Fifteen years after it was first investigated, search giant Google is finally going to be held accountable for unfairly thwarting competition.
“After having carefully considered and weighed the witness testimony and evidence,” wrote Judge Amit Mehta in his decision in the case of United States of America vs Google LLC, “the court reaches the following conclusion: Google is a monopolist, and it has acted as one to maintain its monopoly. It has violated Section 2 of the Sherman Act.”
Make no mistake, this decision is huge for Google, the web, and the revival of monopolization law against giants across the economy.
What happened?
The government’s case against Google was simple. The search giant pays tens of billions of dollars a year to companies that distribute search engines — Apple, LG, Motorola, Samsung, AT&T, T-Mobile, Mozilla, Opera, UCWeb, and Verizon — to make sure it is the only search engine consumers used.
As one analyst put it in 2020: “The government is saying that Google is … putting its search engine in front of consumers so rivals — like Bing or DuckDuckGo — never get a chance to compete. The most important way to distribute search engines is to be the preset default general search engine on a device; most consumers simply never change their defaults. To take advantage of this dynamic, Google has agreements with mobile phone companies like Apple and Samsung, wireless carriers like AT&T and Verizon, and browser companies like Mozilla to gain default status for Google.”
In other words, it bought up all the shelf space. Such a tactic, a monopolist paying off partners to prevent distribution of a rival, is called “monopoly maintenance.”
So what’s the harm?
The alleged harms of this monopoly maintenance are what you would expect. The government argues it allowed Google to raise prices for advertisers without regard to the prices of ads on other digital platforms, and has allowed Google to forgo quality improvements in privacy and other areas that it would have otherwise pursued. Consumers are also deprived of the potential for a higher-quality search engine that could emerge if there was healthier competition.
In the late 2010s, Apple began building a search engine to compete with Google, which it would presumably use as its default for the iPhone. But then Apple stopped development, because Google’s sharing of monopoly rents from its search engine was too lucrative to be ignored. Apple now earns tens of billions of dollars from Google for putting Google as the preset default on its Safari browser, with virtually no cost. The public, advertisers and websites are deprived of competition from an Apple search.
Mehta’s decision
The key question for Judge Mehta was whether default arrangements were mechanisms to monopolize or just smart business. “If defaults matter a lot,” Weisman wrote in a piece titled The Power of Defaults early in the trial, “that suggests that consumers aren’t necessarily using Google because of its quality. But if defaults don’t matter that much, that strengthens Google’s claim that people use Google because it’s the best.”
It turns out that Judge Mehta thinks defaults matter, a lot. “Google,” he wrote, “has a major, largely unseen advantage over its rivals: default distribution.”
Mehta quoted Google’s behavioural economics team in 2021 discussing how much defaults matter, noting consumers don’t change their search engine very often, if ever. “Inertia is the path of the least resistance,” this team said internally. “People tend to stick with the status quo, as it takes more effort to make changes.” Mehta further observed that because of Google’s set of contracts, only 30 per cent of consumers ever get the chance to have access to the web without being defaulted to Google. That is, 70 per cent of the market is foreclosed to competition.
Fundamentally, this case is about two different visions of the internet. Google has tried to portray itself as an upstart fighting for innovation in an open web. The company likes to portray itself as having been founded in a rented garage, when competition was merely a click away. However, Mehta didn’t buy it. “The internet of today is a far different animal,” he said in his opinion. “Hundreds of millions of dollars is just the opening ante to enter the search market in part because of the internet’s dramatic growth; billions are needed to acquire meaningful market share. The next great search engine (if there is to be one) will not be built in a rented garage like Google.”
Next steps
This part of the trial was what is called the liability phase, which is to determine whether Google broke the law. Judge Mehta found that it did. The next stage is called the remedy phase, during which the court will hear arguments about what to do to address the bad conduct. He has ordered both parties to propose a schedule for the remedy phase by Sept. 4.
What does this decision mean?
The implications of this decision will have ripple effects across the internet, the law, and big business for generations.
Let’s start by putting it in context for Google. We have to remember that this monopolization case isn’t Google’s first. Last December, Google lost a monopolization case in a jury trial to Epic Games, which claimed Google monopolized access to mobile app stores. The judge is nearly done with the remedy phase, which could revolutionize mobile phones. Google is also facing a different case on its control of advertising software, in a trial starting next month.
But this case is critical to freeing the web. As a colleague once told me, “Going after Google for anything but search is like trying to deal with Standard Oil without touching oil.” So there we go, Google’s control of the web is ending.
What will a non-Google dominated web look like? Well, it’s hard to know, but I think there’s a vision tucked in an April speech by Federal Trade Commission consumer protection chief Sam Levine on how the internet didn’t have to become the cesspool that it is today. He sketched out what the internet could become if well-regulated, a place where we have zones of privacy, where not everything operates like a casino, and where AI works for us. This case brings us a step closer to Levine’s vision, because it means that people who want to build better, safer products now have the chance to compete.
So that’s Google. What about the rest of business? Well, this decision means monopolization law is back. Exclusive contracts and arrangements are pervasive in American commerce, and until recently, executives could reliably exploit such deals without fearing that they might face any legal liability. But that era is over. This case is in the headlines, which means every single competent executive in America in any firm with market power is going to get a memo from their antitrust or general counsel on what they can and can’t do going forward. And they will likely begin changing their behaviour to avoid being brought to court for monopolization.
And that, more than almost anything, is what the rule of law means.
Postmedia News
Matt Stoller is the publisher of the newsletter BIG and the author of “Goliath: The 100-Year War Between Monopoly Power and Democracy.”