Justice Department Says Google ‘Flexed Its Muscle’ as a Monopolist

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Author: Luke Goldstein
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The American Prospect

WASHINGTON – On Tuesday, the government opened its first major monopolization case in decades at the D.C. District Court with opening statements from both the Justice Department’s Antitrust Division and the defendant, Google.

Despite the stakes of the trial, the remainder of the legal proceeding will take place in a near-total blackout, since requests for public audio have been denied by Judge Amit Mehta and even in-person attendants are restricted from digital access inside the courtroom.

For nearly two decades, Google has served as the “on-ramp” and gatekeeper of the digital world through its dominance of search engine functions, which is the target of this case. The government has unveiled a separate case against Google for its rollup of the digital advertising market. Though related, that case relies on distinct evidentiary claims, some of which will feature prominently in the current trial.

To win a Sherman Act monopolization case given the prevailing understanding of the law by most courts, the government not only has to prove that Google’s market share qualifies it as a monopoly, but also show that it’s used this dominant position to harm competition. That’s the task ahead for the DOJ Antitrust Division’s team, led by attorney Kenneth Dintzer, who also served on the Microsoft case, the last major tech antitrust case from the late 1990s.

In the DOJ’s opening statement, Dintzer previewed the main points that the government will use to make its case for how Google has abused its monopoly power over general search.

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The opening remarks focused on Google’s explicit strategy to become the default search engine by striking deals worth billions of dollars across browsers, mobile, and desktop devices. As Google became the default search engine, most consumers were conditioned to use its product rather than switching to alternative search engines. Switching costs will be a major point of contention during the trial, as Google disputes that there are any difficulties imposed on internet users. Dintzer held up multiple studies on barriers to switching, as well as internal documents revealing that Google itself identified switching costs as a key strategy to defend its market.

The widest-known example of these special deals is Google’s licensing agreements with Apple, the largest mobile and computer appliance maker, to be its default browser on Safari. Dintzer also cited Google’s agreements with Samsung for Android devices and Mozilla’s Firefox browser. Google’s loss of that agreement with Firefox at one point led to a significant drop in market share over search, as Dintzer pointed out.

Together, Google paid tens of billions of dollars to secure these agreements. (The full amount is unknown and will stay unknown to the public because Google has successfully contended that it constitutes a trade secret; the figures will be redacted from trial transcripts and confined to court sessions closed to the media.) To the government, that’s clear evidence of the value Google placed on becoming the default search engine, though Google’s lead attorney later disputed the anti-competitive nature of these deals in his opening statement.

For nearly two decades, Google has served as the “on-ramp” and gatekeeper of the digital world through its dominance of search engine functions.

The first witness examination called forward by the government cast doubt on this claim. While examining Hal Varian, Google’s chief economist and longtime consultant, Dintzer pointed to internal company communications showing that Google viewed the “power of defaults” as “the Achilles heel” for competitors Yahoo and Bing (owned by Microsoft). Varian is credited with coining the term “power of defaults,” though he downplayed his role on the stand.

Company communications presented by Dintzer also revealed that Varian and other top-level Google employees appeared to consciously dissuade private use of the term “market share,” anticipating future antitrust concerns, instead opting for “query share” to denote the company’s capture of search engine traffic. Varian responded that query share was a more accurate term.

Besides the default strategy’s windfalls to Google, the government presented evidence that over the course of its relationship with Apple, Google leveraged its revenue-sharing agreements to limit access to alternative search engines, as well as Apple’s development of its own search engine.

In a lesser-known case, Dintzer showed how Samsung’s plan to develop a search engine tool called Branch Metrics, which would help consumers switch browsers more easily, was squashed by Google because it threatened their default position. Google leveraged its Android agreement to undercut the development of Branch, the government said. Though not a direct competitor search engine, it would have enhanced competition against Google.

These default deals locked consumers into Google search and eventually led to scale, the second major monopolistic feature that the DOJ identified. Scale allows Google to collect vast amounts of data to train its search engine, and also optimize data portfolios on user patterns for advertisers. By achieving unprecedented scale, Dintzer argues that Google’s data collection places barriers to entry for competitors.

The graveyard of competitors includes not just Bing and Yahoo, which have waned over the years in the shadow of Google. The scale and data advantage make it all but impossible for new entrants to gain a foothold, one example being the recent failure of newcomer Neeva, a once-promising search engine startup created by former Google engineers.

The final component of the DOJ’s argument is that Google has used these massive troves of data on users to dominate the advertising technology for placing general search ads.

The legal representative for 38 state attorneys general who are co-plaintiffs in the case, Bill Kavanaugh, laid out the technical details of how Google’s adtech ownership tilts the playing field against competitors and leads to rising costs for advertisers. It also is a point of leverage to punish competitors: Google repeatedly delayed and refused to allow its advertising tools to support Microsoft ad features.

It’s notable that much of the government’s opening argument involved the details of adtech, since it has a second case coming against Google focused explicitly on its adtech control. In this case, the government’s argument is narrowly aimed at Google ad tools for search, namely Google Search Ads 360 (SA360), whereas the scope of Google’s adtech control is much broader and more intricate for other services, such as for newsroom ad placements.

Judge Amit Mehta, who is presiding over the case and will be its sole decider in this bench trial, periodically engaged Dintzer with questions to specify the DOJ’s timeline for monopolization and clarify definitions of terms like “market share” and “browser.” In one notable exchange, the judge asked Dintzer to specify at what exact point in time the government alleges that Google became a monopoly. Dintzer replied that roughly 12 years ago Google flexed its muscle as a monopolist to crush competitors through its revenue-sharing agreements with mobile providers and web browsers, but it reached monopoly status much earlier in the 2000s.

The scale and data advantage held by Google make it all but impossible for new entrants to gain a foothold in the search engine market.

Google’s lead lawyer, John Schmidtlein of Williams & Connolly, responded with the defendant’s opening statement.

Schmidtlein’s rebuttal rests on two major arguments. First, Google cannot have a monopoly on search because it’s impossible to define the market for search queries. A search for restaurants would place it in competition with Grubhub and Uber Eats; searches for retail goods put it up against Amazon and others.

What’s more, Schmidtlein claimed that even if Google were a monopolist, it’s only because consumers prefer using Google since they’ve built a superior product.

Schmidtlein said Google’s default positions (which he described as not exclusive) have pro-competitive spillover effects in other markets outside of search, such as in web browsers and other cellphone providers, by incentivizing them to build better products.

Google also will try to make the case about Microsoft, claiming the government is merely protecting another dominant incumbent firm from Google’s own competitive forces in the search market. Other search engines like DuckDuckGo and Neeva have been relatively ignored by the defendants’ legal team.

Pro-antitrust enforcement attendees at the trial noted that it was a bold decision to call on Varian, a luminary in the economics field within academia, as the government’s first witness for examination. Some initially questioned the strategy, but after the testimony many were singing the government’s praises for Dintzer’s handling of the examination. Along with showing that the power of defaults was a conscious strategy to acquire monopoly power and that antitrust issues were a concern inside the company, another Google memo brought forward by the government exposed scale as a company priority.

Varian, in an interview with CNET from 2009, famously was quoted saying, “Scale is bogus.” However, communications between Varian and Google’s head of search, along with other company employees, illustrates that many top-level technologists at the company vehemently disagreed. Google’s chief scientist even said, “We don’t have better algorithms, we just have more data.”

In examination, Dintzer suggested that Varian may have been trotted out on a press interview to downplay the importance of scale to the company to preemptively try to avoid antitrust concerns.

Google’s legal team objected to Dintzer’s lines of inquiry through the examination, interrupting to demand that Judge Mehta block unwarranted evidence and often referring to documents as “hearsay.”

By the time Google’s legal reps tried to intervene over the question of “scale,” their repeated objections wore on the judge’s patience. Judge Mehta rejected their protest with incredulity since Google’s legal team was calling an unedited interview transcript with their top economist “hearsay.” There were audible laughs from the courtroom audience.

Many antitrust reformers left the court confident about the trial ahead after the government’s performance on the first day. In a statement, the American Economic Liberties Project’s counsel Lee Hepner said, “The Department of Justice’s opening arguments revealed that Google’s dominance over search not only ‘hermetically seals off competition,’ but also allows it to flex its power to influence how other companies, like Apple and Samsung, market and develop their own products.”

On his way out of the courtroom, Google’s top in-house lawyer Kent Walker, described as the company’s “steady old hand” by The New York Times, was photographed alongside popular D.C. activist the “Monopoly Man” stalking him in the background.

Luke Goldstein is a writing fellow at The American Prospect.

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Source URL: https://portside.org/2023-09-13/justice-department-says-google-flexed-its-muscle-monopolist