DANIELA CARRERAS—The United States Department of Justice (“DOJ”) and eleven state attorneys general filed a civil antitrust lawsuit on October 20 against Google, arguing the tech giant engaged in exclusionary conduct to preserve its monopoly in the search and search advertising markets. This high-profile case is the biggest tech antitrust lawsuit that the government has brought since United States v. Microsoft in 2001.
The complaint alleges that Google violated Section 2 of the Sherman Antitrust Act, which makes it unlawful for a firm to “monopolize, attempt to monopolize, or combine or conspire . . . to monopolize.” To prevail, the government must prove two elements: (1) monopoly power in the relevant market and (2) anticompetitive conduct.
The DOJ characterizes Google as a “general search engine” instead of a “specialized search engine” like Expedia for travel-related searches. This market definition leaves Google with two competitors— Bing, and, to a lesser extent, DuckDuckGo. The complaint alleges that Google has a significant market share in three markets: general search services at 88%, search advertising at over 70%, and general search text advertising at over 70%. According to the DOJ, Google has a monopoly in general search, which users “pay” for by giving their personal information and attention. This volume of data makes Google attractive to advertisers, thus enabling Google to also have monopoly power in search advertisements. Both the scale Google has achieved, and the high costs of developing a competitive search engine are substantial entry barriers that make it all but impossible for new competitors to take market share away from Google.
However, possessing monopoly power alone is not illegal under the antitrust laws. The DOJ must also prove that Google engages in anticompetitive conduct to maintain this power, which, as a result, harms consumer welfare. To that extent, the DOJ contends that Google enters into exclusionary agreements with distributors that have the effect of cutting off distribution channels to competitors. The complaint focuses heavily on mobile phones—the largest distribution channel for general search engines with approximately 60% of the searches, of which Google accounts for almost 95% of queries.
These agreements take different forms. Device manufacturers who license Android OS as part of their agreements are required to accept a bundle of Google applications, which tie-in Google search, allowing Google to maintain its search monopoly in Android phones. Google also engages in revenue sharing agreements, whereby it shares portions of its search advertising revenue with mobile device manufacturers such as Apple, cellphone carriers, and competing browsers in exchange for making Google the preset default general search engine on their computer and mobile-device search access points. For example, the complaint alleges Google pays Apple between 8 to 12 billion dollars annually for the right to be the default search engine on iPhones and other Apple devices. Central to the DOJ’s argument is that consumers, for the most part, do not change their default search functions. Thus, according to the DOJ, this anticompetitive strategy gives Google “de facto exclusivity,” which “cripple[es] the competitive process, reduc[es] consumer choice, and stifl[es] innovation.”
Google has responded to the lawsuit, calling it “deeply flawed,” stating that “[p]eople use Google because they choose to, not because they’re forced to.” Google asserts that the government’s position that consumers are unlikely to change their default settings misses the mark given technological advancements and increased tech-savviness in users.
The DOJ’s complaint cites Microsoft as the leading legal precedent; however, an open question is how a court will apply Microsoft to the facts presented here. Most of Microsoft’s exclusionary conduct demonstrated clear harm to consumers from a quality perspective—Netscape Navigator (a once-popular web browser) lost significant market share shortly after Microsoft entered into a series of deals with distributors to make Internet Explorer the default browser. In Google’s case, however, the harm to competition is not so clear unless the DOJ can proffer similar evidence that what happened to Netscape Navigator is happening to Bing and DuckDuckGo. Nevertheless, the DOJ’s theory that Google’s conduct is hurting “the quality of general search services” by inhibiting innovation may carry some weight. A week after the DOJ filed its suit against Google, reports have come out claiming there is “mounting evidence” Apple intends to develop a rival search engine.
The issue of remedies is also a point of contrast between the two cases. In Microsoft, the D.C. Circuit reversed the order for a break-up, and Microsoft later settled with the DOJ. In Google’s case, the DOJ asks for a structural remedy, but whether the courts will grant such a remedy and whether a break-up will occur if the government wins remains to be seen.
“The case [against Google] is not interesting by itself, but also given the political backdrop,” said John Newman, Associate Professor at the University of Miami School of Law, and former trial attorney with the U.S. Department of Justice Antitrust Division. “There’s a level of interest and activity in antitrust right now that we haven’t seen in my lifetime. Members of Congress from both major parties, both federal enforcement agencies, and state attorneys general are all in the mix. U.S. v. Google might be the first big case against Big Tech, but it likely won’t be the last.”
In early October, the Democrat-led House Judiciary Committee released a 450-page report recommending changes in the antitrust law and investigation into the tech market’s dominant firms—Google, Apple, Amazon, and Facebook. A group of Republican Subcommittee members released a report as well, supporting the notion of more robust antitrust enforcement against Big Tech. It appears that, regardless of the outcome of the election, more antitrust lawsuits are to follow, perhaps even sooner than we may think––just two days after the DOJ filed its complaint against Google, the FTC met to discuss the next steps concerning its investigation into Facebook.