Google system used for managing ads is a fairly complex subject matter - so there’s also a responsibility to explain the situation in lay terms so that it can be handled practically by the Competition Commission.

Stephan Lamprecht: Obviously they’re not subject matter experts…

Sean Riley: Exactly.

Stephan Lamprecht: Taking it further what is the situation? You can’t just lodge a complaint you’ve got to put down money as well - is that correct?

Sean Riley: You have to pay your attorneys - so you have your own legal costs - but there are no costs in actually filing the complaints. The process now is they’ve recognised the complaints, and we are waiting to hear back from them. Hopefully in the next few days we will know what the next steps will be…

Stephan Lamprecht: Bruce, from your point of view if they make a finding is that enforceable or is it a recommendation?

Bruce Lister: It’s an enforceable finding. The Competition Tribunal has extensive authority and it will be an enforceable finding - it will be very similar to a court ruling.

Stephan Lamprecht: So they could theoretically say Google is in the right and carry on with business as usual, or they can say to Google they can’t behave like that and they’ve got to honour the agreements - is that more or less the kind of findings they make?

Bruce Lister: Yes. I don’t know the facts of this specific case and the details - except for what we’ve heard now - but that would certainly be the type of finding that would be in favour of one party or the other.

Stephan Lamprecht: Sean, from your point of view what are you going to do going further from this?

Sean Riley: We will have to see what happens, and how fast the Competition Commission acts - but we are adamant to try and set some form of precedent in South Africa at the very least. There’s a lot of companies like ourselves who have helped make Google strong in their absence…

Stephan Lamprecht: So you went out and you basically created interest in the South African market - you’ve put the South African market on the map to some extent - and now overseas players are coming in and saying they want to deal directly because there’s an opportunity…

Sean Riley: Absolutely. Although that doesn’t sit so well even that I wouldn’t view as a huge problem for Google - to just say we’re going to compete with you for business - but in this particular instance they’ve inhibited our ability to compete and I think that’s the key message we are trying to deal with.

Stephan Lamprecht: As a final question - other entrepreneurs are out there - would you recommend a similar course of action? Was it easy to engage with the Competition Commission?

Sean Riley: So far so good. I don’t think it’s something that you can undertake light-heartedly - but it’s in place to protect the little guys from the abuse of dominant positions. In many cases it’s certainly the most cost effective route - because I think most of the dominant players in the industry do depend on the fact that smaller players can’t afford the traditional legal channels.