Justice Department Files Antitrust Lawsuit Against Google

[IceWizard]

Justice Department Files Antitrust
Lawsuit Against Google

Suit follows lengthy investigation into company’s dominance of
search traffic and effect on competition


By Brent Kendall and Rob Copeland
Updated Oct. 20, 2020 11:12 am ET



The Justice Department filed an antitrust lawsuit Tuesday
alleging that Google engaged in anticompetitive conduct to
preserve monopolies in search and search advertising that
form the cornerstones of its vast conglomerate.

The long-anticipated case, filed in a Washington, D.C.,
federal court, marks the most aggressive U.S. legal challenge
to a company’s dominance in the tech sector in more than
two decades, with the potential to shake up Silicon Valley and
beyond. Once a public darling, Google attracted considerable
scrutiny over the past decade as it gained power but avoided a
true showdown with the government until now.

The Justice Department alleged that Google, a unit of Alphabet Inc.,
GOOG 2.08% is maintaining its status as gatekeeper to the internet
through an unlawful web of exclusionary and interlocking business
agreements that shut out competitors. The government alleged that
Google uses billions of dollars collected from advertisements on its
platform to pay for mobile-phone manufacturers, carriers and
browsers, like Apple Inc.’s Safari, to maintain Google as their preset,
default search engine.

The upshot is that Google has pole position in search on hundreds of
millions of devices in the U.S., with little opportunity for any competitor
to make inroads, the government said.

The lawsuit also took aim at arrangements in which Google’s search
application is preloaded, and can’t be deleted, on mobile phones
running its popular Android operating system. The government
alleged Google unlawfully prohibits competitors’ search applications
from being preloaded on phones under revenue-sharing arrangements.

Google owns or controls search distribution channels accounting for
about 80% of search queries in the U.S., the lawsuit said. That means
Google’s competitors can’t get a meaningful number of search queries
and build a scale needed to compete, leaving consumers with less
choice and less innovation, and advertisers with less competitive prices,
the lawsuit alleged.

“Today’s lawsuit by the Department of Justice is deeply flawed,” a
Google spokeswoman said. “People use Google because they choose
to—not because they’re forced to or because they can’t find alternatives.
We will have a fuller statement this morning.”

Alphabet’s shares opened Tuesday up roughly 1%, ahead of the broader
market, after The Wall Street Journal first reported news of the
impending suit.

The Mountain View, Calif., company, sitting on a $120 billion cash hoard,
is unlikely to shrink from a legal fight. The company has argued that it
faces vigorous competition across its different operations and that its
products and platforms help businesses small and large reach new
customers.

Google’s defense against critics of all stripes has long been rooted in
the fact that its services are largely offered to consumers at little or
no cost, undercutting the traditional antitrust argument pointing to
potential price harms to those who use a product.

The lawsuit follows a Justice Department investigation that has stretched
more than a year, and comes amid a broader examination of the handful
of technology companies that play an outsize role in the U.S. economy
and the daily lives of most Americans.

A loss for Google could mean court-ordered changes to how it operates
parts of its business, potentially creating new openings for rival companies.
The Justice Department’s lawsuit didn’t specify particular remedies; that
is usually addressed later in a case. One department official said nothing
is off the table, including possibly seeking structural changes to Google’s
business.

A victory for Google could deal a huge blow to Washington’s overall scrutiny
of big tech companies, potentially hobbling other investigations and
enshrining Google’s business model after lawmakers and others challenged
its market power. Such an outcome, however, might spur Congress to take
legislative action against the company.

The case could take years to resolve, and the responsibility for managing
the suit will fall to the appointees of whichever candidate wins the Nov. 3
presidential election.

The challenge marks a new chapter in the history of Google, a company
formed in a garage in a San Francisco suburb in 1998—the same year
Microsoft Corp. was hit with a blockbuster government antitrust case
accusing the software giant of unlawful monopolization. That case, which
eventually resulted in a settlement, was the last similar government
antitrust case against a major U.S. tech firm.




Google’s billionaire co-founders Sergey Brin, left, and Larry Page,
shown in 2008, gave up their management roles but remain in
effective control of the company.
PHOTO: PAUL SAKUMA/ASSOCIATED PRESS




Google started as a simple search engine with a large and amorphous
mission “to organize the world’s information.” But over the past decade
or so it has developed into a conglomerate that does far more than that.
Its flagship search engine handles more than 90% of global search
requests, some billions a day, providing fodder for what has become a
vast brokerage of digital advertising. Its YouTube unit is the world’s
largest video platform, used by nearly three-quarters of U.S. adults.

Google has been bruised but never visibly hurt by various controversies
surrounding privacy and allegedly anticompetitive behavior, and its
growth has continued largely unchecked. In 2012, the last time Google
faced close antitrust scrutiny in the U.S., the search giant was already
one of the largest publicly traded companies in the nation. Since then,
its market value has roughly tripled to almost $1 trillion.

The company enters this legal showdown under a new generation of
leadership. Co-founders Larry Page and Sergey Brin , both billionaires,
gave up their management roles last year, handing the reins solely
to Sundar Pichai , a soft-spoken, India-born engineer who earlier in
his career helped present Google’s antitrust complaints about Microsoft
to regulators.

The chief executive has in his corner Messrs. Page and Brin, who remain
on Alphabet’s board and in effective control of the company thanks to
shares that give them, along with former Chief Executive Eric Schmidt ,
disproportionate voting power.

Executives inside Google are quick to portray their business divisions as
mere startups in areas—like hardware, social networking, cloud computing
and health—where other Silicon Valley giants are further ahead. Still, that
Google has such breadth points to its omnipresence.

European Union regulators have targeted the company with three antitrust
complaints and fined it about $9 billion. The cases haven’t left a big imprint
on Google’s businesses there, and critics say the remedies imposed on it
have proved underwhelming.

In the U.S., nearly all state attorneys general are separately investigating
Google, while three other tech giants— Facebook Inc., Apple and
Amazon.com Inc. —likewise face close antitrust scrutiny. And in Washington,
a bipartisan belief is emerging that the government should do more to police
the behavior of top digital platforms that control widely used tools of
communication and commerce.

A group of 11 state attorneys general, all Republicans, have joined the
Justice Department’s case, officials said. More could join later, according
to the court docket. Other states are still considering their own cases
related to Google’s search practices, and a large group of states is
considering a case challenging Google’s power in the digital advertising
market, The Wall Street Journal has reported. In the ad-technology market,
Google owns industry-leading tools at every link in the complex chain
between online publishers and advertisers.

The Justice Department also continues to investigate Google’s
ad-tech practices.

Democrats on a House antitrust subcommittee released a report this
month following a 16-month inquiry, saying the four tech giants wield
monopoly power and recommending congressional action.
The companies’ chief executives testified before the panel in July.

“It’s Google’s business model that is the problem,” Rep. David Cicilline
(D., R.I.), the subcommittee chairman, told Mr. Pichai. “Google evolved
from a turnstile to the rest of the web to a walled garden that increasingly
keeps users within its sights.”

“We see vigorous competition,” Mr. Pichai responded, pointing to travel
search sites and product searches on Amazon’s online marketplace.
“We are working hard, focused on the users, to innovate.”

Amid the criticism, Google and other tech giants remain broadly popular
and have only gained in might and stature since the start of the
coronavirus pandemic, buoying the U.S. economy—and stock
market—during a period of deep uncertainty.

At the same time, Google’s growth across a range of business lines over
the years has expanded its pool of critics, with companies that compete
with the search giant, as well as some Google customers, complaining
about its tactics.

Specialized search providers like Yelp Inc. and Tripadvisor Inc. have long
voiced such concerns to U.S. antitrust authorities, and newer upstarts
like search-engine provider DuckDuckGo have spent time talking to
the Justice Department.

News Corp, owner of The Wall Street Journal, has complained to
antitrust authorities at home and abroad about both Google’s search
practices and its dominance in digital advertising.

Some Big Tech detractors have called to break up Google and other
dominant companies. Courts have indicated such broad action should
be a last resort and only if the government clears high legal hurdles,
including by showing that lesser remedies are inadequate.

The outcome could have a considerable impact on the direction of
U.S. antitrust law. The Sherman Act, which prohibits restraints of
trade and attempted monopolization, is broadly worded, leaving
courts wide latitude to interpret its parameters. Because litigated
antitrust cases are rare, any one ruling could affect governing
precedent for future cases.

The tech sector has been a particular challenge for antitrust enforcers
and the courts because the industry evolves so rapidly. Also, many
products and services are offered free to consumers, who in a sense
pay with the valuable personal data companies such as Google collect.

The search company famously outmaneuvered the Federal Trade
Commission nearly a decade ago.

The FTC, which shares antitrust authority with the Justice Department,
spent more than a year investigating Google but decided in early 2013
not to bring a case in response to complaints that the company engaged
in “search bias” by favoring its own services and demoting rivals.
Competition staff at the agency deemed the matter a close call, but
said a case challenging Google’s search practices could be tough to win
because of what they described as mixed motives within the company:
a desire to both hobble rivals and advance quality products and services
for consumers.

The Justice Department’s case doesn’t focus on a search-bias theory.

Google made a handful of voluntary commitments to address other
FTC concerns. The resolution was widely panned by advocates of stronger
antitrust enforcement and continues to be cited as a top failure.
Google’s supporters say the FTC’s light touch was appropriate and didn’t
burden the company as it continued to grow.

The Justice Department’s current antitrust chief, Makan Delrahim, spent
months negotiating with the FTC last year for jurisdiction to investigate
Google this time around. He later recused himself in the case—Google
was briefly a client years before while he was in private practice—as the
department’s top brass moved to take charge.

The lawsuit comes after internal tensions, with some department staffers
questioning Attorney General William Barr ’s push to bring a case as quickly
as possible, the Journal has reported. They worried the department hadn’t
yet built an airtight case and feared a rush to litigation could lead to a loss
in court. They also worried Mr. Barr was driven by an interest in filing a
case before the election. Other staff members were more comfortable
moving ahead.

Mr. Barr has pushed the Justice Department to move ahead on the belief
that antitrust enforcers have been too slow and hesitant to take action,
according to a person familiar with his thinking. He has taken an unusually
hands-on role in several areas of the department’s work and repeatedly
voiced interest in investigating tech-company dominance.



Attorney General William Barr has pushed to bring an antitrust
case against Google, in some cases taking an unusually hands-on
role in preparations.
PHOTO: MATT MCCLAIN/PRESS POOL




If the Microsoft case from 20 years ago is any guide, Mr. Barr’s concern
with speed could run up against the often slow pace of litigation.

After a circuitous route through the court system, including one initial
trial-court ruling that ordered a breakup, Microsoft reached a 2002
settlement with the government and changed some aspects of its
commercial behavior but stayed intact. It remained under court
supervision and subject to terms of its consent decree with the
government until 2011.

Antitrust experts have long debated whether the settlement was tough
enough on Microsoft, though most observers believe the agreement
opened up space for a new generation of competitors.

—Ryan Tracy contributed to this article.




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