The Department of Justice has opened antitrust investigations into Google’s (alleged) attempt to monopolize online advertising. While the case recycles old grievances against Google, it leans heavily on Europe’s approach, mirroring the operative parts of the EU decision on Google Android from 2018 and even improving some potential shortcomings of it.
The US Department of Justice (DOJ), along with 11 State Attorneys General, filed a monopolization suit against Google last month, arguing that the company engaged in unlawful exclusionary practices directed at maintaining its monopolies in certain online services.
More specifically, the DOJ suit refers to the markets for general search services, search advertising, and general search text advertising, which according to the DOJ bring Google $40 billion per year in the US, giving the company ample motives for acting anti-competitively.
DOJ’s Charges Against Google
The DOJ’s case is not the first US antitrust investigation into Google. The Federal Trade Commission (FTC) has looked into bias when users navigated the internet using Google and its attempts to monopolize online advertisements. The FTC closed that investigation in 2013 and principally exonerated Google of any misdeeds. This time, the DOJ has opted for a narrower strategy, (only) targeting specific practices in the mobile sector that indirectly help Google monopolize online advertisements. While the fundamental concerns remain the same, the approach by DOJ differs and is much more indirect compared to the FTC’s.
While significant space is allotted to outlining how Google dominates the market for search engines, and (ab)uses its domination to send end-users in the direction of Google’s own offerings, the subject matter of the DOJ’s case is Google’s affiliation with Apple and the terms under which the Android Operating System (OS) is licensed. The latter is controlled by Google but made available for free to smartphone manufacturers, on the condition that they make Google the default search engine on sold devices. The default status is also what Google secured through its agreements with Apple. Here, by means of direct payments to Apple, which were officially confidential but valued at between $8-12 billion per year and thus very significant, representing 15-20 percent of Apple’s worldwide net income.
By virtue of these arrangements, Google has managed to secure a position as the preferred option across all smartphones as these, in terms of Operating Systems, are split 30/70 between Apple and Android. While consumers, in theory, could use an alternative search engine, this does not happen in practice, which is why Google’s policy denies competitors market access, ultimately entrenching Google’s search monopoly. Or at least, this is what the DOJ outlines in its complaint. Presumably, Google will present a different story.
The DOJ Case is Complex, but Europe Can Help
At 64 pages, the DOJ complaint is short and somewhat underdeveloped when it comes to explaining why we should accept Google’s actions as anticompetitive. We also lack Google’s version of the events, making it all somewhat more elusive.
At the core of the DOJ’s line of reasoning is that i) Google’s agreements with Apple and Android manufacturers secure its control over online advertisements. Further, this is cemented by a ii) system of Anti-Fragmentation Agreements prohibiting alterations to the Android OS and iii) revenue sharing agreements, which reward manufacturer and network carriers in the billions for pre-installing the full package of Google’s offerings, including Google’s search engine.
While easy to accept that Google might have motive for acting anticompetitively, taking the $40 billion per year into consideration, there is something inescapably incomplete in the DOJ’s explanations. Not only in terms of the details of the three elements but also in how they helped Google maintain control over online advertisements—essentially, because none of them relate directly to online advertisements and only remotely to online search. Nevertheless, these are what Google allegedly hopes to monopolize through its actions and what the DOJ’s suit is designed to prevent.
The European Commission’s investigations into Google (i.e., Google Android and to a lesser extent Google Search) help unlock the DOJ suits and why we should accept Google policy as anticompetitive and detrimental to the interest of consumers. Large portions of the DOJ case recycle the EC’s fundamental analysis and market understating, without depriving DOJ’s “new” case of its legal merits.
The EU’s Google Android Decision
As already indicated, the DOJ’s Google investigation is heavily influenced by the EU’s 2018 decision on Android. Here, the EU not only doled out a record fine of €4.34 billion (approx. $5.05 billion) but also established that the abuse had three elements:
- Google’s app store used by end-users to download and manage apps to Android phones and was tied to Google’s search engine, thus securing its default status on smartphones.
- Licensing of the Google app store and search engine was made conditional upon signing an Anti-Fragmentation Agreements restricting modifications of the Android OS or distribution of software derived from this.
- Payments to the smartphone manufacturers and network carriers, in the form of revenue sharing, distributed these in exchange for refraining from pre-installing alternatives to Google’s search engine. Revenues were calculated against traffic, incentivizing these to push search traffic toward Google.
While each was a separate infringement of EU competition law, all elements were linked by partially overlapping factors. Firstly, all three originated in the Android OS and were instituted for the benefit of protecting Google’s control over general searches and the revenue streaming from search advertising Secondly, in order to enter into a revenue-sharing agreement, partners had to accept the other elements, including the default status for Google search engine and the Anti-Fragmentation Agreement. While the latter did not directly serve to protect Google’s search monopoly, it did prevent the development of Android versions outside of Google’s control and amplified other elements, including the pre-installation of Google’s offerings.
The EU also linked the different elements to a larger anticompetitive narrative by explaining how Google’s initial interest in Android and its later aggressive roll-out were motivated by an anticipated migration by users in the direction of smartphones and tablets. A migration away from stationary PCs potentially negated the value of Google’s firm grip on PC-based internet searches, and thus, its ultimate control over online advertising. While in principle separate services, online search did in practice function as a gatekeeper to online advertising, allowing Google to control this and the very significant revenue it represented.
The DOJ Recycles and Improves EU’s Investigations
While the DOJ’s monopolization suit against Google recycles the fundamentals of EU’s Android Decision, it also presents some novelties and improvements.
DOJ does, in contrast to the EU, include Google’s affiliation with Apple in the suit as this complements the agreements with Android manufacturers, securing 100 percent coverage in terms of smartphones. The payments to Apple (representing 15 – 20 percent of Apple’s worldwide net income) are so massive that Apple cannot be ignorant of Google’s (alleged) anticompetitive motives, tabling the question of whether the suit should have included Apple directly. However, this remains a separate matter.
The EU’s Android decision also suffered from a potential flaw when it comes to the role of app stores. These are required to download and manage apps to Android phones, and the EU argued that Google abused its app store to secure a default status for Google’s search engine. However, as app stores facilitate transactions between two groups of customers (i.e., the sellers of apps and end-users installing these), it might not be correct to define it as two separate markets: one for app stores and one for apps. This was accepted by the US Supreme Court with respect to payment cards in Ohio v American Express. If applied to Android, app stores might not to be considered a separate market dominated by Google. The DOJ overcame this potential obstacle by shifting its focus away from the role played by app stores in favor of the Anti-Fragmentation Agreement and revenue sharing.
In contrast to the EU, the DOJ did not limit itself to smartphones but indicated how its suit was intended to prevent Google from monopolizing the next generation of personal communication systems. The suits indicate how this could be watches, TVs, speakers, and connected cars perhaps coupled with voice control allowing for completely new ways to communicate with the internet and the world.
Finally, regardless of the fines, it remains unclear if any changes to Google’s conduct have been secured as a result of the European decisions on Google. The DOJ addressed this by requesting “…. structural relief as needed to cure any anticompetitive harm.. “ and thus nothing less than the break up of Google as a supplement to other reliefs.
But Questions Remain, Including: How Will the DOJ’s Suit Benefit Consumers?
While the DOJ complaint addresses some problems, others remain. Neither the EU nor the DOJ fully succeeded in explaining how consumers are hurt by Google’s actions. The Android OS is licensed for free, the only condition being the pre-installation of some Google offerings, and has clearly benefitted consumers by catalyzing the smartphone revolution from 2007 onward.
There is also something inherently contradictory between the DOJ’s claim that Google holds an entrenched and unassailable search monopoly and the need for Google to share its revenue and pay Apple billions to remain the preferred option.
DOJ’s suit is also underdeveloped when it comes to substantiating the claim that there is an anti-competitive effect that must be stopped. The EU decisions came enriched with calculations, graphs, and other forms of evidence, including damaging internal Google memos, which support the claims. The DOJ may provide these later, and could find examples in the recent House Judiciary Committee’s 450-page report: A report outlining how Google functions as a gatekeeper to the internet, with entrenched market shares that are abused to leverage its position into new adjunct markets. Even coupled with documents (allegedly) showing how this followed from a multi-pronged strategy directed at thwarting competitors.
Notable are also the potential shortcomings of the structural remedies that the DOJ seeks to secure. Breaking up Google might sound attractive, but as Google excels in free services, it’s difficult to see how these should be financed after a breakup, and thus, how breaking up Google would ultimately benefit consumers.
Naturally, the DOJ will be given ample opportunity to remedy these questions as the case moves forward.