Google up against laws that thwarted Microsoft (and others since 1890)
By Steve Lohr
Two weeks ago, House lawmakers concluded a 16-month investigation into Amazon, Apple, Google and Facebook and called for sweeping changes to curb their market power. The lawmakers’ verdict: Traditional antitrust laws aren’t up to the challenge, and the laws need their biggest overhaul in more than 40 years.
But the Justice Department, after its own 16-month investigation, filed a major suit against Google on Tuesday relying on those very same antitrust laws. And according to the agency, the laws are more than enough to successfully challenge Google’s monopoly behavior.
That’s because under existing antitrust laws, a company is a violator if it has used restrictive contracts to protect its dominant position, undermining competition and thus harming consumers. The Justice Department, in constructing its case against Google, followed those requirements to the letter.
Its suit, which was joined by 11 states, accuses Alphabet’s Google of cutting a series of exclusive deals with Apple and other partners that thwarted competition in the markets for search and search advertising. That stifling of competition, the suit says, ultimately leads to consumer harm by giving people fewer choices.
“The case looks narrow but fairly strong,” said Herbert Hovenkamp, a professor at the University of Pennsylvania Law School. “The focus on restrictive contracts by a dominant company is as old as the Sherman Act,” which is the bedrock antitrust law of 1890.
Google, in a statement, called the government action “a deeply flawed lawsuit that will do nothing to help consumers.”
Whether antitrust laws need modernizing and whether the Justice Department can win its case against Google with existing laws are not mutually exclusive matters. Both are expected to proceed along parallel tracks. The House lawmakers’ recommended changes to antitrust law are simply a legislative framework and may take years to come to fruition. And the Justice Department’s action against Google is also likely to be protracted, with the company saying Tuesday that it expected the case to take at least a year to go to trial.
The specifics of the Justice Department action, legal experts said, strongly echo the last major antitrust case against a big technology company, Microsoft. That suit, filed in 1998, claimed Microsoft was using its gatekeeper power as the owner of a dominant personal computer operating system, Windows, to block the potential threat from internet browsing software.
The Justice Department accused Microsoft of using restrictive contracts with PC makers and others to inhibit the distribution of the software of Netscape Communications, the commercial pioneer in the browser market.
And it worked. After a lengthy trial, Microsoft was found to have repeatedly violated the nation’s antitrust laws.
“That was the last big win for the government, so it makes sense to map a similar path,” said Sam Weinstein, a former official in the Justice Department’s antitrust division and a professor at the Cardozo School of Law.
The Microsoft case also helps the government make an argument for consumer harm in the Google case. In antitrust, consumer welfare is often associated with a monopolist demonstrating its power by raising product prices to maximize profit.
Google’s search service is free to consumers, which means the government cannot point to rising prices. But prices didn’t really figure into the Microsoft case, either. The software giant bundled its web browser for free into its dominant Windows operating system.
Consumer harm, the government argued, can result in several ways. Less competition in a market means less innovation and less consumer choice in the long run. That, in theory, could close the market to rivals that collect less data for targeted advertising than Google does. Enhanced privacy, for example, would be a consumer benefit.
“The harm is to competition, and the consumer loses as a result,” said Tim Wu, a professor at the Columbia Law School (and a contributing New York Times opinion writer).
Yet the Microsoft case is also a cautionary example. It took years, with a settlement eventually approved in 2002. Its effect is debated to this day. Without the suit and years of scrutiny, some observers said, Microsoft could have throttled the rise of Google.
Others insisted that the technological shift toward the internet and away from the personal computer meant that Microsoft lost the gatekeeper power it once held. Technology, not antitrust, opened the door to competition, they said.
The Justice Department, in its suit and in a briefing with reporters, was vague about what remedies the government would propose if it won the case. But at this stage, Google is so dominant in search that giving consumers the choice to select another search engine may not make much of a difference.
Google is regarded not only as a search service that provides relevant results but also as a verb — what people think of as internet search. Given a choice, they might well choose Google, and the company would argue that was because it was a superior product that people preferred.
“It’s hard to argue that this case, whatever the outcome, will really change the competitive landscape in search,” said A. Douglas Melamed, a former senior official in the Justice Department’s antitrust division, who is a professor at the Stanford Law School.
The standard critique of antitrust law, with its lengthy court battles, is that it is late and slow, unsuited to addressing anticompetitive concerns in fast-moving high-tech markets. That is a genuine concern, legal experts said.
Still, filing the suit this week could make a difference, they agreed.
“A suit like this one does send signals to the market and to the firm itself about what kind of competitive behavior is acceptable,” said Scott Hemphill, a professor at New York University Law School.