Don’t believe the hype: managing expectations for the antitrust investigation of Google

Although much attention has been given to last week’s report that federal and state governments conducting antitrust investigations of Google in the US may file lawsuits as soon as this summer,¹ those keeping score at home would be wise to manage their expectations for a groundbreaking case.

Exactly what kind of case the government is thinking about bringing is not clear, but it appears on track to involve claims that Google has abused a dominant market position in search and advertising. Yet if recent history teaches us anything about such monopolization cases, it is that they are difficult to bring and to expect, at most, incremental–not sweeping–changes in the course of the antitrust laws. That is because any case the government brings will be confined by a strong case law precedent that has in recent decades significantly curtailed the reach of monopolization laws in the US.

Those looking for big change anytime soon would be wise to instead put their energy elsewhere, such as new tech-specific industry regulations. Looking to competition laws—at least as they are currently crafted—for a big fix is only likely to disappoint and frustrate.

The constrained US law on monopolization

The antitrust investigation of Google is being handled by the U.S. Department of Justice (a federal enforcer of the antitrust laws) and State Attorneys General (states could join the DOJ’s case or file their own). Their investigations appear to be focused on unilateral conduct by Google that might be unlawful under US competition laws prohibiting “monopolization” of a market. Monopolization law protects competition by prohibiting a company with a “dominant” position in a market from using that power to prevent other companies from entering, expanding, or effectively competing in the market.

To understand the limits of US monopolization law in the digital economy one should start by considering that–despite all of the public outrage and calls to “rein in big tech”–the most recent high-profile case in the tech sector remains a case from nearly twenty years ago that was about the Windows 95 operation system (OS) for personal computers (PCs). In that case, the government alleged that Microsoft had maintained a monopoly position in the market for PC operating systems by using licensing agreements, technical design, and inducements to hinder the development of cross-platform applications that would run on any OS that competed with Windows. The district court ruled in favor of the government, and its finding that the company violated the antitrust laws against monopolization was upheld by an appeal courts.

Since then, the well-regraded Microsoft decision has provided guidance to countless courts hearing monopolization cases against tech companies. Commentators have even credited it with having injected competition into the market.² Yet despite its prominent position on the antitrust stage, monopolization enforcement and litigation in the US has largely remained as it was in the decades running up to the Microsoft decision: with few options for taking on abusive conduct by monopolists. That is because monopolization case law has–as much as any other part of antitrust law–been a victim of broader economic, legal, and political trends over the last several decades that can be loosely summarized as a strong faith that free markets left to their own devices will correct themselves, so that non-interventionist antitrust policy and market deregulation is preferred.³

The consequence of this in antitrust enforcement and policy–codified in the case law with rulings from federal courts heavily influenced by this so-called “neoliberal” economic approach–is a doctrinal belief that efficiency should guide all antitrust enforcement, and that it’s better to err on the side of government inaction than to meddle too much in private markets. The result for monopolization law is that single-firm conduct is given a strong benefit of the doubt so long as it can be shown to plausibly lower costs and prices–something a trained economist can do in all but the most egregious cases.

This has meant a gradual raising of the bar for plaintiffs (private or government) trying to bring monopolization cases. For example, court rulings in recent decades have whittled away at the ability to make out a case that a dominant company monopolized a market by engaging in predatory pricing (charging below-cost prices to drive out a competitor) or a refusal to deal (refusing a competitor access to an essential facility or input).⁴ And most recently, the Supreme Court threw out a case brought by the DOJ and seventeen State AGs in a ruling that held American Express had not monopolized the market when it prevented retailers accepting its credit cards (which charge higher swipe fees to retailers) from offering discounts or enticements to customers for using competing cards which charge lower fees. By requiring that the government’s case have taken into account not only the conduct’s negative effects on retailers but also any positive effects on customers, the American Express decision made it more difficult to prove up a monopolization claim against a digital platform in a multi-sided market. (Since then, the ruling has already been extended by lower courts into other contexts.)

The takeaway for the antitrust investigation of Google is that any claim of monopolization will run up against a resistant legal, economic, and judicial system.

Putting the current antitrust investigation of Google within the context of previous ones

The conduct currently being investigated by the federal and state governments has not been disclosed other than that it involves Google’s digital advertising business, its general search engine, and possibly its Android operating system for mobile phones. This should comes as no surprise for a monopolization investigation of the tech giant. Google is widely reported as holding large shares of general search and mobile operating system markets, while most of its revenue still comes from digital advertising.

Looking at some recent government inquiries and cases–some in the US, but most abroad, as covered in a recent post–it is possible to make an educated guess what the ongoing antitrust investigation of Google is about. A report released just this week summarizes nicely the likely focus of the investigation in digital advertising.⁵ Its bottom-line is that Google has made itself into a dominant provider of a fully vertically-integrated online advertising ecosystem, and it uses that position–through a combination of technical and design features on its services, various business practices, data use, and acquisitions of existing and potential rivals–to make it difficult for other advertising services to effectively compete. Outside of digital advertising, the Google investigations could also veer into related areas like the display and ranking of competitors in search results (such as “self-preferencing” or “search bias”), monetization of content created by other publishers (such as news “snippets”), as well as tying or bundling of its own services (such as Chrome) with the Android operating system.

But even if other countries have had some success at issue-spotting–and some at even bringing targeted antitrust cases–against Google, the US’s own unique history with Google is probably a better predictor of what is to come in the current investigation.

In 2013, the Federal Trade Commission (the other antitrust enforcer in the US) conducted a comprehensive investigation of whether Google used search bias to favor the display and positioning of its own services over those of competitors listed on Google search results. The FTC decided not to bring an enforcement action because it concluded that “Google adopted the design changes that the FTC investigated to improve the quality of its search results, and that any negative impact on actual or potential competitors was incidental to that purpose.”⁶ It found that the adverse effects of Google’s conduct on some market players was actually “vigorous rivalry” and “a common byproduct of ‘competition on the merits’ and the competitive process that the law encourages.”

Reports indicate that the FTC’s investigation also looked at conduct in the digital advertising sector, including certain contractual restrictions, technical features, and exclusionary practices that made it difficult for other advertising platforms such as Microsoft to effectively compete by attracting advertisers and publishers. Although the staff attorneys conducting the investigation appear to have recommended bringing monopolization claims against Google for that conduct, the Commission voted not to bring a case.⁷ One of the main reasons appears to be the litigation risk associated with the challenges under US antitrust laws of bringing a monopolization claim. Notwithstanding the success of the Microsoft decision, those risks included the predisposition of federal courts to give much deference to companies accused of single-firm abusive conduct based on the-market-will-fix-itself arguments and pro-competitive justifications.

On top of the 2013 investigation by the FTC, over the last decade or so the US antitrust authorities have reviewed–and cleared–several Google acquisitions in the digital advertising sector. What bears noting from these reviews to understand the likely trajectory of the current antitrust investigation of Google is how issues concerning vertical integration across the online advertising ecosystem, and even into other adjacent digital industries, factored into the decision to allow those deals to go through.

In its 2007 decision clearing Google’s acquisition of DoubleClick, the FTC heard opposition to the deal from third-party online advertising competitors who said that combining Google’s ad intermediation with DoubleClick’s ad serving would: (i) lead to bundling or tying of the two services or linking the products technically in ways that would steer users away from competing offerings, and (ii) give Google exclusive access to user data that would prevent other ad services from effectively competing against it. The FTC concluded that Google would not engage in exclusionary practices because its “sophisticated” users would get wise to the scheme and engage in “counter measures” or otherwise turn to alternative ad platforms. Therefore, Google had no “incentive” to engage in such conduct because it “would likely be punished in the marketplace.” The FTC also found that data used by Google was not “an essential input to a successful online advertising product”, and was available to its competitors, too. Thus concerns about combining data “really amount to a fear that the transaction will lead to Google offering a superior product to its customers.”⁸
In its review of a 2010 acquisition of mobile ad network AdMob, the FTC concluded that Google’s competition with Apple in the market for operating systems on mobile phones (Android versus iOS) created a strong incentive for Google not to act anti-competitively in the market for mobile advertising because it would not want to make it more difficult for app developers to monetize their apps since that might hinder the development of apps for Android phones and cause customers to switch to an Apple phone.⁹
In its review of a 2011 acquisition of Admeld, the DOJ considered but concluded there was no risk that the deal “would enable Google to extend its market power in the Internet search industry to online display advertising through anticompetitive means.”¹⁰

The history of cleared Google acquisitions in the advertising sector further reflects the skepticism among US competition authorities, and the challenges put forth by the antitrust laws, that the sort of vertical single-firm conduct likely at issue in the ongoing antitrust investigation of Google could be unlawful. And like the FTC’s monopolization investigation of Google in 2013, these acquisitions were, at least in part, cleared on the basis of a faith that private actors in free markets can protect themselves and the tendency to credit any plausible efficiency justifications.

And so despite more than a decade of their own experience, further informed by what other enforcers around the world have been doing, US competition authorities have not meaningfully intervened in any acquisition or instance of single-firm conduct by Google. That is not meant to second-guess the decisions made by government attorneys and officials in these difficult cases. But the starting point in understanding where the current antitrust investigation of Google is headed should be where others like it ended. In that respect, history suggests a tamer outcome than what some of the hype around the investigation would have us expect.

Of course it is possible that this is the moment when US antitrust authorities use what they have learned from their previous investigations, and from observing the analysis and enforcement actions of competition regulators in other parts of the world, to conclude that a strong case exists for bringing a lawsuit against Google. There would be nothing improper about changing course. The political winds are shifting in favor of more active enforcement against tech. Some economic thinking has evolved from its simpler neoliberal roots. Market conditions have changed: the digital advertising industry is no longer as “fragmented”, fewer existing or potential competitors exist, and the advantage from having sprawling access to user data is evident.

For these and other reasons, this might be an opportune moment to say mea culpa and jump on a bandwagon that already has most of the world’s major competition authorities convinced that aggressive enforcement is needed in the tech sector.

It is possible, at least. But even the most aggressive enforcers would still face a deep-rooted legal framework that makes monopolization cases very difficult to bring. A wall has been erected over many decades by regulators, courts, and academics that believe monopolization claims are valid only under the strictest of circumstances. There is no reason to expect a radical departure from that strong case precedent by the federal courts or the mainstream economic and legal minds that continue to guide the courts’ rulings.

Playing out the possible endgame for the antitrust investigation of Google

Antitrust investigations have three main possible outcomes: the government closes the investigation, it negotiates a settlement to address its concerns, or it sues the company to have a court decide whether there was a violation of the law and what remedy should be imposed.

Public reports suggest that an outright closing of the current investigation is not very likely. Even if the feds folded up their tent (for example, as a result of a sudden shift in the political winds), many of the states would very likely continue on with their own case.

If the enforcers conclude after their investigations that they believe there was a violation of the antitrust laws, the most likely outcome would be a negotiated settlement with Google. Given the significant litigation risks and uncertainties that a monopolization case would pose, a mutually-agreeable settlement would be the preferred route for all parties. The government would achieve some relief in an uncertain legal climate, while the company would get finality and avoid a worst-case-scenario punishment.

Although a settlement is tethered to the government’s theory of the case, practitioners will tell you that these can be free-wheeling negotiations. Especially in the State AG investigations (which by their nature take into account local considerations), all different manners and sources of bargaining leverage on both sides of the negotiation table can bear on the result. But even with the DOJ, where political and other influence can be a factor, the negotiation of a settlement can go down an unpredictable path.

Due to the slow pace of such cases, it is very likely that the antitrust investigation of Google will not be fully resolved before the 2020 elections–making it all the more difficult to predict how a politically-charged negotiation would play out. For example, might Google be able to convince key decision makers that a harsh antitrust case is not in the interest of the national economy (imagine political sensitivities to hitting tech stock market valuations), a particular region (consider the stakes for a state with a lot of tech employment), or public health (what might be the implications of a country dependent on big tech for developing Covid-19 tracing apps and lab-testing websites)? Or might an unpredictable shift in political views about Google impact how a negotiation plays out? One’s imagination can run wild.

To put it simply: if the case enters negotiations, all bets are off. The FTC’s antitrust investigation of Google in 2013 is a good case in point. There, the staff lawyers conducting the investigation are reported to have recommended a sprawling monopolization case against Google, but the case got shut down when it reached higher-level decision makers at the agency. There has been some reporting—never conclusive–of political influence. Another example is the recent FTC investigation of Facebook for violating a previous negotiated settlement order regarding its data protection practices. Despite much hype about how tough the FTC might be on the tech giant this time around, the result was (on top of additional conduct commitments) a $5 bn fine that was more than made up by a same-day increase in the value of Facebook stock following the announcement of the settlement.¹¹

While there is good reason to expect the current antitrust investigation of Google to be resolved through a negotiated settlement, it would be folly to try to predict its terms. They could include any combination of a fine, “behavioral” commitments in how Google operates certain of its businesses, and a “monitor” to watch over the company’s compliance with the remedy. It would be equally foolish to try to predict what impact, if any, the resolution of the case could have on the digital markets that Google operates in. As an elusive remedy in Europe’s seminal antitrust case in Google Shopping has shown (covered in a recent post), getting a legal victory is one thing, but restoring competition to the marketplace is a whole other challenge for enforcers.

If a settlement cannot be reached, the government would have to bring a case and win it at trial to achieve any relief. If it won, it could push for more drastic relief, including a “structural” remedy that requires breaking up parts of Google’s business to restore competition in affected markets. However, there is no strong legal precedent for such a remedy which—though popular in some policy and academic circles–remains outside the mainstream antitrust economic and legal orthodoxy. Even a slam-dunk win by the DOJ in the Microsoft case did not result in structural relief because the trial court’s ruling to break up the company was rejected by an appeals court.

It is also worth remembering that any trial would bring with it significant delay in a resolution of the case. Even if structural remedies were ultimately achieved, an order requiring the break-up of the company would not be entered for many years–and there’s no telling what the digital market would look like by that point. The on-again, off-again antitrust investigation of Microsoft, for example, spanned three presidential administrations (a Bush presidency on each end), with the government’s enthusiasm for the case waxing and waning over that time.

Given the practical considerations and legal limitations facing the government, it is difficult to imagine the ongoing antitrust investigation of Google resulting in a “case of the century” that achieves–especially anytime soon– any “big structural” changes in the digital economy. If experience shows us anything, it is that monopolization cases are difficult to bring and that antitrust enforcement and law does not turn on a dime.

Alternative paths in dealing with big tech

Major jurisdictions around the world are already looking beyond case-specific antitrust enforcement and to sector-specific regulations to tackle the societal and economic impacts of digital platforms like Google (as covered in a recent post). The US is making no such effort, though calls for industry regulation are getting louder¹², as are calls for changing the antitrust laws to allow for more aggressive enforcement.¹³

What this means is that the US is now years behind the rest of the world in its approach on tech enforcement and regulation–competition laws still its main weapon for taking on big tech. This may merely be a practical–but temporary–approach driven by the reality that the current political climate would not permit any meaningful revisions to the antitrust laws or formulation of new tech industry regulation.¹⁴ Or it might reflect the continued divergence of a uniquely American hands-off way of dealing with private markets in general, and the digital economy in particular. However it plays out, the latest antitrust investigation of Google will provide some insight into what sort of future can be expected for the regulation of tech in the US.

The constrained US law on monopolization

Putting the current antitrust investigation of Google within the context of previous ones

Playing out the possible endgame for the antitrust investigation of Google

Alternative paths in dealing with big tech

Leave a Reply Cancel reply