Why the DOJ Has a Strong Case Against Google
This post is part of the “Governing the Internet” blog series, which features a range of viewpoints on topics involving internet regulation.
The series is co-sponsored by the Regulatory Transparency Project and the Federalist Society’s Practice Groups.
In a recent post in this series, Neil Chilson outlines why he thinks the antitrust suit against Google, recently filed by the Department of Justice (DOJ), is unclear, weak, and politicized—and that the “anti-Google crowd” must be disappointed, to boot.
As part of the crowd who is deeply skeptical of Google’s dominance over both our minds and our markets, I am not disappointed with the DOJ’s product. To the contrary, where Chilson finds it unclear, weak, and politicized, I find it exceptionally pragmatic, disciplined, and laser-focused on the network of exclusionary contracts and bundling of Google-owned properties with its search product which are key to Google’s unlawful dominance.
Rather than building a case which attempts to satisfy a broad variety of grievances, the DOJ has designed this complaint with one goal in mind: to win. And to do so by focusing on the anticompetitive and exclusionary parts of Google’s core search and search advertising businesses. Attorney General Barr was clear in announcing the suit that it is parallel to the last successful antitrust suit, brought against Microsoft in 1998.
It is notable that this case has arisen at all , given the institutional power Google wields in Washington. As recently as 2013, the Federal Trade Commission closed an antitrust investigation into Google, despite staff recommendations finding that Google’s “conduct has resulted—and will result—in real harm to consumers and to innovation in the online search and advertising markets.”
But now, agencies and committees across the government and the nation seem to agree that some legal action should be taken against Google.
The suit also comes on the heels of a remarkable 16 month investigation into the Big Tech giants by the House Judiciary Committee’s antitrust subcommittee, resulting in bipartisan agreementregarding evidence of anti-competitive actions taken by Google, Facebook, Amazon, and Apple.
A bipartisan group of 50 state attorneys general are also investigating the tech giants. Eleven of them filed with the Department of Justice, and New York recently indicated it will sign onto DOJ’s case, in addition to six other states. More state AGs—both Democrats and Republicans—are expected to file their own lawsuit, which will likely be joined to the DOJ’s. Remarkably, Texas and New York, states which generally agree on very little, agree that Google isn’t playing fair.
The skillful attention lawmakers and law enforcers are paying to the tech giants—along with the resulting reams of documentary and investigatory evidence—makes clear this case is hardly the one-sided, politicized fever dream that Chilson infers. Moreover, the complaint itself is thorough. It references Google’s own contracts, strategy documents, and quotations from executives and employees, undermining the notion that this suit is simply driven by a handful of competitors with sour grapes.
The particulars of DOJ’s complaint
On the specifics of the claim, Chilson’s largest issue is with the scope of DOJ’s market definition.
Chilson alleges that DOJ errs in its market definition by focusing on Google’s conduct as it relates to the distribution of search engines. Google is not the problem, he says. Rather, the phone manufacturers and web browser developers are the ones who choose put Google search on their devices, so DOJ’s ire is misplaced.
Yet there is more than enough evidence within the complaint itself (and in the House antitrust committee’s report), that Google contractually requires that Google search be the default setting on various devices:
…Google has contracted with Apple for many years to preset Google’s search engine as the default for Apple’s Safari browser and, more recently, other search access points on Apple’s mobile devices. When a consumer takes a new iPhone or iPad out of its box, all the significant access points default to Google as their general search providers. Indeed, Google has preset default status for an overwhelming share of the search access points on mobile devices sold in the United States. (emphasis added)
While consumers can change their search functions from the default, Google observed in a 2018 strategy document that once the default setting is in place, particularly on their phones, “people are much less likely” to swap out Google for something else.
Every major antitrust investigation into Google, from the United Kingdom, to Australia, to the European Union, has emphasized the importance of defaults in creating monopolies. In Russia, of all places, the search market is finally becoming competitive after the country’s Federal Antimonopoly Service removed Google’s ability to prevent Android phone manufacturers from changing the default search engine to anything but Google.
Google has secured its exclusivity as a default setting in the computer-browser market. As the complaint notes, “with the exception of Microsoft, most browser developers have agreed with Google to preset its search engine as the default search provider.”
The company has a dominant grip on licensing and distribution agreements with manufacturers and carriers of mobile devices that have search functionality. According to the complaint, “roughly 60 percent of all search queries are covered by Google’s exclusionary agreements.”
On mobile devices, it’s more than 80 percent. This is due to Google’s exclusive deal with Apple to be the default search option on its mobile devices, and a deal with other mobile distributors which offered its Android operating system for “free”—but with a series of interlocking agreements ensuring Google remains dominant in the massive Android ecosystem.
Among these are anti-forking agreements. While Google offers its Android software as open-source (in other words, for “free”), it prevents any user from using its code to create variant or otherwise innovative operating systems. As DOJ puts it, the anti-forking agreements “inhibit the development of an operating system based on an Android fork that could serve as a viable path to market for a search competitor.”
Moreover, these agreements require that manufacturers pre-install Google products and make them undeletable.
Google also uses revenue sharing agreements (RSAs), where manufacturers of electronic devices are paid to preinstall Google products in “exchange for a substantial portion of Google’s search advertising revenues.” For new competitors, the DOJ claims these RSAs “present a substantial barrier to entry.” Smaller companies simply “cannot pay the billions of dollars that Google does” for preinstallation of their services.
So to claim, as Chilson does, that it’s not Google’s fault that its search product is everywhere—that it’s merely the device manufacturers and web browsers choosing, without incentive, to do it—is counterfactual. Google has negotiated exclusionary agreements to ensure it is the default setting on the majority of devices and browsers sold in the United States, and in a manner that precludes competitors from challenging Google, or even developing in the first place.
And that is the point. “These agreements work exactly as Google designed them,” says the complaint, “to foreclose distribution to Google’s search rivals, weakening them as anticompetitive alternatives for consumers and advertisers by denying them scale.”
This is the essence of anticompetitive behavior. As the D.C. Circuit found in United States v. Microsoft almost 20 years ago, anticompetitive agreements that shut down distribution channels for rivals, such as requiring preset default status, are unlawful under Sec. 2 of the Sherman Act.
Market definition: Facebook and offline advertising
Chilson also takes issue with the narrowness of the complaint’s market definition, noting that the complaint deals with online advertising without ever mentioning Facebook—the country’s second largest online advertising—and dismissing competition from offline advertising like billboards.
There is a good reason Facebook is excluded from the complaint. Facebook, though it engages in digital advertising, is not in the same market as Google. Rather, Facebook’s ad revenue largely comes from advertising in its own “walled garden” of Facebook and Instagram. That is, it simply serves up ads on the properties it owns and not across the Internet. Tellingly, Facebook tried to compete with Google’s mobile ad network but could not succeed against it. Facebook announcedearlier this year that it would shutter the operation.
Are consumers harmed?
Chilson also claims the DOJ will have difficulty proving “consumer harm,” because, as he puts it, “vigorous competition harmful to competitors is often great for consumers.” He goes on, “many of the behaviors described in the complaint have pro-consumer, pro-competition explanations, even if competitors dislike them.”
A key way to show harm to the consumer, Chilson asserts, is through changes in advertising prices. But he ignores what the DOJ shows is the key harm of Google’s monopoly: reduced innovation. In data-driven technology markets, innovation drives competition. And if innovation is harmed, a functional marketplace is impeded.
But even setting innovation aside, DOJ’s complaint makes plain that the anticompetitive exclusionary provisions included in most of Google’s core business contracts were designed to deny consumers choice, en masse. Consumers are denied search engine choice where it is set by Google’s default, and where it cannot be changed even if a user chose to change it.
Antitrust enforcement is not the heavy hand of permanent regulation. Rather, it is law enforcement. Its use is about policing the market to ensure a level playing field for businesses to compete on their merits.
The DOJ’s complaint reflects this even-handedness. It is modest in its ambitions and sticks to the facts. Conservatives who rightly champion the innovation generated by a free market should be equally vigilant about maintaining its integrity. To borrow the old adage from Ronald Reagan, “Trust, but verify.”