Default Deals Could Decide DOJ's Antitrust Case on Google Search, Say Webinar Panelists

At issue is whether Google has illegally maintained a monopoly in online search and online advertising. The DOJ claims Google monopolized both markets through agreements with browser providers Apple with Safari and Mozilla with Firefox that required Google to be preinstalled as the default search engine on devices. The case also covers other agreements with counterparties to share search revenues in exchange for not promoting any other search engine.

On whether Google has monopoly power, the “threshold issue” in the case, Gray cited Google’s ubiquitous recognition as the “only real player for search,” so much so that it has become “the verb” for searching the internet. While Google’s monopoly power in search is “fairly straightforward,” in antitrust law, monopoly has a dual meaning, Gray said: “It is not illegal to be a monopolist; it is illegal to maintain a monopoly.”

The market the DOJ has defined in the case is general search engines and the associated ad markets with a general search engine, Gray said. Saying “it almost doesn’t pass the giggle test" to claim that Google is not dominant in the general search engine market and associated ad markets, Gray posited the question: “If Google is not dominant” in those markets, “what would be dominant? What fact pattern would satisfy the test, if not Google?”

In addition to market definition, a plaintiff needs to show barriers to entry in an antitrust case, said Joseph Coniglio, ITIF's director of antitrust and innovation, noting Google’s scale has come to the fore in the case as a potential barrier to entry. On whether Google’s scale is a barrier or entry or a result of the company’s success, John Yun, executive director-Global Antitrust Institute at the George Mason University Antonin Scalia Law School, said scale plays several roles in the case. Scale is a “theory of harm, and it’s also a barrier to entry, sort of all rolled in one.”

Adam Kovacevich, Chamber of Progress CEO, said Google could “lose on market definition and market power and still win the case overall.” Search “is not the main event” of the case, he said: “It’s really the default deals.”

Thomas Lambert, law professor at the University of Missouri, said Google’s agreements with browser providers such as Apple and Mozilla, are “not exclusive dealing.” The agreements are default agreements but not exclusive ones, he said. A person using an iPhone, where Google is the default search engine, can use any other search engine she wants and can even change the default, instructions for which can be found in a Google search, Lambert said. The agreements are “product placement deals,” he said.

Lambert noted that a time-tested way to promote a brand is to pay a distributor “so that your brand is the first brand that customers see.” The key question is whether they’re “unreasonably exclusionary arrangements,” he said, citing the legal standard under Section 2 of the Sherman Act. The DOJ’s position is that they are because they “have the effect of preventing Google’s search rivals from obtaining the scale that they need to compete effectively.”

Lambert believes DOJ will have difficulty convincing Mehta that Google’s agreements are unreasonably exclusionary for four reasons. Market evidence suggests that digital defaults “are not a barrier to attaining scale,” he said, citing the 69% market share of Microsoft’s Windows operating system on desktop computers. Microsoft’s Edge browser has 11% market share on desktops vs. Google Chrome’s 62% share; Microsoft’s Bing search engine has 9.5% market share on desktops vs. Google Search’s 82.7%, showing “people change defaults that they don’t like.” Defaults “are not so key as to attaining scale,” he said.

If rivals need scale to compete, “they can buy it,” Lambert noted. In 2014, Yahoo “outbid Google” to be the default search engine on Firefox, he said. That five-year agreement was terminated early in 2017 “because so many users were switching the default search engine on Firefox over to Google,” he said. That shows that other search engines can compete and win against default status and that defaults “are not that sticky.” While it takes money to do that, it’s something that Microsoft’s Bing, which powers Yahoo and DuckDuckGo products, “could afford.”

Also, greater scale improves a search engine, a point the DOJ made “over and over again” during the case, Lambert said. It didn’t argue there was a minimum efficient scale in search where scale economies are exhausted, "so that means Google, as it gets more scale, is improving its product,” he said. To the extent that Google's default agreements allow it to protect its scale, "they help ensure the quality of this product,” he said. U.S. antitrust law has never required “that you cut back on your own quality to give your rivals a foothold."

The last obstacle for the DOJ is that the agreements aren’t unreasonably exclusionary “because they provide significant consumer benefit,” Lambert said. The DOJ showed “they lower the price of Apple devices,” and they allow for the continuation of independent web browsers such as Mozilla, he said. The system “rewards providers of platforms, or search access points, for improving their product in a way that generates more search,” he said.

Gray noted that a distinction was made at trial between desktop and mobile environments. Testimony from Apple, Google and Microsoft said that because Microsoft has dominance in the desktop market, where Bing is the default search engine for the Edge browser, Microsoft has been able to get enough scale to compete equivalently "on quality of their search results,” she said. In mobile, where Microsoft doesn’t have the same presence, there’s a “huge difference between Bing and Google, Bing being much, much worse,” she said. That’s because Microsoft “is completely locked out to access” to Android and iOS operating systems, she said.

Microsoft has “no way of getting into” the two mobile operating systems, Gray said, because Google “is obviously not going to have Android set to Bing.” Microsoft offered to private-label Bing to Apple “in an attempt to get scale on iPhones,” but Apple chose to “take the sweet, sweet Google money, which is way more than even Microsoft can pay,” she said.

Google “boxed themselves in” during trial by saying scale isn’t necessary after a certain threshold, Gray said. “That leaves the unanswered question” that, if Google is not getting value from additional scale, why is it “paying so much money to lock other rivals out?” There’s no business purpose to do that, and the company doesn’t need the promotion, she said. A likely conclusion for the judge would be that it is “to build a moat and keep out rivals,” she said.

Kovacevich said the “nuance of the case” is that DOJ has to persuade the judge that “the defaults are the main reason Google got to its share in search.” During the case, there was dispute even within Google about the reason for its success, whether it was search, the amount of data, engineering or pace of innovation, he said. There was also evidence presented at trial that Microsoft “underinvested” in search relative to Google.

It’s going to be “very difficult for Judge Mehta to look at the totality of all that evidence presented at trial” and determine how much of Google's success in search owes to default agreements, engineering and pace of innovations, Kovacevich said. The key standard for an antitrust claim is that the judge would have to find that the default deals “played an outsized role,” he said. "I just think that’s going to be very difficult for him to do even if Google loses on the market definition.”