Google embroiled in US antitrust proceedings

Google has been the subject of global regulatory scrutiny in relation to recent accusations of anticompetitive practices. It is alleged that the tech giant’s dominance in search and search advertising markets, as well as advertising technology supply chains has created a ‘continuous and self-reinforcing cycle of monopolisation’. Notably, the US Department of Justice filed an antitrust lawsuit in October 2020, which was followed by subsequent suits in December 2020. 

Landmark proceedings brought against Google

On 20 October 2020, the US Department of Justice, along with eleven state Attorneys General, filed a civil antitrust lawsuit in the US District Court under the Sherman Antitrust Act. The suit was intended to stop Google from unlawfully maintaining monopolies through anticompetitive and exclusionary practices in the search and search advertising markets and to remedy the competitive harms.

Google remains the monopoly gatekeeper to the internet for billions of users and countless advertisers worldwide. It accounted for 90% of all search queries in the US, and it is alleged that anticompetitive tactics have been used to maintain and extend its monopolies in search and search advertising markets. As a consequence, this may harm competition and consumers, stifling the innovation and development of new companies. The Department of Justice sought to ‘stop Google’s anticompetitive conduct and restore competition for American consumers, advertisers, and all companies now reliant on the internet economy’.

The basis for this joint claim regards the series of exclusionary agreements that Google has entered with major device manufacturers including Apple and Samsung, as well as major US wireless carriers such as AT&T, Verizon and T-Mobile. These agreements require that Google is the default search engine on various search tools, and in most cases, prohibit counterparties from dealing with Google’s competitors. The monopoly profits driven by such exclusionary agreements are then fed back into Google’s purchasing of preferential treatment for its search engine on devices and web browsers. In effect, it was argued that this has created a continuous and self-reinforcing cycle of monopolisation. 

These are the most significant antitrust proceedings since the Department brought historic action against AT&T in 1974 and Microsoft in 1998. Notably, the case against Microsoft recognised that US antitrust laws forbid anticompetitive agreements involving pre installation of default technology, which then effectively closes the distribution channels of rivals and rendering software undeletable. The Department of Justice alleges that Google has entered into similar agreements with Apple in the present case to augment its own dominance in search and search advertising technology markets.

Attorney General Barr issued a formal statement to accompany the lawsuit filing. He reiterated findings of the Antitrust Division’s 16-month investigation which began in July 2019. It was found that Google no longer competes only on their merits, but instead uses its monopoly power, and monopoly profits to lock up key pathways to search on mobile phones and browsers, depriving rivals of distribution and scale. As a result, no one can feasibly challenge Google’s dominance in search and search advertising. Under traditional economic theory, this ultimately harms advertisers and small businesses in the form of fewer choices, reduced quality (including in relation to privacy), higher advertising prices, and less organic innovation.

Google’s response and the ‘Aggregation Theory’

Google has also publicly defended itself against the claims, stating that the Department’s complaint relies on dubious antitrust arguments which criticise Google’s efforts to improve consumer experience. Google also stressed that people do not use Google because they have to, they use it because they choose to. Given that the most searched term on Microsoft’s search engine Bing, quite ironically, is ‘Google’, this argument carries some merit, and reinforces that Google is the search engine of choice. This is expected to form the basis for Google’s defence.

The Aggregation Theory, popularised by Stratechery’s Ben Thompson, effectively explains why Google’s control of search and search advertising markets should be understood as a ‘virtuous cycle’, as opposed to a ‘continuous and self-reinforcing cycle of monopolisation’, which was posited by the US Department of Justice. At a high level, the Aggregation Theory suggests that Google’s monopoly over the value chain in search and search advertising essentially drives the best user experience. Google, as a distributor, provides the best experience, which earns the most consumers, which increases accuracy of data, attracting the most suppliers, and therefore ultimately allows Google to provide the best experience. This explains, at a high level, why Thompson explores the possibility that Google is operating a ‘virtuous cycle’.

This essentially removes Google from the class of traditional monopolists, since Google, as an Aggregator, maintains dominance by developing best-in-class products for consumers. The tech giant has maintained in its public defence against the various suits, that their practices in search and search advertising markets is consumer-centric. The US Department of Justice therefore devised its legal argument around the contracts Google entered into, which are understood as artificial means that allow Google to extend its monopoly.

However, concerns of underlying partisan politics have been raised. Ten of the eleven states that brought the suit are traditionally Republican states. Some commentators have indicated that the lawsuit may have been timed for the presidential election.

Successive lawsuits pile up

On 16 December, ten states accused Google of engaging in ‘false, deceptive, or misleading acts’ with regard to control of buyers and sellers in its digital advertising auction system. This is a key issue under investigation by the ACCC in their Digital Advertising Services Inquiry, also known as the ‘Ad Tech Inquiry’, which began on 10 February 2020.

The next day, 38 Attorneys General subsequently brought a bipartisan claim alleging Google’s search results favoured its own services over competitors with regard to the display of search results. Google once more maintained a consumer-centric defence, arguing that redesigning the algorithms driving search results would ultimately harm consumers. This claim is likely to be consolidated with the Department of Justice’s claim, filed on 20 October 2020.

More recent troubles

Google gathered further scrutiny recently, after it announced its plan to block ‘cookies’ on certain sites. Fundamentally, cookies are packets of data that record login or site visit information, that are stored inside web browsers. They are the primary web tracking tool relied on by most online advertising technology companies for gathering data. Although Google claims that the removal of cookies is intended to improve user privacy in its Chrome browser, their removal would drastically reduce competition by preventing rival advertising technology companies from gathering data. Notably, Google would still be able to gather data through ‘loopholes’ and other analytics tools.

The Department of Justice has the option of amending its existing complaint filed on 20 October 2020 to include concerns over advertising technology supply chains. As above, such concerns have been a focus of the ACCC’s ongoing Ad Tech Inquiry.

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