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Google tries to skirt the rules and avoid an antitrust investigation of the Waze acquisition

June 19th, 2013 |  Published in Apple, Digital and Mobile Technology, Google and the World, Intellectual Property

Waze

19 June 1023 – If you follow the comings and going in the smartphone market you know that Google recently announced that it had acquired  privately held online mapping firm Waze. Despite the fact that many casual tech users have never heard of Waze, the value of the deal was $1 billion. The company’s outsize valuation is due in part to its popularity outside of the United States and Canada, as well as its strategic importance to the ever-growing online mapping ecosystem.

Based in Israel, Waze’s signature product is an app that helps drivers find usable routes through traffic in real time. The app is geared towards mobile users, and it offers a tremendous commercial opportunity for local business owners who use its interface to advertise the geographical locations of their businesses. Google is paying top dollar for Waze because it is at the intersection of two hot fields: map search and social media. Users download Waze’s app to their phone and then supply information about locations, routes and traffic, making the maps more intelligent. And Waze has the usual phenomenal growth in users, with 50 million worldwide. This is a field where there is believed to be oodles of money to be made in related advertising.From this vantage point, the deal has a number of “must” business justifications for Google. Google is the top dog, dominating the “turn-by-turn” market for mobile maps on smartphones, and Waze makes Google a bigger dog.

As we have said in previous posts, although the “bidding war” was largely civil and behind-the-scenes, Google snapped up Waze to keep it out of the hands of Apple and Facebook, as much as for Waze software.

And it appears to have pulled a fast one to keep the acquisition out of a DOJ and FTC investigation.

As we all know, normally, to acquire a company in the U.S. a buyer is required to supply the DOJ or the FTC a Hart-Scott-Rodino filing. This notifies the agencies of the transaction so either can review it for compliance with the antitrust laws.
The filing also prompts a waiting period during which the government can delay the acquisition to begin an in-depth investigation to determine if there is an antitrust problem. This is one reason that public takeovers are completed months after they are announced: the companies involved are waiting to clear antitrust review in the U.S. or another country.

This is the normal process. Yet Google’s only announcement of the deal appears to say that the companies signed and closed the deal that day, leaving Google the proud owner of Waze. According to a person close to Google, the company skipped the Hart-Scott-Rodino filing by relying on an exemption.

The exemption? A recent story in the New York Times sheds some light:

“This filing is not required if the acquisition is of a foreign company that has sales and assets in the United States of less than $60.9 million. Waze is an Israeli company with headquarters in Silicon Valley, so it comes under this test.

Waze probably doesn’t have $50 million in revenue worldwide, yet the test also looks at assets. Given that Waze is worth $1 billion, it is hard to see that the value of its intellectual property in the United States business doesn’t meet the test. And the F.T.C. has previously indicated that companies should include this type of intellectual property in informal guidance.

Nonetheless, Google appears to have taken this aggressive position and is forgoing any antitrust review, instead plunging ahead with the acquisition.”

Given what Waze does it means new entrants are unlikely to come. Just witness the difficulties Apple faced … with all of its fire power … with the controversy over the accuracy of its own map app. If Apple can’t do this easily with its built-in user base of some 400 million iPhone users, not many others can.

So one might think that there would be significant antitrust issues with the acquisition. Google, already the dominant player, is buying what looks like a rising competitor, and it is doing so in a way that deprives other big players an easier way to compete. It’s here where Google is pushing as hard as it can on the law.

Key comment from the New York Times article:

” … given the publicity over the acquisition, the government will almost certainly step in to review. Consumer groups are circling, and the Consumer Watchdog Group has written the government to ask for an in-depth review.  That group has noted that Google’s purchase of Doubleclick and AdMob led it to a 93 percent market share in mobile advertising … 

The standard was set forth in a piece of legislation passed a century ago: Will the acquisition “substantially lessen competition”? In part, this will come from how the market is defined — if it is just maps, well, you have to include companies like Rand McNally.

If it is turn-by-turn maps on smartphones, then according to Berg Insight, Telenav has a 33 percent market share while Google and Waze’s combined North American market share would be 28 percent. But Telenav’s business is stagnant and Google’s grew 30 percent last year, while Waze’s business grew 100 percent, according to Berg.”

Such fun! Such fodder for more posts! While our colleagues over at Project Counsel are immersed in PRISM and the surveillance state, we’ll help out a bit with some of the more interesting antitrust/competition/telecom issues-of-the-day.

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