5 things to know about US v. Google

Last  week, a federal court largely sided with the Department of Justice and most states in their antitrust lawsuit against Google. The court found that Google has monopoly power in the markets for general search services and text ads, that Google enhanced that power via exclusive distribution agreements that set Google as the default search engine, and that those agreements led to higher ad prices.

What does the district court’s decision portend for the future of tech? Here are five things to know.

Existing Antitrust Law Can Handle the Digital Economy

For years, progressives and populists have tried to rewrite antitrust law to give the government more authority to manage competition without having to show consumer harm.

The Senate seriously considered a bill that would empower agencies to dictate the manner in which certain companies could compete. The Federal Trade Commission has declared that it may deem many types of routine business conduct as “unfair methods of competition,” without any showing of harm to consumers or anticompetitive intent. Europe has already gone down this road.

The decision, however, shows that the existing antitrust law can address competitive concerns. In its 277-page opinion, the court carefully evaluated mountains of evidence and ultimately determined that Google’s exclusive contracts harmed competition. While that ruling may not survive on appeal, the decision shows that existing antitrust laws and standards can handle the digital economy.

Google Has Ample Grounds for Appeal

Google has already announced an appeal and could present strong grounds for reversal. Perhaps most importantly, Google could challenge the Justice Department’s narrow market definitions and failure to back those definitions with quantitative evidence. In almost any antitrust case, a key question is, “What’s the market that’s being monopolized?” In this case, as in many others, the government advanced hyper-narrow market definitions to argue that Google had monopoly power in those narrow markets. 

Nevertheless, “none of [the government’s] experts performed a hypothetical monopolist test,” which evaluates markets quantitatively by testing whether a company can raise prices. The court found this failure “surprising,” but still allowed the Justice Department to define markets based on subjective criteria laid out in a sixty-year-old Supreme Court decision. For a case that could affect the entire economy, an appellate court might demand that the department undertake a more rigorous economic analysis.

Beyond that, in some respects the court’s ultimate conclusion appears internally inconsistent. The court found that Google created a superior search product, continues to innovate and to increase output, and faces stiff competition for digital advertising dollars from social media companies, retailers and others (not to mention offline advertising). Whatever the value of defaults, users can switch search engines easily. In a typical case, these sorts of factual findings would belie the existence of an antitrust problem.

Expect a Narrow Remedy

Assuming the liability verdict remains in place, the district court will hold a separate trial to determine the proper remedy. While there’s a wide range of possible outcomes, the court is likely to order a somewhat narrow remedy that leaves Google’s business model in place. 

In its decision, the court specifically found that Google had developed “the best search engine” and “has continued to innovate.” The court also ruled in Google’s favor on a few issues and acknowledged that many exclusive contracts, including shorter-term ones, can promote competition. With such findings, it seems unlikely that the court would order a dramatic remedy, such as a partial divestiture, that could cripple Google’s business. Instead, the court could simply forbid Google from signing longer-term exclusive contracts with distributors or paying its business partners to set Google’s search engine as the default.

A Mixed Bag for Other Tech Cases

Although the decision represents a significant victory for antitrust enforcers, it may have a limited or even mixed impact on other pending cases and investigations. On one hand, the court found that scale, access to data, brand awareness and even quality products can create barriers to entry to new competitors. These findings could resonate across the economy; in virtually every industry, incumbents have some of these advantages over startups. The court bleakly suggests that incumbency forecloses new entry, a proposition proven false by centuries of economic history.

Still, the outcome rested on highly specific facts, including Google’s market position and contracts. Moreover, the court affirmed that antitrust law protects consumers, rather than competitors, and that companies have no duty to deal with their competitors.

Innovation Moves Faster than Litigation

How much will the decision ultimately matter? Innovation is likely to change the tech sector more quickly and decisively than this court case, which still could take years to play out. Although the court found that innovations, such as artificial intelligence, were unlikely to change market dynamics or lower entry barriers in the “foreseeable future,” many facts suggest otherwise. 

Just last month, OpenAI launched a new search engine, “SearchGPT,” an eventual complement to its wildly popular ChatGPT service, while Jeff Bezos has helped to launch Perplexity, an AI search engine designed to share revenue with publishers. China, of course, continues to invest trillions into AI; Baidu recently announced a “self-reasoning” AI that could reduce the need for access to data. And the list goes on. In a few years or even months, concerns about Google’s “search monopoly” may seem as quaint as concerns about Y2K.

Asheesh Agarwal is the president of Agarwal Strategies, LLC, and an alumnus of both the FTC and the Department of Justice.