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The First Big Antitrust Trial of the Century Is About to Start
Google's monopoly is going on trial starting September 12. This is the big one. Or rather, it's the start of a series of big ones.
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Since 1890, there have been a few antitrust trials that shaped the biggest corporations in America. Standard Oil. American Tobacco. U.S. Steel. Alcoa. AT&T. IBM. Microsoft. These cases are almost always against high-tech firms that control a key sector of the economy, and win or lose, they determine what our society looks like going forward.
Because of a ruling last week, we’re about to add Google to that list of famous corporations facing a monopolization claim by the government. For two months this fall, a judge named Amit Mehta, who is presiding over this antitrust case against Google, will become one of the most important economic policymakers in the world.
Judge Mehta will be this important because of Google’s outsized place in our society. The firm knows more about most people than their families, answering intimate questions from billions of us, every day, and controlling much of our communications to boot. It has 95% market share in search, annual revenue of a little less than $300 billion, and 15 products with more than 500 million users. We’ve perhaps never seen any corporate asset as powerful as Google search, with marketing professor Scott Galloway going so far as to say in 2017 that “Google is God.”
And at trial, Google will use that dominance as its main narrative, essentially saying 'Why are you picking on us? Our search engine is awesome! Everyone uses us!” The Antitrust Division will hopefully respond with “No, your search engine was awesome, but it’s increasingly ad-filled crap. You’re too powerful, you’re too lazy, and America needs some real competition.”
Which narrative will win? Let’s dive in.
Escaping Nazis, Breaking Up Monopolies
When you walk into the Washington D.C. district courthouse, you encounter a display describing the role of the court as it pertains to corporate power and competition. If you look closer, on the upper right corner, there’s a cartoon of a judge named Harold Greene, drawn as a man in a robe tangled up in phone cords. The cartoon represents Greene’s role in the AT&T antitrust case in 1982, when this confident and smiling judge broke up the biggest corporation in the world, ushering in the modern age of telecommunications
There are many Supreme Court Justices who have served as judges in this district, but it is telling that it’s Greene’s visage on display. And that’s because of the historical importance of the AT&T antitrust case, shown to all who enter the building and pass that hall. The D.C. district court matters because of big swings like that one, because of judges like Greene.
Greene was an immigrant, and an extraordinary American. Born in Germany in 1923, he fled the Nazis, enlisted in the U.S. Army during World War II, and then went to night school. He ended up at the Justice Department, where he helped draft the Civil Rights Act of 1964 and Voting Rights Act of 1965. In 1978, Jimmy Carter put him on the court as a district judge.
A few years later, Greene issued a ruling finding that AT&T was monopolizing a ‘broad variety’ of telecommunications equipment and services. AT&T, realizing it was going to lose, agreed with the Justice Department to break itself up. Greene was a fair man, but no fool. He was highly attuned to the vagaries of political corruption and what Congress meant in passing various antitrust laws, such as the Tunney Act, to let judges block corrupt consent decrees between the government and powerful firms. Greene even disparaged earlier settlements with AT&T by the Department of Justice as “blatantly inequitable and improper,” and demanded one that would fulfill the “goal of de-concentrating AT&T's vast economic power.”
And so it did. The break-up delivered. Rates soon came down for consumers, but far more importantly, there was a massive explosion of innovation, including, in all likelihood, the development of the internet and mobile telephony. It’s hard to overstate the impact of this decision, ushering as it did in the modern telecommunications era. (Greene was known for a time as the ‘father’ of telecommunications law.)
And this remarkably beneficial change happened because the case landed in the lap of a man with a deep perspective on power and life. “I guess my tendency is, in a sense, to be for the person who appears to be pushed around,” Greene said in an interview about how he understood the law as an instrument of fairness for those without power. This isn’t to say Greene always ruled in favor of the little guy, he knew anyone could violate the law. But he did recognize the temptations of power, which he saw up close in Nazi Germany. “I never think my past experience has anything to do with my judicial philosophy,” he said, “but one thing you do learn living in a dictatorship is that there is no impartial law.” Fairness was intrinsic to Greene’s thinking, so he was willing to follow the statute laid out by Congress, even if that meant applying the law as written to an iconic center of concentrated power in America.
The Stakes of the Case
This fall, another immigrant jurist, Judge Amit Mehta, will take up Greene’s mantle, in the same building displaying a cartoon of the great man tangled up in phone cords. Last week, Mehta ruled that today’s giant monopoly, Google, must face the Department of Justice Antitrust Division, as well as state attorneys general, in a trial over whether it has monopolized the search market. Mehta issued an opinion on summary judgment in which he stated that the accusations laid out by the plaintiffs, if proved at trial, show that Google’s business model is illegal, and that the firm might need to be split up.
The case coming to trial was first brought under Trump in 2020 and continued by Biden. It is also the first monopolization case brought to trial by the Antitrust division in 25 years, since Microsoft in 1998.
What’s the allegation in the case? The government argues that Google has a monopoly of general search and search advertising, roughly 90-95% of the market. Google has maintained this monopoly, the government alleges, not by making a better product, but by locking down everywhere that consumers might be able to find a different search engine option, and making sure they only see Google.
How does Google lock out rivals? Well, it pays $45 billion a year to have distributors refuse to carry its competitor’s products, signing deals with “Apple, LG, Motorola, and Samsung; major U.S. wireless carriers such as AT&T, T-Mobile, and Verizon; and browser developers such as Mozilla, Opera, and UCWeb— to secure default status for its general search engine and, in many cases, to specifically prohibit Google’s counterparties from dealing with Google’s competitors.”
Essentially, Google has bought up all of the shelf space where search is placed in front of consumers, which is to say browsers and phones. This behavior is very similar to what Microsoft did in the 1990s, when it bundled its browser with its operating system, and signed deals with ISPs to block its browser rival Netscape from getting access to customers. The analogy isn’t a coincidence, as the Microsoft case is controlling precedent.
It should be a slam-dunk case, and not just because Google search has become much much worse over the last five to ten years, packed increasingly with ads and poor results. To understand why this case makes sense, look no further than the experience of Neeva, a search engine whose quality was as high or higher than that of Google, but died a few months ago because it just couldn’t get access to customers. Neeva, according to David Pierce in the Verge, was “running an AI product, a full-stack search engine, and a privacy-first browser… If people went through all the bother of switching, they became converts,” Pierce wrote. “The problem was that very few of them managed to make it past the thicket of default settings and redirections.”
I actually used Neeva, and it was excellent, an innovative service better than Google. But as all defaults are set to Google, there are an endless number of screens encouraging people to set their search engine to that of the search giant. So Neeva, despite its quality, couldn’t get in front of potential customers. It died.
These default settings and redirections are what’s on trial, because that’s what killed Neeva, and prevents anyone from investing in the next search competitor. If Google is found guilty and disciplined reasonably by being broken apart and having a choice screen imposed, then the new technologies of machine learning/AI will be deployed in a competitive marketplace, with immense possibilities similar to those after the AT&T break-up. And it’s not just newcomers like Neeva who could compete. In 2020, the Financial Times reported that Apple is preparing its own search engine in case its deal with Google falls apart due to this very antitrust case.
So if the government wins, we’ll see immense innovation and new entrants. If Google wins, however, then machine learning/AI will be deployed consistent with how Google, and perhaps Microsoft, chooses to deploy them, which is to say, slowly, un-creatively, and in service to monopoly power.
In many ways, cases like these are why Congress passed the Sherman Antitrust Act in 1890, and why antitrust laws are considered the ‘Magna Carta of free enterprise.’ The inflection point here is like that of telecom in the 1980s - would we be a society of walled gardens controlled by AT&T, or one with competition where consumers could get access to this thing called… the internet? That’s the question Greene answered, with courage and wisdom. And now Mehta gets his shot to answer that same question.
A Time When Monopolies Weren’t Pervasive
But the stakes, and the merits of the case, are about where the similarities between these two periods end. When Greene presided over the AT&T trial, America was a much more equal society, and there simply weren’t very many monopolies. AT&T was an anomaly, a regulated monopoly whose long distance business was being assaulted by MCI and new ways of carrying voice transmission. There was also a fairly robust regulatory apparatus - the Federal Communications Commission hadn’t yet been gutted, and many states regulated phone prices effectively as well. Moreover, antitrust precedent was pretty good, judges were mostly not libertarians, and the corporate world accepted the rule of law as a meaningful check on their behavior.
This is not to say the politics of the case were easy. The Defense Department and the Commerce Department opposed the case, and Ronald Reagan was highly and explicitly favorable to big business. Moreover, the case had been inherited from the Carter administration, and Reagan had a very different view of antitrust. Indeed, his antitrust chief, Bill Baxter, mostly ended antitrust enforcement, dropping the major IBM challenge that had been pursued since the 1960s. But in the case of AT&T, Baxter sought to litigate this particular complaint “to the eyeballs.” There was a very Reaganite rationale to his aggression. Baxter did not care that AT&T was a monopoly, but believed in deregulation, and thought the regulated part of AT&T was unfairly cross-subsidizing its position in long distance. It was an unusual situation, not just Greene getting the case in his lap, but Baxter’s ideological inflexibility and genuine good faith.
Today, almost everything is different. Let’s start with the judge. Mehta is an immigrant, but other than that, his career tracks very much like the technocratic elites characterizing most of our judges. He does not have the experiences of Greene, who saw in the Nazis just how dangerous concentrated power truly can be. By contrast, Mehta grew up in a suburb of Maryland, worked at the big law firm Latham and Watkins for a few years of training, was a public defender in D.C., and then served as a white collar defense attorney. This isn’t to say Mehta is hostile to antitrust, he did block the merger of Sysco and US Foods, though that one was fairly obvious. It’s just that Mehta is mostly a creature of D.C., and he doesn’t, as far as I can tell, have a strong record of recognizing the threat of concentrated corporations, or an instinctive skepticism of the powerful.
We can already see some problematic choices from Mehta. Google executives, including its CEO Sundar Pichai, have been found, in multiple cases, including this one, of destroying evidence related to potential antitrust violations. Apparently, chat logs involving discussions over antitrust show “that Pichai personally asked whether a chat group’s history could be turned off and then attempted to delete that message.” A different judge in California sanctioned Google for this bad behavior, but not Mehta. Indeed, Mehta has fretted about document destruction, but so far has done nothing. This kind of bad faith behavior by Google, and lack of sanctioning from Mehta, is exactly what Judge Greene would never have tolerated. It is a statement through inaction that the law doesn’t apply to the powerful.
One reason for this kind of behavior is that the America in which Mehta is operating is different than the America of Greene’s era. In 1982, AT&T was a one-off, a regulated monopoly in a generally competitive corporate American order. Google, by contrast, is a pace setter of an America that is now full of monopolies, because of the lack of antitrust enforcement for decades. Today, corporate executives see the law as mere suggestions, and generally believe they can get away with anything. Judges have adopted an attitude of deference to corporate power, as Mehta did on document destruction. (This isn’t unique to judges; Merrick Garland’s former spokesperson, Anthony Coley, is a cheerleader for Google and even implied his former boss is engaged in unethical actions in litigating a Trump-era case.)
There is also a loss of faith in American institutions writ broadly, which differs from the 1980s. At the same time as he’s been dealing with Google, Mehta is presiding over trials of January 6th perpetrators, a showcase of the deep fissures that simply did not exist decades earlier. One result is that the politics of corporate power is very different, and that antitrust is on a generational and bipartisan upswing. (Indeed, Trump’s Attorney General Bill Barr brought the case, Biden’s antitrust chief, Jonathan Kanter, is continuing it.)
The net effect is that Mehta is an important actor here, but not as important as Greene. The case is likely to be appealed, probably all the way to the Supreme Court. And if the Supreme Court erodes antitrust caselaw against Google, then Congress will be confronted with the reality that it is hard to use the existing antitrust laws to address big tech. But ultimately if no cases against dominant firms succeed, then eventually Congress will change the law. Moreover, this case isn’t a one-off; the environment is less like AT&T in 1982, or even Microsoft in 1998, and more like that of the turn of the 19th century, when Roosevelt, Taft, and Wilson brought dozens of cases against dominant firms. This is one chapter in the fight over corporate power, but not the only one.
Google: We Are Too Awesome to Be an Illegal Monopoly
So far, I’ve laid out the arguments in the case, and the historical context. But what about Google? What do they say about the allegations? Google’s essential argument is that search is about economies of scale, and that it owns the whole market because consumers prefer its search engine to rivals. While Google may engage in behavior to exclude competitors, it needs to do so to get the data to improve its search engine.
Fundamentally, Google argues, its ability to exclude others is a good deal for America. Consumers love Google search so much that its monopoly is legal. As Google lawyer John Schmidtlein put it, “conduct that is a superior product or competition on the merits cannot, as a matter of law, violate the antitrust laws, regardless of its effect.” Basically, Google argues, we can do whatever we want as long as we can show consumers are happy.
While this argument isn’t necessarily persuasive to me, it is a very strong narrative to someone like Mehta. To people like us, it’s clear that Google is coasting, and produces an increasingly shoddy product. (As one ex-Googler recently put it, “Google has 175,000+ capable and well-compensated employees who get very little done.”) Google used to be magic, but that was 10 years ago. Today search increasingly sucks, full of too many ads and crappy results peddled for Google’s own self-interest. For instance, as the Washington Post noted in 2020:
The Internet Archive’s Wayback Machine stored some Google search results over the years. When we look back, a picture emerges of how Google increasingly fails us. There’s more space dedicated to ads that look like search results. More results start with answer “snippets” — sometimes incorrect — ripped from other sites. And increasingly, results point you back to Google’s own properties such as Maps and YouTube, where it can show more ads and gather more of your data.
Many judges believe what corporate executives say, and so Mehta is likely to hear from Google’s CEO that economies of scale are all that drives product quality, and he may buy that.
I bet Google executives believe that as well. Still, such an argument isn’t very different from what every monopoly has always argued; Standard Oil discussed how it brought cheap kerosene to the masses, AT&T stressed its awesome quality and universal service, and Alcoa said that its control over aluminum was a result of its focus and dedication to America. Monopolists always believe they are serving humanity, but Congress made it clear by passing antitrust laws that monopolies, whatever they may say or think, are not actually doing that. And the evidence, from Standard Oil’s break-up leading to the development of gasoline to the suit against IBM creating the software industry, suggests Congress was right.
So What Just Happened This Week?
Last week, Mehta ruled in the summary judgment stage, which is the part where the judge decides what the trial will be about. Trials clear up factual and legal disputes, so the decision this week was about which disputes should be litigated. What Mehta ruled is most of the Antitrust Division’s case is good to go.
Google’s main argument to get the case dismissed was that the various contracts to set Google as the default search engine weren’t exclusive, since consumers and partners could technically choose other search engines to use if they wanted to. Mehta rejected this argument, and said that the issue would be decided at trial. That was a big loss for Google. There were a few technical areas where Google narrowed the path for the Antitrust Division to win, but the core of the case is on to trial.
The main win for Google was on the state attorneys general case, led by Colorado. Colorado made bigger claims than the DOJ, arguing that Google self-preferenced its own reviews ahead of Yelp’s, or its own travel services ahead of those like Expedia. Judge Mehta tossed these claims, saying that services like Yelp and Expedia aren’t general search engines and are therefore not in the same market as Google. It was a highly technical and annoying way to read certain legal questions, but bringing an antitrust case has become virtually impossible unless it’s done perfectly. Fortunately, a lot of the case survived.
The net effect is that a trial will start on September 12 and go for roughly two months. Depending on what happens, there may be additional time spent on a remedy, or it may go on appeal. As witnesses testify, from Google executives to rivals, we’re going to learn an enormous amount about how the internet developed, how advertising is sold, and why decisions about what we search for happen the way they do. It’s pretty disconcerting so much key evidence was destroyed, but it will still be a massively educational experience.
This trial, and even the case, isn’t the end. There are other cases that Google has to deal with into the fall and next year. For instance, Judge James Donato is allowing a class action trial over Google’s app store monopoly in November, which could cost Google tens of billions of dollars in damages. And in another case, Google has been trying to keep an antitrust claim from the state of Texas and a bunch of state AGs in New York, but a judicial panel just ruled that the case will go back to be heard in Texas. Then there’s the Federal government’s trial in Virginia on Google’s monopolization of the software underpinning most online advertising. Other parts of the firm, like Google Maps, are being investigated as well.
I can’t say this trial will work out one way or the other. Given his passivity as Google destroyed documents, Judge Mehta has aways to go before he lives up to the legacy of Harold Greene. But I don’t want to assume anything, or be unfair to Mehta. After all, current antitrust caselaw is much weaker than it was in 1982. And frankly, the case is bigger than Mehta, or the D.C. Circuit judges who will hear an appeal, or perhaps even the Supreme Court. The public is actually engaged in a way they haven’t been in our lifetimes. Ten years ago, the FTC shut down a monopolization case against Google with a 5-0 vote, and zero controversy. That would never happen today. Indeed, regardless of how Mehta rules, it’s going to be a big deal.
Reviving laws to constrain corporate power takes time, as people within many institutions must change their minds, and come to grips with the choice of living in a free society or one dominated by monopolies. Fortunately, that change is happening. In September and October, we’ll start to see some of the fruits of that change. And hopefully, Judge Mehta will live up to the legacy of the D.C. district court, set forty one years ago by the courage of Harold Greene.
Thanks for reading! Your tips make this newsletter what it is, so please send me tips on weird monopolies, stories I’ve missed, or other thoughts. And if you liked this issue of BIG, you can sign up here for more issues, a newsletter on how to restore fair commerce, innovation and democracy. And consider becoming a paying subscriber to support this work, or if you are a paying subscriber, giving a gift subscription to a friend, colleague, or family member.
P.S. Sorry for the late publication of this newsletter issue. For most of this week I was at the National Association of Attorneys General antitrust bootcamp, where I spoke. It was deeply refreshing compared to most of the corporate lawyer, nonprofit and judicially influenced environment in which I operate. Attorneys general are elected, which means they are responsive to voters, but they are also legally oriented and tethered to social problems happening in their state. 10 state AGs from both parties showed up in a hard-to-reach part of Connecticut just to talk about antitrust. That’s awesome.
The monopoly news round-up for paying subscribers will come out tomorrow.