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

Alerts / October 22, 2020

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.

Authorship Credit: Carl W. Hittinger, Ann M. O’Brien, Marc G. Schildkraut and Joshua J. Jowdy

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