United States v. Google:  Is It Really a Slam Dunk?

The Antitrust Division’s complaint against Google alleges anticompetitive effects in markets for general search, search advertising, and general search text advertising, accomplished by (1) default placement of Google’s search engine and the Chrome browser on phones, tablets, and laptops by agreements with device manufacturers, wireless carriers, and browser developers; (2) bundling of Android with Google Play, Chrome, Google’s search app, Gmail, Maps, and YouTube; and (3) so-called anti-forking agreements that prohibit tacking independent software onto the Android ecosystem.

At first blush the claims seem clear and easy to prove.  Allegedly, actual and potential new apps find it harder to be placed on a device.  Innovation and consumer choice are foreclosed by de facto exclusive dealing, tying, and high entry barriers.  Google did not move to dismiss the complaint, perhaps reflecting a view by its counsel that doing so would lead to an adverse court opinion addressed only to the face of the complaint.  But this is not an easy case.

Remedy

As a threshold matter, what remedy does DOJ seek?  How does that remedy relate to the violations alleged?  And how would the remedy restore or foster competition?  This case is a massive undertaking and DOJ should clarify what it seeks to achieve before the massive expenditure of resources continues. 

The case is brought under Sherman Act Section 2 (unlawfully maintaining a monopoly) not Section 1 (agreements in restraint of trade) in order to create a threat of structural relief.  Yet most of the harms alleged, if proven, could be remedied by modifying some of the contract clauses complained of.  

Positing the possible remedies leads one to question whether they would create any net benefit.  The preinstallation agreements could be modified so that on booting up a new device the consumer would be referred to a suite of alternative apps, shown their pros and cons, and given the opportunity to select among them.  This would give competing apps and developers an opportunity to show their wares and give consumers more choice.  A similar remedy could deal with the bundling claim.  But consumers might view this as needless expenditure of time, pointless complexity, and generation of unwanted administrative work to pay license fees to multiple sources.  In any event, if a consumer wants a different app, or if the quality of an existing app deteriorates, most devices have ample screen space and power to accommodate additional downloads.  The remedy from the antitrust case might give consumers choices that they don’t want and don’t need.

Alternatively, the allegedly offending contracts could be made of short duration.  Then if better apps, search engines, and browsers are developed, the wireless carriers and device manufacturers could respond and incorporate them.  A primary victim of the conduct alleged in the case appears to be Microsoft, whose search engine and Bing browser are allegedly foreclosed from getting onto devices.  Microsoft has the resources to promote its software if it is better than the incumbents, and does not need government help to do so.

With respect to the anti-forking agreements, the issue at this point is unclear.  A decision whether to license intellectual property rights or not, or to license them only for a particular field of use is core to the IP right. Do the licenses do more than grant a part of the substantive IP rights?  Or do they constrain what the licensee could otherwise do without using the IP?

Some of the Complaint’s allegations read as if DOJ claims that Google should affirmatively help a competitor, for example, the allegation that Android should be licensed in a way that would reduce entry barriers for competitors. But with rare exception not present here, under the Trinko case from the Supreme Court, even a monopolist has no duty to affirmatively assist a competitor.  It is too early to hazard a view on where this issue will come out.  But either way, the remedy if there is one would be to abrogate a contractual prohibition in the Android licenses.  It’s hard to see how structural relief would be needed to accomplish this.

To summarize on this point, DOJ should clarify what it seeks, and how and why its remedy would deal with the claims it makes. 

Relevant Markets

Google will dispute the relevant market definitions proffered by the Complaint.  “General Search” includes only “one-stop shop” queries.  By definition this gives huge market share to Google.  Many types of information are walled off from a Google search, for example, information on FaceBook and Amazon, Apple apps, voice assistants, company and institutional libraries, film and TV libraries, subscription services, traditional media, magazines, professional journals, and government databases.  One could argue that the quality of results on a Google search suffers from lack of access and resulting limits on a search result page, which drives people to use other types of searches. 

Google might present data that shows how many people look elsewhere for information in lieu of or in addition to a Google search.  This subject may become one for expert analysis; it might  also be affected by internal company records that show the strategic deliberations of Google executives and what they take into account in making business decisions.

“Search Advertising” is likewise defined to be “all types of ads generated in response to online search queries,” by definition giving Google a huge share.  There are many other ways to target marketing messages to a consumer.  For example, Amazon reminds people of what they  previously purchased, or that others who made the purchase also bought several other related items.  Making a purchase from almost any online seller will subject a purchaser to a stream of future marketing messages.  TikTok influencers appeal to demographics that can probably be identified.  Broadcast and cable TV shows often appeal to demographic groups who can be identified and targeted.  It will be instructive to learn how advertisers make decisions and whether the categories of advertising shift from time to time or, instead, whether advertisers feel locked in to advertising on a Google search.  “General Search Text Advertising” may be subject to similar arguments.

Monopolization

If the court accepts the DOJ’s market definitions, it will address the Complaint’s monopolization claims on the merits. The complaint does not allege that monopoly was unlawfully achieved; thus, it implicitly assumes that Google obtained its market position by superior skill, foresight, and industry. Possessing monopoly power achieved in this way is not unlawful.  It reflects success and should be encouraged.  The complaint alleges that once monopoly power was achieved, it has been maintained by improper means.

The court will apply the rule of reason test from US v. Microsoft (2001): (1) Is there an anticompetitive effect resulting in harm to consumers or to the competitive process?  Harm to one or more competitors will not suffice.  (2) Is the injury of the type that the statute was intended to prevent, i.e., does the injury follow logically from the nature of the violations alleged?  (3) Does Google have a procompetitive justification for the conduct, which the court said could be greater efficiency or enhanced consumer appeal?  (4) If a procompetitive justification is proffered, is the conduct broader than is necessary to accomplish the procompetitive justification?  In other words, does the anticompetitive harm outweigh the procompetitive justification?  Bear in mind that the D.C. Circuit uses the consumer welfare standard, while many of the forces behind the complaint appear to be competitors or would-be competitors of Google, not customers.

It is too early to evaluate the allegations under this standard.  Discovery has just begun and the record is not fully developed.  But Google will contest each factor and the results are not a foregone conclusion. 

On the preinstallation agreements, it may argue that consumers do not want to have to download the apps themselves and pay royalties to multiple different sources.  While it the preinstalled apps cannot be deleted, it is easy to download competing apps and there is no barrier to doing so.  For the consumer, switching costs are close to zero.  With respect to the search engine and browser, the primary victim is Microsoft, who has the resources to promote its search engine and Bing if it wishes to do so.  The ultimate questions might be (i) not whether customers have switched in the past but whether they could and would do so if the relative quality of the Google apps were to deteriorate and (ii) whether Google executives take that possibility into account in forming their business conduct.

On the anti-forking agreements, Google may argue that it has a right to license its intellectual property for only specified purposes and has no duty to affirmatively assist its competitors to enter.

More broadly, Google may point out that the complaint does not allege that its market power was achieved by improper means.  It will point to the Alcoa and Grinnell cases which state that monopoly power achieved by superior skill, foresight, business acumen, or historic accident is lawful.  Its search engine, browser, and apps are vastly output enhancing and procompetitive, giving consumers and companies nationwide and global reach.  The complaint alleges that its market power has been unlawfully maintained, not that it was unlawfully acquired.  And many of the things complained of, e.g., high entry barriers, large installed base and network effects, and intellectual property, are inherent characteristics of the highly procompetitive product or service, not anticompetitive conduct.

Against Google’s arguments, DOJ will point out that the preinstallation agreements do result in foreclosure in fact, the large revenue sharing payments show the value of this foreclosure to Google, and many competitors and innovators find it difficult to gain a foothold in the market.  And unlike the FaceBook case, the anti-forking agreements are not purely unilateral conduct, but are agreements whose effects on competition should be weighed.  According to public reports, the DOJ continues to investigate Google’s ad tech business.  The case could take on new dimensions if the complaint were to be amended.

I do not purport to predict the outcome of this case, but only to point out that it will be long and hard fought with many points of contention.