Sunday, October 25, 2020

US Government’s Antitrust Suit Targeting Google Comes Amid An Uneven Track Record Against Big Tech

Michael Bobelian Contributor
Policy
Author of Battle for the Marble Palace

After months of speculation, the Department of Justice and eleven state Attorneys General launched an antitrust suit on Tuesday, accusing Google of stifling competition in the search and advertising sectors through exclusive arrangements with its business partners. “Competition in this industry is vitally important,” Attorney General William Barr said in a statement accompanying the lawsuit, “which is why today’s challenge against Google… is a monumental case.”

Both Republicans and Democrats have railed against the nation’s tech giants in recent years, with Elizabeth Warren and Donald Trump—who reside on polar opposites of the political spectrum—both calling for government agencies to bring antitrust cases against the industry.

Though these rants haven’t quite reached the feverish pitch of Theodore Roosevelt’s trust-busting assault on Standard Oil and the other industrial giants of the Gilded Age, they do harken back two decades to a time when critics cast Microsoft, and its CEO Bill Gates, as villains suffocating the burgeoning Internet sector.

The Department of Justice (DOJ) was mindful of its past standoffs with America’s tech titans in the statement it released announcing the lawsuit. “As with its historic antitrust actions against AT&T in 1974 and Microsoft in 1998,” Deputy Attorney General Jeffrey Rosen explained in the statement, “the Department is again enforcing the Sherman Act.”


The problem for the DOJ is that the government’s track record in this arena over the past quarter century has been uneven at best. Despite all the hoopla surrounding the announcement of the lawsuit on Tuesday, unless this case proceeds in unexpected ways, nothing points to a different outcome this time around.


The U.S. Department of Justice building in Washington D.C. (Photo by Ting Shen/Xinhua via Getty) XINHUA NEWS AGENCY/GETTY IMAGES

Previous Government Efforts Haven’t Stopped Big Tech’s Growing Market Power

Despite a series of consent decrees, proscriptions of mergers and acquisitions, and in one instance, the prosecution of a conspiracy to raise the prices of e-books involving Apple, the government’s primary antitrust enforcers—the Federal Trade Commission (FTC) and the DOJ—haven’t been able to slow down the tech sector’s march towards market concentration or disabled the industry’s biggest players from stifling competition.

As a result, oligopolies control nearly ever segment of the industry. Apple’s iPhone and Google’s Android dominate the smartphone market. The top three computer manufacturers have seen their market share rise in the past decade. By selling everything from common household items to niche products like the Gremlin Chia pet, Amazon accounts for more than a third of all Internet sales in the United States.

Successful antitrust enforcement has been short lived

Despite suffering their biggest defeat in 2004 when, after a lengthy trial, a federal judge approved Oracle’s purchase of PeopleSoft over the Justice Department’s objections, these agencies have seen their greatest success in blocking potential mergers.

In 2008, the Justice Department blocked an advertising arrangement between Google and Yahoo, which at the time had a far larger presence in the online search and advertising market. Three years later, regulators blocked a merger between AT&T and T-Mobile and in 2015, Comcast and Time Warner scuttled their deal in the face of antitrust scrutiny.

These were short lived victories, however. Though the names were reshuffled, consolidation in the tech sector continued unabated, allowing a handful of companies to dominate key markets. Prohibited from joining AT&T, T-Mobile later combined with Sprint, reducing the number of national cell phone carriers to three. Though Comcast’s marriage with Time Warner fell apart, it eventually acquired NBC Universal. Time Warner also found a new suitor when AT&T absorbed it in 2018. Fearing it might be left out, Verizon acquired Yahoo at about the same time.

The social media market played out in a similar fashion. Instead of outperforming its competitors, Facebook simply purchased them, procuring Instagram and WhatsApp to form a social media juggernaut. Together, these entities host three of the nation’s top five social media platforms and with Mark Zuckerberg holding the majority of voting shares, it allows him to dictate how millions of Americans interact with one another online. Even John D. Rockefeller, perhaps the most notorious of the Robber Barons targeted by the trust-busting Roosevelt more than a century ago, never attained this kind of influence over public discourse.


Google's offices in downtown Manhattan. Accusing the company of using anti-competitive tactics to ... [+] GETTY IMAGES

Other than blocking an occasional merger, the FTC and DOJ have largely resorted to consent decrees in their bid to prevent a small cluster of companies from abusing their market dominance. These decrees, which are settlements with companies that aim to reduce anti-competitive behavior, have also fallen short of slowing down the growing market power of the tech titans. In 2010, Intel agreed to reduce its anticompetitive conduct in a deal with the FTC yet it remains one of only two major chip makers in the world. It only began to lose market share to its chief rival, AMD, nine years after its consent decree with the FTC.

Google also faced similar scrutiny nearly a decade ago only to escape unscathed. Since coming to an agreement with the FTC back in 2013, Google’s share of the American online search market has grown, climbing to nearly 90% over the past seven years. It also managed to transfer this dominance from the PC market to cell phones and other mobile devices: almost 95% of the Internet searches conducted on these devices used Google in 2020.

Perhaps no case exemplifies the difficulty of relying on antitrust enforcement to tame the tech sector more than Microsoft. After two years of litigation highlighted by Bill Gates’s testy deposition at the hands of David Boies, Judge Thomas Penfield Jackson called for the company’s break-up in 2000.

The government’s euphoria of winning the most consequential antitrust case in a generation didn’t last long. An appellate court overturning Jackson’s order a year later struck the first blow. Then the Bush administration decided to moderate the Justice Department’s demands despite calls from several states that had joined the litigation to press on. The denouement of the lawsuit ended in a whimper: a consent decree prohibited Microsoft from forcing computer makers to exclusively work with its software and required it to share its source code with other software companies so that they could develop applications for Windows, then the dominant operating system.

After the anticipation caused by Judge Jackson’s break-up order, the settlement was both anticlimactic, and to many, like AOL Time Warner, one of Microsoft’s leading rivals at the time, “completely ineffective.” Einer Elhauge, an antitrust professor at Harvard Law School, characterized it at the time as “largely meaningless enforcement,” a sentiment echoed by ten of the eighteen state Attorneys General who refused to sign on to the deal and continued to pursue Microsoft in the courts.

Then again, perhaps the enforcement action did generate some benefits even if it allowed Microsoft to maintain its market dominance. Tim Wu, a professor at Columbia Law School, has since argued that by curbing Microsoft’s monopolistic tendencies, the settlement paved the way for the emergence of upstarts—most notably, Google. Even though it seems like a longshot, it would be ironic if the beneficiary of the last historic antitrust suit was now tamed by the very laws that gave it a lifeline.

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Michael Bobelian
I write about the Supreme Court, white-collar crime, and politics. I am the author of Battle for the Marble Palace: Abe Fortas, Earl Warren, Lyndon Johnson, Richard Nixon and the Forging of the Modern Supreme Court.


DOJ Antitrust Case Against Google Draws Allusions to Landmark Microsoft and Standard Oil Cases




On October 20, 2020, the Department of Justice (“DOJ”) and 11 state attorneys general filed an antitrust complaint against Google, alleging Google violated Section 2 of the Sherman Act by unlawfully maintaining monopolies in markets for internet search services and search advertising. This begins the long-awaited enforcement salvo anticipated by those closely following the recent federal, state and congressional antitrust investigations of big tech. The DOJ’s Google case is certainly the most significant antitrust case against an alleged tech monopoly since the DOJ’s win in its case against Microsoft more than two decades ago. The Google case is putting antitrust at the top of news feeds, with many already calling it the modern tech equivalent of the landmark antitrust case against Standard Oil during the heyday of the trustbuster era – framing data as the new oil, with Google as “the gatekeeper for the internet.”

The complaint alleges that Google enters into exclusionary agreements with distributors (such as device manufacturers, wireless carriers, and web browser developers) to maintain Google as their devices’ preinstalled, default search engine. In many cases, the complaint alleges, these agreements prohibit the distributors from dealing with Google’s search engine competitors. Under some agreements, Google search apps are undeletable from Android devices and had to be prominently featured on the device’s home screen.

The complaint alleges that Google induces distributors to enter into these alleged exclusionary agreements by sharing its search advertising revenue and conditioning access to the Google Play app store, an essential product for most mobile distributors, on these agreements preferencing Google search. According to the complaint, the distributors entering into these agreements account for 60% of the search market. Google’s Chrome browser, along with its other owned-and-operated products, delivers Google an additional 20% of the search market.

The complaint not only describes Google’s alleged exclusionary conduct, but explains how Google purportedly obtained monopoly power. In 2007, Google released the code of its Android operating system as open source code, meaning anyone could use it for free and could modify the operating system, a process known as “forking.” This induced device manufacturers and carriers of mobile phones to use Android. But according to the complaint, Google perverted the open source system by providing a proprietary layer of applications, known as Google Mobile Services, that were highly valued by users and not available unless the device manufacturer entered into a Mobile Application Distribution Agreement (“MADA”). The MADAs prohibited forking and required favoring Google search. To entice device manufacturers into MADAs, the complaint alleges, Google offered the Android device manufacturers a share of search revenue.

The agreements are reminiscent of the arrangements that Microsoft imposed on original equipment manufacturers (“OEMs”) in order to favor Microsoft’s browser. Microsoft required the OEMs to preinstall Microsoft’s browser along with the Windows operating system. Although users could download a competing browser and make that the default browser, the DOJ argued, users would rarely do that, and given the outcome of that case, the court obviously agreed. The DOJ makes the same argument here: While users could replace Google search with another search application, few actually do.

According to the complaint, Google’s exclusionary practices resulted in anticompetitive harm to both advertisers and users. For advertisers, the complaint alleges that Google’s monopoly power allows it to manipulate advertising supply and artificially inflate rates. Consumers were allegedly harmed by Google’s policies regarding use of their data. But for Google’s exclusionary conduct, search competitors would have offered search options with greater privacy protections.

Not all exclusionary conduct is unlawful under Section 2 of the Sherman Act. To determine whether the conduct is unlawful, courts consider whether the anticompetitive effects of the conduct outweigh the procompetitive effects. In terms of procompetitive effects, the internet search market is unique in how directly a search engine’s scale affects the quality of its service. Google’s search algorithm constantly improves upon itself by learning from user behavior to predict which search results and ads will be most responsive to future queries. Assuming that Google’s exclusionary conduct contributed to Google’s scale, that conduct then contributed to Google’s ability to offer more relevant search results and more effective advertising. The DOJ will have to show that the anticompetitive effects outweigh these procompetitive effects if it is to prevail in its Sherman Act claim. Part of the government’s challenge will be to demonstrate how a 100-year-old statute, written with Standard Oil and U.S. Steel in mind, applies to the extremely dissimilar business models of big tech.

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