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Legal Intelligencer: Antitrust Suits Against Google Shows Damage Inflicted on Businesses, Consumers

In the January 21, 2021 edition of The Legal Intelligencer Edward T. Kang, managing member of Kang Haggerty wrote “Antitrust Suits Against Google Shows Damage Inflicted on Businesses, Consumers.

In reading the spate of recent antitrust actions taken against all-powerful search behemoth Google, you do not have to go very far to see damage done to businesses in our own backyard. A locally based (Paoli, Pennsylvania) search engine upstart DuckDuckGo, best known for protecting the privacy of its end-users, is one such business affected by Google’s monopoly.

Toward the end of 2020, Google was hit with three separate antitrust lawsuits brought by U.S. regulators. The first, filed in October by the Department of Justice, focused on Google’s dominance in general internet searches (the utility for which Google is most widely known). The second case, which alleges that Google used anti-competitive practices related to its advertising technology, was brought by a group of Republican state attorneys general. The third, filed in December by nearly 40 states, accuses Google of monopolistic practices in general search and search ad markets. And, as I write this column, news arrived that another antitrust investigation, this time launched by a U.K. competition watchdog, the Competition and Markets Authority, had been launched into Google’s “Privacy Sandbox” project, which the regulator said “will potentially have a very significant impact on publishers like newspapers, and the digital advertising market.”

On this side of the Atlantic, it is likely that the court will consolidate two or more of the lawsuits into one of the largest and most historically significant antitrust suits in U.S. history, as two of the cases have already been consolidated for discovery and pretrial purposes. Whatever its ultimate shape, the flurry of actions here in the United States and abroad promises to be a potential reckoning that some citizens, lawmakers, and perhaps most impacted—competing search technology companies—believe is long overdue. As the opening of the DOJ’s complaint put it, “Two decades ago, Google became the darling of Silicon Valley as a scrappy startup with an innovative way to search the emerging internet. That Google is long gone. The Google of today is a monopoly gatekeeper for the internet … with a market value of $1 trillion and annual revenue exceeding $160 billion.” See United States v. Google, No. 1:20-cv-3010 (D.D.C. Oct. 20, 2020).

Antitrust lawsuits brought by the government are certainly not new.  When large companies achieve monopoly control over their market, they deplete consumer choice, block competition from rivals, stifle innovation and inflate prices. When this happens, it is incumbent upon the government to re-establish fair market competition on behalf of American consumers and businesses. Thus, antitrust is as much about the market as it is about the monopolist. Big Tech antitrust lawsuits are also nothing new. It’s been more than 20 years since the  government took aim at another tech behemoth, Microsoft, for intermingling its hardware and software units in a way that enabled them to crush then-industry threats like Apple, Java, Netscape and Linux. That trial concluded with a court order to break up Microsoft into two separate units. Upon appeal, Microsoft was instead required to share its application programming interfaces (APIs) with third-party companies, and to appoint a compliance panel. See United States v. Microsoft, 253 F.3d 34 (D.C. Cir. 2001). Many analysts (and competitors) believe that Microsoft escaped the antitrust action virtually unrestrained, and is still very much a monopolist power.

What is new about the antitrust assault on Google is that this one just feels different. Maybe more than Microsoft or Facebook, Google still enjoys much goodwill among users and Americans generally. That goodwill may emanate from Google’s famous motto, “Don’t be evil” (which morphed into “Do the right thing” during corporate restructuring under Alphabet Inc. in 2015), but more likely it flows from our near-absolute reliance on Google’s technology in our daily lives. Technology that, at least in terms of Google’s general search engine (Google it) and Gmail, is—or at least appears to be—completely free. Indeed, it is hard to think of the internet itself without also thinking of Google.

Behind the coy motto, whimsical logo, and “free” services Google offers, lurks one of the most perfect monopolies ever created. Perfect not because the company controls nearly 90% of all general-search-engine queries in the United States, almost 95% of mobile queries, and decisive dominance of the programmatic ad market. Rather, Google’s monopoly approaches perfection because its harmful effects are undetectable to the average consumer. If antitrust protects against price inflation and lack of innovation, it does not compute that Google has done “evil.” Google continues to innovate at a pace that is dizzying, and it offers most of this innovation—not at an inflated price—but seemingly at no price whatsoever.

This is an illusion. As the DOJ’s complaint against Google states, “When a consumer uses Google, the consumer provides personal information and attention in exchange for search results. Google then monetizes the consumer’s information and attention by selling ads.” If most consumers are only vaguely aware of (and mostly OK with) participating in this exchange, very few have awakened to its ramifications. That is rapidly changing. One issue that has already garnered a lot of attention is privacy. What Google does with all that personal information, and how secure it may be, has many concerned. Indeed, an upstart competitor in general search, DuckDuckGo, has built its business on the pledge never to collect or share personal information. But DuckDuckGo (and any other competitor in search) finds itself blocked from challenging Google’s supremacy. Google’s vast web of exclusionary agreements with the world’s preeminent computer and cellphone manufacturers and web browser developers denies “the tools to become true rivals: effective paths to market and access, at scale, to consumers, advertisers, or data.” Without access and scale, rivals stagnate, wither, or die. Given that Google has done search better than anyone else for years, lack of competition in this arena may not necessarily bother consumers, except perhaps in principle. But it is the other side of Google’s business model that really hurts them—and many, many others we might not expect.

Google collects unfathomable amounts of personal information and attention that it can turn into billions of dollars of ad revenue. The Google that launched only two decades ago as an ingenious search engine that helped tame the internet has mutated into an advertising empire of staggering proportion and complexity. As Dina Srinivasan reveals in her groundbreaking work on Google’s domination of the ad markets, “approximately 86% of online display advertising space in the United States is bought and sold in real-time electronic trading venues, which the industry calls ‘advertising exchanges.’” (https://law.stanford.edu/publications/why-google-dominates-advertising-markets/). More than 10 billion targeted ad spaces are processed every day, an order of magnitude greater than the number of shares traded on the New York Stock Exchange. Currently, Google simultaneously operates the leading electronic ad exchange and the leading buy- and sell-side intermediaries that publishers and advertisers must use to trade. As Srinivasan has suggested, structurally this is analogous to permitting the New York Stock Exchange to operate the largest broker-dealers in the financial sector. Such an arrangement, and the conflicts of interest it necessarily engenders, are unthinkable in modern finance. Yet this is precisely how the world of online advertising functions.

In addition to operating the largest ad exchange and largest intermediaries, “Google has another conflict of interest,” Srinivasan continues. “Google not only sells ad space belonging to third-party websites, it sells ad space appearing on its own sites, Google Search, and YouTube.” The effect is that small businesses that use Google’s intermediary tool, Google Ads, get steered by Google toward Google properties instead of non-Google properties, like, for example, The New York Times or The Guardian. The conflicts and distortions do not end there. According to Srinivasan’s analysis, Google has been mobilizing all its business and technological power continually to squeeze competitors out of the ad space, and to cram customers into its increasingly narrow and expensive funnel. For all her analytical virtuosity, Srinivasan’s solution to breaking Google’s stranglehold on programmatic advertising is as plain as her analogy:  protect the integrity of the ad market using the same fair competition principles that protect the financial markets.

While we can look ahead and anticipate that the antitrust enforcement actions against Google will go some way toward reducing its dominance in search and advertising, much harm has already been done by the same company that adopted “Don’t be evil” as its motto. There is the threat to privacy presented by a company whose business model depends on the tracking of individual behavior and the sale of personal information for targeted ads. There is denial of access to scale in search and search advertising to existing competitors like DuckDuckGo. The crushing of rival ad exchanges and upstart buy- and sell-side advertising platforms and technologies, which would promote competition and drive down costs. This depresses the very ad revenue publishers need to reinvest in their own businesses.

According to Srinivasan, “by suppressing competition from non-Google exchanges, Google costs publishers real revenue, sometimes significant sums.” This was no small development for publishers large and small reeling from the demise of print advertising and migrating to sophisticated electronic trading.” In the U.K., the CMA’s report on “Online platforms and digital advertising” similarly suggests that Google’s privacy measures may further deprive newspapers and other publishers of revenue. Facing reduced ad revenues due to Google’s anticompetitive practices, publishers shed jobs, narrow content, underfund investigative journalism, put up paywalls, and raise subscription prices.

We may now circle back to the consumer who still may believe Google provides many of these services “free of charge.” If Srinivasan, the U.K.’s CMA, and a group of leading economists are all correct in their assessments, citizens the world over have already paid. We have paid in the form of privacy violated, increased paywalls and subscriptions, lost jobs, diminished knowledge, stifled discourse.

Given that Google may have harmed so many, in so many different ways, it is unlikely that the recent government brought antitrust actions against it will be the last of the antitrust litigation it faces; indeed, they are probably only the beginning.

Edward T. Kang is the managing member of Kang Haggerty.  He devotes the majority of his practice to business litigation and other litigation involving business entities.

Reprinted with permission from the January 21, 2021 edition of “The Legal Intelligencer” © 2021 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-257-3382 or reprints@alm.com.

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