Antitrust Lawsuit Against Google


Thursday, October 22, 2020

William Murphy

Professor Bill Murphy discusses the US Department of Justice’s antitrust lawsuit against Google, delving into Google's business practices, how lawsuits against Microsoft compare, and what may happen with other big tech companies. Produced and Hosted by A. J. Kierstead

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Legal topics include business, antitrust, monopoly, technology

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A. J. Kierstead (Host):

Professor Bill Murphy discusses the U.S. Department of Justice's antitrust lawsuit against Google. This is The Legal Impact presented by the University of New Hampshire Franklin Pierce School of Law. Now accepting applications for JD, graduate programs, and online professional certificates. Learn more and apply at law.unh.edu. Opinions discussed are solely the opinion of the faculty or host and do not constitute legal advice or necessarily represent the official views of the University of New Hampshire. So, Bill, what does this lawsuit against Google allege?

Bill Murphy:

If you read the complaint, I think it captures it pretty well. It says they're charging Google with being the monopoly gatekeeper for the internet and that they have used anti-competitive tactics to maintain and extend its monopolies in the markets for general search services, search advertising, and general search text advertising. So those are the three markets that they are accusing Google of monopolizing.

A. J. Kierstead (Host):

Is this specific to Google, or Google specifically as a subsidiary, or is this also go after Alphabet?

Bill Murphy:

Google is a 100%-owned subsidiary of Alphabet. So Alphabet is the parent company, but Google is the entity that did this particular activities. Full disclosure, I do have a stock position in Alphabet. It's so minor that it wouldn't influence me either way.

A. J. Kierstead (Host):

A lot of people do. I mean, I probably have it in my portfolio somewhere in my 401k.

Bill Murphy:

You better check it.

A. J. Kierstead (Host):

I know, right?

Bill Murphy:

They're going to come after you right now after this.

A. J. Kierstead (Host):

I'm next. What I've heard on the consumer side of this is basically this comes down to Google kind of paying to be able to be the default browser and various web browsers like Android, basically, you have no choice, it's Google by default, and services like that. Is that true?

Bill Murphy:

That's the accusations in this particular complaint. Interestingly enough, they've charged these three markets with monopolizing activities, but a lot of the complaint talks about actions that happen in the device sector. I think a lot of people might be shocked at some of the activities that Google has gone through in order to make sure that the search browser that you are presented with. Now, it's not like there's a lot of choices so that's Google's defense. Google's saying, "Yes, we're the default, but people would probably pick it anyway."

Bill Murphy:

A lot of people forget that even a Yahoo!, which people say, "Oh, that's a choice." Yahoo!, either used to use Bing, and now they use Google as their search engine. They don't actually go out and send a crawler out and use their own algorithms to present the items that they get. So there's not a lot of choice out there. DuckDuckGo is very tiny and aimed at the privacy market. And then there's Bing and then it's Google. I mean, I've used Google today. You probably have. I mean, almost everybody, every day and particularly on the mobile devices, that's pretty much the whole market is Google.

A. J. Kierstead (Host):

Now, what could happen to Google as a result of this? I mean, like you said, the competition that's at this level is not vast. I mean, what does the Department of Justice expect to get out of this suit?

Bill Murphy:

Okay. It might be important to also note, it's not just the Department of Justice. There's 11 attorney generals who also signed on. So some states actually have signed on to this complaint as well. The remedy section of the complaint, the 64-page complaint, runs one page. So if you look at the remedy section, there is a reference to structural remedies they might look to. Which normally, we think of that as some sort of spinoff, breakup, restructure the business. Those are more drastic than behavioral remedies. Then it's mention of that, telling Google they can't do certain practices. You can't have the exclusive arrangements with certain providers. You can't have an exclusive contract with every Android phone or something, which interestingly enough, they also own the Android operating system.

A. J. Kierstead (Host):

That's extremely rough there. I mean, if you own the operating system, I mean... It's not like Apple, where they have their own internet-based search engine. Android is Google.

Bill Murphy:

Right. If you look at it, they have Chrome computers, very popular in schools because they're cheap. They're search engine's going to be a Google. Why would Google want to pay somebody else, or Alphabet, depending on how it's structured because the Chrome might be a separate division? It does make some sense, but the problem is not on the consumer side. On the consumer side, we probably all like this. Perhaps on the other suppliers that might want to come up, they don't like this. And particularly, the one that they didn't talk much about, but I think has more of the difficult problems is in this whole ad business.

Bill Murphy:

And that, I think, has Google in a lot of the positions. They are the ad server. They're the number-one ad server when they bought DoubleClick a number of years ago. They become the ad server. The ad servers then serve up the ad space that people want to these exchanges. They have the largest exchange with the DoubleClick ad exchange, which is now called AdEx. Then, if you go down, those are offered up. They have the Ad Manager now where they combined their product for the publishers and then the exchange. They also have the number-one tool on the buying side, which is the DV360. So Google's in all these spaces as you try to place an ad onto the internet.

Bill Murphy:

This auction, a lot of people think, "Oh, it's probably an even-steven auction." It really isn't. Google set it up so that they get the last bid in. So everybody else bids, and then Google comes in and it's like, "Well, I'll beat you or not." They really have, over the years, through acquisitions and even ownership of things like AdWords, where they know a lot about what's going on. When I put in, not that I'm just buying those spaces where I'm trying to advertise or something, but I want when you search for something on the internet about a topic and I can serve up ads that might be related to it. You always see that, I search up, "What's the best used car?" And suddenly, you see some used car ads or new car ads.

Bill Murphy:

Google's data gathering and analyzing capabilities are so vast that they have an advantage there as well. And a lot of people want to tap into that AdWords capability, which is a product that, Oh, Google sells as well.

A. J. Kierstead (Host):

Now, what's confusing for me is, is this basically something that was inevitable for Google? I mean, as a company that basically started so early in the internet game when it started really hitting the consumer market, it blew up, they were able to acquire all these small companies that were kind of offshoots of what they were doing anyways, was there a way they could not have ended up in this current spot?

Bill Murphy:

Well, it might not have been Google, but this is clearly what we start to see is what we call a winner-take-all market. A number of years ago, I had a paper and I'm working on a more elaborate paper on self-organizing monopolies. In the industrial age, monopolies didn't self-organize much because you got diminishing returns and you got to a certain size, but there's only so much you could be. There weren't infinite scale effects. The marginal costs were diminishing returns. The items were scarce that you were dealing with. So a lot of these contribute to a self-organization that would keep the marketplace somewhat in a competitive mode.

Bill Murphy:

These self-organized into monopolies, that it really is like somebody's going to start winning. And then because of network effects, switching costs, scale effects, which are mentioned in that complaint, learning curve effects, somebody's going to be so far ahead of everybody else that actually it'll be cheaper for me to produce this product than anybody else. The consumers are looking at this. Listen, every time Google has a search, they get better. They've added more data. Every time they're self-driving car drives around, it collects information. It contributes to the database. Every time somebody goes on Waze, which they bought and added it to their whole Google mapping technology, I take information from you. "Oh, you drove to here." So that enhances their data understanding.

Bill Murphy:

Then, they bought the AI companies that help them analyze this data. So they pretty much run away with the game. What can you do now? So I think that brings us back to the whole problem. Well, now what? Are we just going to split them in half and you have two bad servers? What I think we're going to see probably at some long-term is that, well, maybe the data part becomes like a essential service in a separate company that offers it to everybody at some level, just like that's the open-source part. And you all get access to it, but you can do what you want with it and Google can do what it wants with it and so on. But then, do they have enough incentive to feed that other business? You don't want to kill the goose that's laying the golden eggs just because they got a lot of eggs.

A. J. Kierstead (Host):

How does this compare to Microsoft with their antitrust suit that was in the '90s?

Bill Murphy:

The Microsoft suit, obviously, was one of the first we had in this space. One might add, did it work? Probably the best that we can say of it is it distracted Microsoft for a number of years that other competitors came up. But it wasn't in the operating system, it turned out they missed the phones and Apple took over the phones business from Nokia, even. Microsoft has tried to get into that phone space, but they just didn't have the product. Whether or not that could have done it if they weren't distracted, who knows? But I do think that that law informs the current law.

Bill Murphy:

But people would say, "Well, was that effective?" The exclusive parts of the Microsoft situation, where Microsoft... Originally, there was two Microsoft case. The original one was they would charge every computer manufacturer a price to put in Windows whether they put it in or not. Well, your incentive then is to put in Windows and don't bother with anybody else. By the time we actually got around to winning that case in the United States government, they'd already won the game. So they said, "Okay, we won't require that anymore." Well, everybody wants it anyway. So that's the other problem with antitrust, by the time you get the answer for the stuff they're doing now, we've moved on so far that it won't make a difference.

A. J. Kierstead (Host):

This basically plays off to the future. I mean, I've asked before whether it was inevitable with Google to end up in this situation. Essentially, some of these companies are their competition, in another way, they're kind of parallel industries is Amazon and Facebook. I mean, can we expect these sorts of lawsuits against these companies from, obviously, they've had it in the EU and things like that, but what about in the U.S.?

Bill Murphy:

I think we have to classify the group of digital titans and tech giants as frienemies. They're friendly on certain levels, and they're not so friendly on other levels. I think they're all sort of the edges on some of their own spaces with each other. I do think that we also have to be informed not just by this case. This case is unusual in some ways. It's filed just before an election by an attorney general who's clearly a Republican, and it's only had Republican AGs. Although, three of the AGs are in states where there's Democratic governors so you must wonder that must be interesting at that state house where, "Why are you filing this lawsuit?"

Bill Murphy:

But not too long ago, earlier this month, the House of Representatives Judiciary Committee and the Subcommittee on the Antitrust and Competition Laws came out with a 450-page report about all four of the major tech giants. They've come up with some pretty far-ranging suggestions of changes that would affect not only Google, Apple, and everybody else. We can address some of the issues here. They would introduce a new topic called abusive dominance. That is a type of offense that the Europeans use it that we don't use that would reinforce this idea of monopoly leveraging. You can't have a monopoly in one market and leverage that into another market. They would ask us to redefine some of the terms in some of the cases and the interpretations and move away from this strictly economic consumer welfare benefit. Because now, I'm getting a product for free. I'm happy, but what's going on on the other side of that market where the platform is giving me a free product although I'm paying for it with my data but then they process and sell dearly to other people that are paying for their whole business?

A. J. Kierstead (Host):

This might be going down a rabbit hole, but I mean, that might help Amazon ultimately when it comes to it because they're a mix. I mean, they have some of the advertising side, but a majority of their products that they use are directly paid for by either the enterprise client or the direct consumer.

Bill Murphy:

Yeah. The problem's always going to be are you favoring your own products, and are you using the data that you pick up because you're at the data node? Like Amazon sees what every third-party seller's selling on Amazon and then they go, "Wow, that product's taken off." I don't get the information from the marketplace the way that I used to get it and everybody had it through pricing signals and so on. Amazon now gets it because they see it. They have the data, they analyze it and they go, "Wow, this is a hot market. We're getting in it."

A. J. Kierstead (Host):

And they also scoop up little companies just as bad as any of the others, for sure. Because I mean, Chewy, Audible, Woot. I mean, look the bottom of Amazon.com, and you'll be shocked by the number of companies that are under their umbrella.

Bill Murphy:

And look at where they are. They're one of the top firms now in iCloud. I mean, this was a bookseller not that long ago and now, they're the top iCloud seller. Even the United States' government's negotiating with them to use their iCloud. Well, why they need that? Because they're really data companies. Facebook, Amazon, Google, Apple, you look at the core of what they're doing, they're data companies, and that's the key advantage that they have.

A. J. Kierstead (Host):

Thanks for listening to the Legal Impact presented by UNH Franklin Pierce School of Law. To help us spread word about the show, please be sure to subscribe and comment on your favorite podcast platform, including Apple Podcasts, Google Play, and Spotify