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Rebooting law’s operating system to tackle tech giants
The US Department of Justice has launched an antitrust suit against Google, alleging the tech giant used its size to unlawfully maintain its position in online search and advertising. Global Insight assesses the action in the context of previous cases.
The US Department of Justice’s (DoJ) decision in October 2020 to take Google to court over alleged antitrust violations is an important chapter in efforts to curb the power of technology giants. The federal government’s case argues that Google abused its size to unlawfully maintain its position in search and search advertising on the internet.
The DoJ claims that 90 per cent of internet searches use Google – a figure that rises to almost 95 per cent for mobile devices. Then-Attorney General William Barr said that its Antitrust Division had collected ‘convincing evidence that Google no longer competes only on the merits but instead uses its monopoly power – and billions in monopoly profits – to lock up key pathways to search on mobile phones, browsers and next generation devices, depriving rivals of distribution and scale. The end result is that no one can feasibly challenge Google’s dominance in search and search advertising’.
Google disagrees. It issued a formal rebuttal to the DoJ’s allegations in December 2020, arguing that ‘people use Google Search because they choose to, not because they are forced to or because they cannot easily find alternative ways to search for information on the internet’.
It also published objections in early October 2020 in response to a US House of Representatives Antitrust Subcommittee report into competitive pricing by Amazon, Apple, Facebook and Google. The report said that ‘Google increasingly functions as an ecosystem of interlocking monopolies’. But it also acknowledged the administration’s own shortcomings in properly vetting mergers and acquisitions – including antitrust requirements.
It was precisely on these grounds that Facebook – also facing a major antitrust action – kicked back. In December 2020, the Federal Trade Commission (FTC) launched a case against the company that could effectively see the FTC’s own approval of the acquisitions of Instagram and WhatsApp reversed because of alleged anticompetitive behaviour.
‘Many years later, with seemingly no regard for settled law or the consequences to innovation and investment, the agency is saying it got it wrong and wants a do-over’, wrote Jennifer Newstead, Vice President and General Counsel at Facebook, in a post on the company’s website.
If the Antitrust Subcommittee’s recommendations are followed through, laws around these areas will be strengthened – and further lawsuits launched to deal with the alleged monopolies created by these businesses.
Not surprisingly, in Google’s case, media reports have also focused on the possibility of the company having to sell parts of its business. In fact, breaking up technology giants is rare, but not unprecedented. Perhaps it is the natural history of each new technology to create a period of unlicensed freedom that is usually followed by rapid commercial monopolisation – and sometimes by enforced divestment.
Media reports have focused on the possibility of Google having to sell parts of its business. In fact, breaking up technology giants is rare, but not unprecedented
Timothy Wu, Julius Silver Professor of Law, Science and Technology at Columbia Law School, has argued that radio, telephone, television and film started as democratically owned systems that rapidly turned into oligarchic business interests. Then, as now, antitrust lawsuits sought to redress these imbalances.
In 1948 the US Supreme Court, for instance, forced Hollywood film studios to sell their picture houses under the Sherman Antitrust Act of 1890 – the first antitrust law in the US – because filmmakers had only been releasing movies to the cinemas they owned. Banned from owning or controlling the physical places where consumers viewed movies, critics argued the studios were forced into making better pictures to attract audiences – as well as creating the conditions for independent cinema to flourish. Thinking of movies as a form of software, and the physical cinemas as the devices on which they operate, makes the parallels with technology more obvious.
More recently, both the telecoms business AT&T and the software company Microsoft fought and lost antitrust cases in the US, but with different consequences. The US government reached a negotiated settlement with the national telephone company AT&T in 1982 to split up the business into eight different entities – the seven so-called regional ‘Baby Bells’ and AT&T. The impact was to decouple local and national call networks.
By 2005, AT&T had reacquired all but three of those companies: Qwest (owned by Lumen Technologies) and Verizon, a merger between the remaining two companies. By 2005, AT&T was again the largest telecommunications company in the world.
Negotiating a settlement
Microsoft, on the other hand, survived practically intact. In a nutshell, the DoJ argued that Microsoft used its market dominance to hurt other competitors under the Sherman Antitrust Act in similar terms to those levelled at Google today. The state argued that by forcing PC manufacturers to bundle Microsoft’s search engine Internet Explorer as the default option, it was stifling competition and hurting consumer choice.
The Court initially decided to split Microsoft into two companies – but on appeal, the Court negotiated a settlement to restrict Microsoft’s ability to force PC makers to work exclusively with it.
The next wave of antitrust legislation will be specifically designed to deal with digital commerce in the 21st century
The case filed against Google also says that, like Microsoft before it (the parallels are drawn specifically in the document), Google ‘secure[s] default status for its general search engine and, in many cases, to specifically prohibit Google’s counterparties from dealing with Google’s competitors. Some of these agreements also require distributors to take a bundle of Google apps, including its search apps, and feature them on devices in prime positions where consumers are most likely to start their internet searches.’
The DoJ says its aim is to secure ‘structural relief as needed to cure any anticompetitive harm’, among other potential measures. That could mean either entering into an agreement with the company to sell off parts of its business (if the state wins) or to split up the company.
Lessons from Europe
While the cases against AT&T and Microsoft caused significant upheaval, and made many lawyers a lot of money, it is questionable that the longer-term results altered the competitive landscape as far as the earlier ruling against the movie studios did.
But antitrust cases don’t operate in a vacuum and if the case goes against the defendants, the punishment can depend as much on the prevailing public and political atmosphere as on the technicalities of the case.
That should be a worry to Google. The public and politicians in the US and Europe have become increasingly dissatisfied with the behaviour of big technology companies for reasons that go well beyond the niceties of antitrust law. For instance, Global Insight recently looked at the European Commission’s attempts to prevent the internet damaging democracy, and the potential abuse of its mass surveillance capabilities. The list of complaints against digital platforms is, of course, much longer.
So far, Europe has been prominent in taking action against what it sees as Google’s anti-competitive behaviour. Over the past decade, European regulators have fined the company about $10bn for allegedly abusing its market position. But for a company that is worth over $1tn, that seems like small change.
The EU’s Competition Commissioner, Executive Vice President Margrethe Vestager, has signalled that her department must look at other remedies that come with the fines. The slow pace of progress in these cases against Google has led regulators in Europe to rely increasingly on ‘interim measures’, which effectively stop suspected abusive practices until an agreement has been made. Yet EU authorities have also been reluctant to attempt to break up Google because it is, after all, a US company.
US problem, US solution
That is why the antitrust case in the US is an action of a different scale and seriousness. ‘It’s more difficult to win a case in the US than in Europe’, Gene Kimmelman, former Chief Counsel for the DoJ’s Antitrust Division, who now serves as Senior Adviser to the non-profit tech-policy group Public Knowledge, told The Washington Post recently. ‘However, the US in the past has applied more far-reaching remedies, mandating divestitures and breakups.’
What may be of more concern to Amazon, Apple, Facebook and Google is the US administration’s appetite to change the rules of the game. Even if Google loses this case and agrees to alter its practices – which is by no means a certain outcome – the next wave of antitrust legislation will be specifically designed to deal with digital commerce in the 21st century. In other words, revising the antitrust laws could make Google and its rivals play on a new legal operating system.
Arthur Piper is a freelance journalist. He can be contacted at email@example.com
Header pic: Shutterstock.com/Ascannio