The Google Antitrust Lawsuit: Initial Observations

The Google Antitrust Lawsuit: Initial Observations

Legal Sidebar
The Google Antitrust Lawsuit:
Initial Observations
October 23, 2020
On October 20, 2020, the Department of Justice and eleven Republican state attorneys general
(hereinafter “DOJ”) filed a long-anticipated antitrust lawsuit against Google, al eging that the tech giant
has unlawfully monopolized the markets for general internet search services and search advertising. The
complaint follows an investigation of “Big Tech” platforms that the DOJ launched last summer and
represents the Department’s most significant antitrust case since the Microsoft litigation that began over
twenty years ago. The lawsuit also implicates an area of intense congressional interest: earlier this month,
the House Antitrust Subcommittee released a report concluding that major tech companies—including
Google—have engaged in exclusionary conduct that violates the antitrust laws. This Legal Sidebar
provides an overview of the Justice Department’s al egations and offers initial observations on their
relationship to existing antitrust doctrine.
Monopolization Doctrine: The Basics
Section 2 of the Sherman Antitrust Act makes it unlawful to “monopolize” commerce. But the statute
does not define that key term, leaving the courts to flesh out its content. In unpacking this language, the
Supreme Court has explained that the mere possession of monopoly power is not il egal. Instead, a firm
violates Section 2 only if it has monopoly power and engages in exclusionary conduct to achieve,
maintain, or enhance that power.
An antitrust plaintiff typical y establishes that a defendant has monopoly power by showing that it has a
dominant market share that is likely to be durable. This process requires parties to define the scope of the
market in which the defendant operates—that is, the denominator in the market-share fraction. Plaintiffs
predictably argue that defendants compete in narrow markets with few rivals, while defendants ordinarily
maintain that they struggle in large markets awash with adversaries. The legal test goes as follows: a
relevant antitrust market consists of the good or service at issue in a given case and al others that are
“reasonably interchangeable” with it.
In addition to establishing that a defendant has a dominant market share, monopolization plaintiffs
typical y must prove that the defendant’s dominant position is likely to be durable. Plaintiffs usual y try
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to satisfy this burden by showing that the defendant is insulated from potential competitors by significant
entry barriers.
When it comes to Section 2’s “conduct” element, courts have held that a wide range of behavior—
including predatory pricing, tying, and exclusive dealing—can qualify as impermissibly exclusionary
depending on the circumstances. Evaluations of a monopolist’s conduct general y proceed under a three-
part burden-shifting framework. First, a Section 2 plaintiff must make a prima facie case that a
defendant’s conduct had anticompetitive effects. Second, if the plaintiff makes this showing, the
defendant must proffer a “procompetitive justification” for its conduct—that is, a non-pretextual claim
that its conduct is a form of competition on the merits. If the defendant cannot adduce such an argument,
the plaintiff prevails. But if the defendant presents a procompetitive justification for its behavior, the
burden shifts back to the plaintiff to show that the anticompetitive harms of the chal enged conduct
outweigh its procompetitive benefits.
As this framework suggests, distinguishing exclusionary behavior from vigorous-but-legal competition
can be highly fact-intensive. Monopolization suits therefore often turn on detailed inquiries into the
effects of the precise conduct that is being chal enged.
The Lawsuit’s Central Claims
Monopoly Power
The DOJ’s lawsuit al eges that Google has monopoly power in the markets for “general search services,”
“search advertising,” and “general search text advertising.” According to the complaint, Google occupies
dominant shares of each market: 88 percent of “general search services” and over 70 percent of “search
advertising” and “general search text advertising.”
The DOJ further contends that Google’s dominance is likely to be durable in light of the significant entry
barriers surrounding these markets. Because a search engine’s accuracy improves as it obtains more data
from more searches, the DOJ argues that Google derives crucial benefits from its enormous scale.
Meanwhile, smal er rivals with access to less data face an uphil battle in developing algorithms that can
compete with Google’s technology. The Justice Department al eges that Google’s scale advantage in
search creates a similar competitive moat in advertising markets, where advertisers seek the search
engines with the most users and most accurate algorithms.
Exclusionary Conduct
In addition to benefiting from these structural entry barriers, the DOJ asserts that Google has engaged in
exclusionary conduct to maintain and extend its monopoly power. The core argument here is that Google
has entered into a series of anticompetitive agreements with companies that control various “search access
points”—specifical y, mobile device manufacturers, wireless carriers, and browser developers. Under the
contracts, these companies agree to adopt Google as the default search engine for their products. And
because users “rarely” change these defaults, the DOJ contends that the chal enged agreements seriously
impede the ability of rival search engines to meaningfully compete with Google.
The complaint al eges that Google has used the relevant agreements to “lock up” several “search
distribution channels.”
First, the Justice Department claims that Google has excluded rivals from key access points on mobile
devices. Google has al egedly accomplished this goal on Apple iOS devices by entering into revenue-
sharing agreements (RSAs) in which Apple has agreed to make Google the default search engine for its
Safari web browser, which is itself the default browser on iOS devices. (In exchange, Apple takes a cut of

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the revenue Google derives from searches on its devices). The DOJ contends that Google has secured
similar default status on Android devices through a series of interlocking agreements involving its
Android operating system. These contracts include:
 “Pre-instal ation” agreements with device manufacturers, which condition the availability
of highly demanded Google apps (e.g., the Google Play store) and application
programming interfaces (APIs) on the pre-instal ation of Google Search;
 RSAs with device manufacturers and wireless carriers that pre-instal Google Search on
their devices. The DOJ al eges that “in many cases,” these RSAs also expressly prohibit
manufacturers from pre-instal ing rival search engines; and
 “Anti-forking” agreements that prohibit device manufacturers who pre-instal Google’s
highly demanded apps from sel ing Android devices that do not comply with Google’s
technical standards. The complaint al eges that these agreements have inhibited the
development of new mobile operating systems that could chal enge Google’s version of
Android and thereby create alternative search distribution channels.
Second, the Justice Department argues that Google has “locked up” search distribution via web browsers.
The complaint asserts that Google has secured these access points by entering into RSAs with browsers
that make Google their default search engine. In addition to its deal with Apple, Google has al egedly
entered into such RSAs with every “significant” non-Google browser other than those distributed by
Microsoft. The DOJ contends that because of these agreements, 85 percent of al browser usage in the
United States occurs on Google’s Chrome browser or a browser covered by an RSA with Google.
Third, the complaint claims that Google is positioning itself to dominate the next generation of search
distribution channels—smart watches, smart speakers, smart TVs, and other “Internet of Things” (IoT)
devices. Google is al egedly pursuing this goal by interpreting its anti-forking agreements with Android
device manufacturers to cover these new products. And the DOJ further contends that Google has entered
into restrictive contracts with IoT manufacturers that use other types of Google technology.
While Google’s al egedly anticompetitive agreements are diverse and occasional y complicated, the DOJ
argues that the contracts share a key similarity: they impede rival search engines’ ability to compete by
giving Google prime position at major search access points. By excluding rivals in this manner, the DOJ
al eges that the agreements violate Section 2 of the Sherman Act.
Initial Observations
Monopoly Power
The DOJ’s lawsuit raises several interesting antitrust issues, starting with monopoly power. Google wil
likely contest the complaint’s assertion that “general search services” is a properly defined antitrust
market. The company’s CEO has argued that Google competes with other online sources of information,
including news websites, social media platforms, and specialized search engines like Amazon and
Expedia. In response, the DOJ contends that these other services are not “reasonably interchangeable”
with general search engines because few consumers would regard them as suitable substitutes for most
types of search queries.
While the Justice Department intuitively seems to have a strong argument here, it wil be interesting to
see how it makes its case. The DOJ’s favored methodology for defining markets is a quantitative test that
asks whether a hypothetical monopolist in a proposed market could profitably impose a five-percent price
hike. But that test is not readily applicable to a putative market for online search, where most search
providers offer their services for free. The DOJ may therefore have to rely on consumer surveys, internal

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company documents, testimony from industry experts, and other forms of qualitative evidence to defend
its proposed “general search” market.
Google wil also probably chal enge the DOJ’s claim that “search advertising” and “general search text
advertising” are relevant markets. Google and organizations that it backs have recently released papers
arguing that the tech giant competes with a range of other companies that sel online ads, including
Facebook, Amazon, and Twitter. For its part, the DOJ contends that these other venues for online ads are
not reasonable substitutes for general search engines, because only the latter al ow advertisers to target
customers based on specific search queries. Because Google and these other companies charge
advertisers for their services, this dispute wil likely be amenable to the kind of econometric arguments on
substitutability deployed in more typical antitrust litigation.
Final y, Google may dispute the DOJ’s argument that its access to large amounts of data represents a
significant entry barrier. The company’s defenders and its Chief Economist have claimed that the
marginal returns on data diminish fairly rapidly. These commentators argue that the quality of a search
algorithm—not the amount of data available to “train” it—is the key variable determining its success or
failure. Google’s backers contend that this view derives support from the many startups that have
supplanted once-dominant tech incumbents—evidence that they argue belies the suggestion that online
markets have major entry barriers. (Unsurprisingly, other economists dispute these claims). We can
probably expect dueling expert testimony on this issue and on the durability of Google’s al egedly
dominant market share more general y as the litigation proceeds.
Exclusionary Conduct
Because monopolization cases are incredibly fact-intensive, it is difficult to confidently predict how the
court wil evaluate the “conduct” element of the DOJ’s case without a factual record. But several features
of the lawsuit stand out even at this early stage.
First, the complaint relies heavily on the effects of Google’s default status at major search access points.
Indeed, the DOJ argues that default search engines are so “sticky” that default status gives Google “de
facto exclusivity” at the key distribution channels. This is a factual claim that Google wil probably deny.
In a blog post released hours after the DOJ filed its lawsuit, a company official emphasized how “easy” it
is for consumers to use other search engines.
Observers wil have to await further evidence on this issue as the case progresses, but we already have at
least one useful data point. In a 2018 antitrust action targeting similar conduct, the European Commission
(EC) found that 95 percent of al search queries on Android devices—where Google Search was pre-
instal ed—were made via Google Search. In contrast, less than 25 percent of al queries on Windows
Mobile devices—where Bing but not Google Search was pre-instal ed—were made via Google. Similar
evidence from the U.S. would likely buttress the DOJ’s arguments on the competitive effects of default
status. But even without such evidence, Google’s implicit contention that default placement is not
competitively significant may be difficult to square with the complaint’s al egation that the company pays
bil ions of dollars annual y to secure it.
Second, while the DOJ’s complaint is sparse on citations to the antitrust case law, Google’s al eged
conduct does resemble certain categories of behavior that are familiar in monopolization doctrine.
Google’s “pre-instal ation” agreements are a form of “tying” arrangement in which Google has
conditioned the availability of certain products (the Google Play store, other Google apps, and certain
APIs) on the pre-instal ation of Google Search. The DOJ argues that this “tie” reinforces the dominance
of Google Search, because many device manufacturers want access to the Play store, the other Google
apps, and the relevant APIs.

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If the DOJ can make a prima facie case that these “ties” harm competition—as it did with similar “ties”
involving Microsoft’s Windows OS and Internet Explorer two decades ago—the burden wil shift to
Google to offer a procompetitive justification for the agreements. In the EC’s 2018 antitrust action,
Google unsuccessfully argued that its Android “ties” were procompetitive because the revenue Google
derived from them al owed it to license Android to device makers for free. The company’s October 20
blog post gestures toward a similar argument. But the permissibility of this type of cross-market
balancing—that is, weighing harms in the market for online search against benefits in the separate market
for mobile devices—is contested in both the case law and academic literature. This wrinkle in the doctrine
adds another issue to the “wait and see” pile.
Third, the DOJ may have difficulty proving that major targets of its case—Google’s RSAs with Apple
and other device makers, browser developers, and carriers—are exclusionary and not a form of legitimate
competition on the merits. The theory here appears to be that the RSAs have harmed consumers by
reducing the quality of general search engines (on dimensions like privacy and data protection), lessening
consumer choice, and impeding innovation. But it is unclear whether a judgment in the DOJ’s favor
would ameliorate these al eged harms. Without the chal enged RSAs, it seems that Apple and Google’s
other counterparties would have three options: (1) decline to offer consumers any default search engine,
(2) maintain Google as their default search engines but forgo revenue sharing, or (3) enter into RSAs
giving other search engines default status.
Google wil likely argue that (1) would harm consumers, who benefit from ready-to-use default features
on their devices and browsers. If (2) is the likelier outcome and Google’s counterparties would instead
maintain Google as their default search engine—perhaps because, as the company suggests, its
counterparties enter into RSAs because of the superiority of Google’s product—then Google would
benefit from the litigation, while consumers would seemingly be unaffected. Final y, if the case results in
Google’s counterparties entering into new RSAs with other search engines, it is not clear how that
outcome benefits consumers. If the theory is that the chal enged RSAs have denied rivals the scale
necessary to “train” their algorithms, its viability wil depend on empirical claims about the value of
additional data. (Some of Google’s general-search rivals like Bing and Yahoo! have been on the market
for over a decade and have deep-pocketed corporate parents, which may suggest that they would derive
limited quality benefits from more data). Alternatively, the DOJ may focus on the positive effects of
fragmentation in search markets for advertisers. Or the government could offer a total y separate narrative
about the relevant markets. But at this stage, its core theory of competitive harm awaits further
explanation.
Conclusion
The Google litigation is enormously significant and likely to affect the continuing antitrust investigations
of the other three “Big Tech” firms—Apple, Amazon, and Facebook. We are also unlikely to see a
resolution anytime soon: the case wil probably stretch on over several years. Indeed, the DOJ filed its
seminal Microsoft lawsuit in May 1998, only to have its final settlement with the company approved in
June 2004. The DOJ’s lawsuit may also not be the only antitrust action against Google. A separate group
of state attorneys general is reportedly preparing a broader suit targeting Google’s ad-technology
platform. While the DOJ’s action is groundbreaking, then, it wil hardly be the final word.

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Author Information

Jay B. Sykes

Legislative Attorney

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