The "Googleplex," the corporate headquarters of Google LLC and Alphabet Inc., Mountain View, Calif.
Photo by Jimmy Baikovicius, licensed under CC BY-SA.There must be a natural law of political behavior that dictates every generation shall send out its own antitrust Don Quixote to tilt at the windmill of Big Tech.
In the 1970s, the adversary was IBM, whose very nickname – Big Blue – hinted at the evils that lurked behind those suburban office park walls in Armonk, New York. In the 1990s it was Microsoft, seemingly hell bent on achieving World Wide Domination one web browser at a time.
Now it’s Google’s turn.
The Justice Department, joined by 11 Republican state attorneys general, sued Google LLC (a unit of parent company Alphabet Inc.) in federal court this week. They accused it of violating the Sherman Antitrust Act by “unlawfully maintaining monopolies in the markets for general search services, search advertising, and general search text advertising in the United States through anticompetitive and exclusionary practices.”
These nefarious practices include letting consumers use its search engine and many other useful functions – such as mail, calendars and some amount of cloud storage – for free; paying Apple, a major competitor, an estimated $8 billion to $12 billion annually for making Google the default search engine on its mobile devices; offering similar revenue-sharing to other handset makers who license Google’s Android operating system and compete with Google’s Pixel line of smartphones; and dominating an estimated 90% of the U.S. online search market even though, with trivial effort, consumers can switch if they choose to do so.
To win its case, the government will have to show that somebody is somehow harmed by these ostensibly illegal practices. It isn’t easy to prove that someone is harmed by willingly accepting free stuff. The government is therefore reduced to arguing that consumers pay for all these free Google services with “personal information and attention ... [which] Google then monetizes ... by selling ads.”
Do I need to worry that if I watch too much of tonight’s scheduled presidential debate, I might be making an illegally large contribution of my valuable time and attention to one or both of the candidates? Do I have to report this contribution to the agencies that keep track of such things? Do I get a discount if someone’s microphone gets muted?
The government also makes the argument that advertisers are harmed by Google’s practices. There might be something to this claim, but unfortunately, it isn’t part of the government’s case. It is hard to argue that advertisers are harmed when the vendor they use delivers an attentive and relevant audience. The argument that isn’t in this particular case would be much more technically complex, dealing with the way Google has involved itself at virtually every stage where online ads are auctioned and distributed. It did this through a series of acquisitions, each of which individually avoided antitrust challenge. Whether this could or should be unwound is literally an argument for another day.
Some observers were surprised when Alphabet’s stock price rose immediately after the case was filed. It was the financial equivalent of an eye roll that said “Here we go again.”
IBM came to dominate the mainframe computer market in the 1960s. Its System/360 line of computers were groundbreaking in their scalability and flexibility in handling scientific and commercial applications. Besides drawing some separate challenges from competitors, which had no material effect on the company, IBM attracted the interest of the Justice Department. The government sued in 1969. It gave the company a forensic colonoscopy, brought its case to trial in 1975 and finally (after the more market-oriented Reagan administration took office) abandoned its case as “without merit” in 1982.
By that time, “minicomputers” such as those offered by Digital Equipment Corporation had long since broken IBM’s hold on the lower end of the commercial market. The IBM PC was also spreading across office desktops around the world. IBM had pulled in its horns as a result of the antitrust scrutiny, however. Rather than create its own operating system for the PC, it licensed Microsoft’s MS-DOS (labeled PC DOS on IBM’s own machines) but left it freely available for a galaxy of cloned PCs to emerge. It also paved the way for Microsoft’s rise, to the point that it became the government’s next big tech target.
This came in waves during the 1990s, as Windows replaced MS-DOS as the dominant desktop operating system and just as the World Wide Web was making internet access an essential utility. Microsoft was aggressive at using Windows to dominate the market for desktop applications such as spreadsheets and word processors, elbowing out earlier leaders such as Lotus 1-2-3 and WordPerfect. (If you don’t know these programs, ask your parents.) Later, Microsoft pushed aside early leader Netscape to make Internet Explorer the leading platform in what became known as the browser wars.
The climactic case was filed in 1997. In 2000, U.S. District Judge Thomas Penfield Jackson ordered the breakup of Microsoft into separate companies to sell the operating system and the applications.
That breakup never happened.
The Court of Appeals for the D.C. Circuit upheld some, although not all, of Jackson’s findings that Microsoft violated Section 2 of the Sherman Act. This week’s suit against Google makes note of this. It does not, however, mention that the appeals court found that Jackson repeatedly and egregiously violated judicial ethics by granting press interviews while the case was at trial. In those interviews, Jackson displayed a strong distaste for Microsoft and its management. The appeals court also found that Jackson had made no effort to justify his drastic order in light of the sustainable violations he had found.
The court took the highly unusual step of removing Jackson from the case and, while not reversing the antitrust findings that it had sustained, sending the case back for another judge to determine the appropriate remedy. Jackson’s Big Bang order dissolved into a whimper in 2002. District Judge Colleen Kollar-Kotelly approved a settlement in which Microsoft agreed to make some minor changes in its business practices.
The case against Google hinges on reasoning that is circular almost to the point of being silly. It makes much of the fact that, although consumers can readily change the default browser on their smartphones, they very seldom do. Thus, by making Google the default (and paying device manufacturers to do it), Google locks us into its eyeball-grabbing ecosystem.
Want to change your iPhone’s default search engine? A simple search (on Google!) tells you how. Just go to settings, then Safari, then search engine. You can choose from Bing, Yahoo or DuckDuckGo if you prefer to move away from Google.
Want to get more consumers to change their default search engine? Try using one of those other services. The vast majority of users want Google to be their search engine, so making it the default is a feature, not a bug. Credit Apple with figuring out a way to make Google pay it to do what it would have done anyway. A default setting should work for the greatest number of people, not everyone. That’s why if you die without a will, the law gives your estate to your spouse and children, not to your cousin or your auto mechanic. If you want to leave a bequest to your auto mechanic, you can – it will just take a bit more effort.
Nobody must use Google for search, or for email, or to maintain their calendars or contacts or cloud-based data. Alternatives abound and are readily available to anyone who cares. The fact that not very many people care is not proof of anti-competitive conduct; it is proof of serving the needs of a market. As the appeals court noted in the Microsoft decision, “a monopolist does not violate the Sherman Act simply by developing an attractive product.”
There may indeed be some antitrust exposure in Google’s structure or practices, but this case may not even address it, let alone change it. History teaches that whenever a tech company is perceived as too big or powerful, the folks who make power their business – that’s people in government – try to cut it down to size. Market forces and technological change usually do the job sooner and better, however.
At the heart of the matter is the question of what antitrust law is meant to do. Antitrust litigators in government keep convincing themselves its function is to promote competition for competition’s sake. But the ultimate beneficiary of competition is the customer. When customers are being harmed, or could be better served, competition (especially in the world of ideas, including tech) naturally and quickly emerges. When customers are not being harmed, then there is no remedy that can make matters better, and so litigation tends to bring very little change.
Each generation of antitrust lawyers seems destined to learn that it is Quixote who moves on. The windmills just keep quietly doing their thing.
Posted by Larry M. Elkin, CPA, CFP®
The "Googleplex," the corporate headquarters of Google LLC and Alphabet Inc., Mountain View, Calif.
Photo by Jimmy Baikovicius, licensed under CC BY-SA.
There must be a natural law of political behavior that dictates every generation shall send out its own antitrust Don Quixote to tilt at the windmill of Big Tech.
In the 1970s, the adversary was IBM, whose very nickname – Big Blue – hinted at the evils that lurked behind those suburban office park walls in Armonk, New York. In the 1990s it was Microsoft, seemingly hell bent on achieving World Wide Domination one web browser at a time.
Now it’s Google’s turn.
The Justice Department, joined by 11 Republican state attorneys general, sued Google LLC (a unit of parent company Alphabet Inc.) in federal court this week. They accused it of violating the Sherman Antitrust Act by “unlawfully maintaining monopolies in the markets for general search services, search advertising, and general search text advertising in the United States through anticompetitive and exclusionary practices.”
These nefarious practices include letting consumers use its search engine and many other useful functions – such as mail, calendars and some amount of cloud storage – for free; paying Apple, a major competitor, an estimated $8 billion to $12 billion annually for making Google the default search engine on its mobile devices; offering similar revenue-sharing to other handset makers who license Google’s Android operating system and compete with Google’s Pixel line of smartphones; and dominating an estimated 90% of the U.S. online search market even though, with trivial effort, consumers can switch if they choose to do so.
To win its case, the government will have to show that somebody is somehow harmed by these ostensibly illegal practices. It isn’t easy to prove that someone is harmed by willingly accepting free stuff. The government is therefore reduced to arguing that consumers pay for all these free Google services with “personal information and attention ... [which] Google then monetizes ... by selling ads.”
Do I need to worry that if I watch too much of tonight’s scheduled presidential debate, I might be making an illegally large contribution of my valuable time and attention to one or both of the candidates? Do I have to report this contribution to the agencies that keep track of such things? Do I get a discount if someone’s microphone gets muted?
The government also makes the argument that advertisers are harmed by Google’s practices. There might be something to this claim, but unfortunately, it isn’t part of the government’s case. It is hard to argue that advertisers are harmed when the vendor they use delivers an attentive and relevant audience. The argument that isn’t in this particular case would be much more technically complex, dealing with the way Google has involved itself at virtually every stage where online ads are auctioned and distributed. It did this through a series of acquisitions, each of which individually avoided antitrust challenge. Whether this could or should be unwound is literally an argument for another day.
Some observers were surprised when Alphabet’s stock price rose immediately after the case was filed. It was the financial equivalent of an eye roll that said “Here we go again.”
IBM came to dominate the mainframe computer market in the 1960s. Its System/360 line of computers were groundbreaking in their scalability and flexibility in handling scientific and commercial applications. Besides drawing some separate challenges from competitors, which had no material effect on the company, IBM attracted the interest of the Justice Department. The government sued in 1969. It gave the company a forensic colonoscopy, brought its case to trial in 1975 and finally (after the more market-oriented Reagan administration took office) abandoned its case as “without merit” in 1982.
By that time, “minicomputers” such as those offered by Digital Equipment Corporation had long since broken IBM’s hold on the lower end of the commercial market. The IBM PC was also spreading across office desktops around the world. IBM had pulled in its horns as a result of the antitrust scrutiny, however. Rather than create its own operating system for the PC, it licensed Microsoft’s MS-DOS (labeled PC DOS on IBM’s own machines) but left it freely available for a galaxy of cloned PCs to emerge. It also paved the way for Microsoft’s rise, to the point that it became the government’s next big tech target.
This came in waves during the 1990s, as Windows replaced MS-DOS as the dominant desktop operating system and just as the World Wide Web was making internet access an essential utility. Microsoft was aggressive at using Windows to dominate the market for desktop applications such as spreadsheets and word processors, elbowing out earlier leaders such as Lotus 1-2-3 and WordPerfect. (If you don’t know these programs, ask your parents.) Later, Microsoft pushed aside early leader Netscape to make Internet Explorer the leading platform in what became known as the browser wars.
The climactic case was filed in 1997. In 2000, U.S. District Judge Thomas Penfield Jackson ordered the breakup of Microsoft into separate companies to sell the operating system and the applications.
That breakup never happened.
The Court of Appeals for the D.C. Circuit upheld some, although not all, of Jackson’s findings that Microsoft violated Section 2 of the Sherman Act. This week’s suit against Google makes note of this. It does not, however, mention that the appeals court found that Jackson repeatedly and egregiously violated judicial ethics by granting press interviews while the case was at trial. In those interviews, Jackson displayed a strong distaste for Microsoft and its management. The appeals court also found that Jackson had made no effort to justify his drastic order in light of the sustainable violations he had found.
The court took the highly unusual step of removing Jackson from the case and, while not reversing the antitrust findings that it had sustained, sending the case back for another judge to determine the appropriate remedy. Jackson’s Big Bang order dissolved into a whimper in 2002. District Judge Colleen Kollar-Kotelly approved a settlement in which Microsoft agreed to make some minor changes in its business practices.
The case against Google hinges on reasoning that is circular almost to the point of being silly. It makes much of the fact that, although consumers can readily change the default browser on their smartphones, they very seldom do. Thus, by making Google the default (and paying device manufacturers to do it), Google locks us into its eyeball-grabbing ecosystem.
Want to change your iPhone’s default search engine? A simple search (on Google!) tells you how. Just go to settings, then Safari, then search engine. You can choose from Bing, Yahoo or DuckDuckGo if you prefer to move away from Google.
Want to get more consumers to change their default search engine? Try using one of those other services. The vast majority of users want Google to be their search engine, so making it the default is a feature, not a bug. Credit Apple with figuring out a way to make Google pay it to do what it would have done anyway. A default setting should work for the greatest number of people, not everyone. That’s why if you die without a will, the law gives your estate to your spouse and children, not to your cousin or your auto mechanic. If you want to leave a bequest to your auto mechanic, you can – it will just take a bit more effort.
Nobody must use Google for search, or for email, or to maintain their calendars or contacts or cloud-based data. Alternatives abound and are readily available to anyone who cares. The fact that not very many people care is not proof of anti-competitive conduct; it is proof of serving the needs of a market. As the appeals court noted in the Microsoft decision, “a monopolist does not violate the Sherman Act simply by developing an attractive product.”
There may indeed be some antitrust exposure in Google’s structure or practices, but this case may not even address it, let alone change it. History teaches that whenever a tech company is perceived as too big or powerful, the folks who make power their business – that’s people in government – try to cut it down to size. Market forces and technological change usually do the job sooner and better, however.
At the heart of the matter is the question of what antitrust law is meant to do. Antitrust litigators in government keep convincing themselves its function is to promote competition for competition’s sake. But the ultimate beneficiary of competition is the customer. When customers are being harmed, or could be better served, competition (especially in the world of ideas, including tech) naturally and quickly emerges. When customers are not being harmed, then there is no remedy that can make matters better, and so litigation tends to bring very little change.
Each generation of antitrust lawyers seems destined to learn that it is Quixote who moves on. The windmills just keep quietly doing their thing.
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