By Brent Kendall and Rob Copeland
The Justice Department filed a long-awaited antitrust lawsuit
Tuesday alleging that Google uses anticompetitive tactics to
preserve a monopoly for its flagship search engine and related
advertising business, illegally choking off potential
competition.
The case, filed in a Washington, D.C., federal court, marks the
most aggressive U.S. legal challenge to a company's dominance in
the tech sector in more than two decades, with the potential to
shake up Silicon Valley and beyond. It thrusts Google, once a
startup and now a vast conglomerate, into the type of public
showdown the company has sought to avoid.
The Justice Department alleged that Google, a unit of Alphabet
Inc., is maintaining its status as gatekeeper to the internet
through an unlawful web of exclusionary and interlocking business
agreements that shut out competitors. The government alleged that
Google uses billions of dollars collected from advertisements on
its platform to pay for mobile-phone manufacturers, carriers and
browsers, like Apple Inc.'s Safari, to maintain Google as their
preset, default search engine.
The upshot is that Google has pole position in search on
hundreds of millions of devices in the U.S., with little
opportunity for any other company to make inroads, the government
said.
"Google achieved some success in its early years, and no one
begrudges that," Deputy U.S. Attorney General Jeffrey Rosen said.
"If the government does not enforce its antitrust laws to enable
competition, we could lose the next wave of innovation. If that
happens, Americans may never get to see the next Google."
Google owns or controls search distribution channels accounting
for about 80% of search queries in the U.S., according to the
lawsuit and third-party researchers. The government says that
effectively leaves no room for competition, resulting in less
choice and innovation for consumers, and less competitive prices
for advertisers.
The wide-ranging lawsuit included details on alleged
deliberations within Google aimed at avoiding antitrust scrutiny.
The government quoted Google's chief economist as telling
employees, "We should be careful about what we say in both public
and private."
The lawsuit in particular targeted arrangements under which
Google's search application is preloaded, and can't be deleted, on
mobile phones running its popular Android operating system. Google
has expanded such agreements over the past year since the Justice
Department probe began, the government said
And yet the lawsuit provided little new hard data on such
tie-ups. Alphabet publicly discloses that it pays other companies
to funnel in search traffic; analysts estimate that it pays Apple
alone around $10 billion a year. The lawsuit cited a note from one
senior Apple employee to his Google counterpart: "Our vision is
that we work as if we are one company."
Kent Walker, Google's chief legal officer, said in a statement
that the lawsuit was deeply flawed. "People use Google because they
choose to -- not because they're forced to or because they can't
find alternatives," he said. "Like countless other businesses, we
pay to promote our services, just like a cereal brand might pay a
supermarket to stock its products at the end of a row or on a shelf
at eye level."
Mr. Walker said that, if successful, the lawsuit would result in
higher prices for consumers because Google would have to raise the
cost of its mobile software and hardware.
Alphabet's shares were roughly flat Tuesday, after The Wall
Street Journal first reported news of the impending suit.
The Mountain View, Calif., company, sitting on a $120 billion
cash hoard, is unlikely to shrink from a legal fight. The company
has argued that it faces vigorous competition across its different
operations and that its products and platforms help businesses
small and large reach new customers.
Google's defense against critics of all stripes has long been
rooted in the fact that its services are largely offered to
consumers at little or no cost, undercutting the traditional
antitrust argument centered on potential price harms to those who
use a product.
The lawsuit follows a Justice Department investigation that has
stretched more than a year, and comes amid a broader examination of
the handful of technology companies that play an outsize role in
the U.S. economy and the daily lives of most Americans.
A loss for Google could mean court-ordered changes to how it
operates parts of its business, potentially creating new openings
for rival companies. The Justice Department's lawsuit didn't cite
particular remedies, action that is usually addressed later in a
case. One Justice Department official said nothing is off the
table; the lawsuit said the government would seek structural
changes to Google's business "as needed."
A victory for Google could deal a huge blow to Washington's
overall scrutiny of big tech companies, potentially hobbling other
investigations and enshrining Google's business model after
lawmakers and others challenged its market power. Such an outcome,
however, might spur Congress to take legislative action against the
company.
The case could take years to resolve, and the responsibility for
managing the suit will fall to appointees of the winner of the Nov.
3 presidential election.
The campaign of former Vice President Joe Biden didn't return a
request for comment about how he would approach the lawsuit if
elected. Mr. Biden has called for greater antitrust enforcement
more broadly but has stopped short of saying that big tech
companies should be broken up.
During the Democratic primaries, Mr. Biden said a proposal from
Massachusetts Sen. Elizabeth Warren to dismantle Facebook, Google
and Amazon was worth taking "a really hard look at" but said it was
premature to make a final judgment.
The challenge marks a new chapter in the history of Google, a
company formed in a garage in a San Francisco suburb in 1998 -- the
same year Microsoft Corp. was hit with a blockbuster government
antitrust case accusing the software giant of unlawful
monopolization. That case, which eventually resulted in a
settlement, was the last similar government antitrust case against
a major U.S. tech firm.
Google started as a simple search engine with a large and
amorphous mission "to organize the world's information." But over
the past decade or so it has developed into a conglomerate that
does far more than that. Its flagship search engine handles more
than 90% of global search requests, some billions a day, providing
fodder for what has become a vast brokerage of digital advertising.
Its YouTube unit is the world's largest video platform, used by
nearly three-quarters of U.S. adults.
Google has been bruised but never visibly hurt by various
controversies surrounding privacy and allegedly anticompetitive
behavior, and its growth has continued largely unchecked. In 2012,
the last time Google faced close antitrust scrutiny in the U.S.,
the search giant was already one of the largest publicly traded
companies in the nation. Since then, its market value has roughly
tripled to almost $1 trillion.
The company enters this legal showdown under a new generation of
leadership. Co-founders Larry Page and Sergey Brin, both
billionaires, gave up their management roles last year, handing the
reins solely to Sundar Pichai, a soft-spoken, India-born engineer
who earlier in his career helped present Google's antitrust
complaints about Microsoft to regulators.
The chief executive has in his corner Messrs. Page and Brin, who
remain on Alphabet's board and in effective control of the company
thanks to shares that give them, along with former Chief Executive
Eric Schmidt, disproportionate voting power.
Executives inside Google are quick to portray their business
divisions as mere startups in areas -- like hardware, social
networking, cloud computing and health -- where other Silicon
Valley giants are further ahead. Still, that Google has such
breadth points to its omnipresence.
European Union regulators have targeted the company with three
antitrust complaints and fined it about $9 billion. The cases
haven't left a big imprint on Google's businesses there, and
critics say the remedies imposed on it have proved
underwhelming.
In the U.S., nearly all state attorneys general are separately
investigating Google, while three other tech giants -- Facebook
Inc., Apple and Amazon.com Inc. -- likewise face close antitrust
scrutiny. And in Washington, a bipartisan belief is emerging that
the government should do more to police the behavior of top digital
platforms that control widely used tools of communication and
commerce.
A group of 11 state attorneys general, all Republicans, have
joined the Justice Department's case, officials said. More could
join later, according to the court docket. Other states are still
considering their own cases related to Google's search practices,
and a large group of states is considering a case challenging
Google's power in the digital advertising market, The Wall Street
Journal has reported. In the ad-technology market, Google owns
industry-leading tools at every link in the complex chain between
online publishers and advertisers.
The Justice Department also continues to investigate Google's
ad-tech practices.
Democrats on a House antitrust subcommittee released a report
this month following a 16-month inquiry, saying the four tech
giants wield monopoly power and recommending congressional action.
The companies' chief executives testified before the panel in
July.
"It's Google's business model that is the problem," Rep. David
Cicilline (D., R.I.), the subcommittee chairman, told Mr. Pichai.
"Google evolved from a turnstile to the rest of the web to a walled
garden that increasingly keeps users within its sights."
"We see vigorous competition," Mr. Pichai responded, pointing to
travel search sites and product searches on Amazon's online
marketplace. "We are working hard, focused on the users, to
innovate."
Amid the criticism, Google and other tech giants remain broadly
popular and have only gained in might and stature since the start
of the coronavirus pandemic, buoying the U.S. economy -- and stock
market -- during a period of deep uncertainty.
At the same time, Google's growth across a range of business
lines over the years has expanded its pool of critics, with
companies that compete with the search giant, as well as some
Google customers, complaining about its tactics.
Specialized search providers like Yelp Inc. and Tripadvisor Inc.
have long voiced such concerns to U.S. antitrust authorities, and
newer upstarts like search-engine provider DuckDuckGo have spent
time talking to the Justice Department.
News Corp, owner of The Wall Street Journal, has complained to
antitrust authorities at home and abroad about both Google's search
practices and its dominance in digital advertising.
Some Big Tech detractors have called to break up Google and
other dominant companies. Courts have indicated such broad action
should be a last resort and only if the government clears high
legal hurdles, including by showing that lesser remedies are
inadequate.
The outcome could have a considerable impact on the direction of
U.S. antitrust law. The Sherman Act, which prohibits restraints of
trade and attempted monopolization, is broadly worded, leaving
courts wide latitude to interpret its parameters. Because litigated
antitrust cases are rare, any one ruling could affect governing
precedent for future cases.
The tech sector has been a particular challenge for antitrust
enforcers and the courts because the industry evolves so rapidly.
Also, many products and services are offered free to consumers, who
in a sense pay with the valuable personal data companies such as
Google collect.
The search company famously outmaneuvered the Federal Trade
Commission nearly a decade ago.
The FTC, which shares antitrust authority with the Justice
Department, spent more than a year investigating Google but decided
in early 2013 not to bring a case in response to complaints that
the company engaged in "search bias" by favoring its own services
and demoting rivals. Competition staff at the agency deemed the
matter a close call, but said a case challenging Google's search
practices could be tough to win because of what they described as
mixed motives within the company: a desire to both hobble rivals
and advance quality products and services for consumers.
The Justice Department's case doesn't focus on a search-bias
theory.
Google made a handful of voluntary commitments to address other
FTC concerns. The resolution was widely panned by advocates of
stronger antitrust enforcement and continues to be cited as a top
failure. Google's supporters say the FTC's light touch was
appropriate and didn't burden the company as it continued to
grow.
The Justice Department's current antitrust chief, Makan
Delrahim, spent months negotiating with the FTC last year for
jurisdiction to investigate Google this time around. He later
recused himself in the case -- Google was briefly a client years
before while he was in private practice -- as the department's top
brass moved to take charge.
The lawsuit comes after internal tensions, with some department
staffers questioning Attorney General William Barr's push to bring
a case as quickly as possible, the Journal has reported. They
worried the department hadn't yet built an airtight case and feared
a rush to litigation could lead to a loss in court. They also
worried Mr. Barr was driven by an interest in filing a case before
the election. Other staff members were more comfortable moving
ahead.
Mr. Barr has pushed the Justice Department to move ahead on the
belief that antitrust enforcers have been too slow and hesitant to
take action, according to a person familiar with his thinking. He
has taken an unusually hands-on role in several areas of the
department's work and repeatedly voiced interest in investigating
tech-company dominance.
If the Microsoft case from 20 years ago is any guide, Mr. Barr's
concern with speed could run up against the often slow pace of
litigation.
After a circuitous route through the court system, including one
initial trial-court ruling that ordered a breakup, Microsoft
reached a 2002 settlement with the government and changed some
aspects of its commercial behavior but stayed intact. It remained
under court supervision and subject to terms of its consent decree
with the government until 2011.
Antitrust experts have long debated whether the settlement was
tough enough on Microsoft, though most observers believe the
agreement opened up space for a new generation of competitors.
--Ryan Tracy and Sabrina Siddiqui contributed to this
article.
Write to Brent Kendall at brent.kendall@wsj.com and Rob Copeland
at rob.copeland@wsj.com
(END) Dow Jones Newswires
October 20, 2020 14:37 ET (18:37 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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