The Corner Newsletter: May 10 , 2024
Welcome to The Corner. In this issue, we examine whether comments made by the presiding judge in the Google Search trial indicate that the court may be considering structural remedies for the tech giant, such as divestment of certain business units.
Judge’s Comments in Google Search Trial May Signal Structural Remedies
Karina Montoya and Bria Smith
Final arguments in the Department of Justice’s first antitrust trial against Google, held at the district court in Washington D.C., concluded last week. Most news coverage has thus far has concentrated on the DOJ’s charge that Google illegally uses exclusive dealing to secure market dominance in search, such as the billions it annually pays to Apple to keep Google the default search engine on the Safari web-browser app. But a comment made last Friday by Judge Amit Mehta suggests that another charge brought by DOJ may be even more important in determining how the case is ultimately decided and what remedies may result.
Part of the DOJ’s claim that Google has an illegal monopoly over search rests on evidence that Google can raise the prices it charges for ads on its search engine site without losing business. DOJ argues that only a monopolist could set prices without considering pressures from rivals or market demand (in this case from advertisers), and In his comments, Judge Mehta seemed to agree. “It's clear Google has control of the bid process [to sell ads],” he told Google’s lead lawyer. “The question is whether Google can use this control to raise prices in a sustained way [without losing business], and the record here suggests that this is what is happening.”
There is indeed substantial evidence that over the last two decades Google has had the ability to increase ad prices for certain ads between 5 and 10 percent without losing clients. Google has not denied it controls the bid process but claims that when it raises prices it is merely engaging in “experiments” to assess Google’s value to advertisers. It also argues that price increases should be “adjusted to quality,” pointing to purported improvements in click-through rates. But regardless of whether these defenses are accepted, the trial record shows that many advertisers feel compelled to pay for ads on Google search even when ads on other platforms and in other publications yield better returns on investment. The apparent reason for that is the sheer scale of Google search, which DOJ argues is achieved illegally through deals like the one it has with Apple.
If Judge Mehta rules that Google has an illegal monopoly in search advertising, that can strengthen another charge made by DOJ: that Google has used its ownership of a product known as SA360 to entrench its power in this market. Google acquired SA360 as part of its DoubleClick purchase in 2008. Known formerly as DoubleClick Search, SA360 was used by advertisers to buy ads on Google’s search engine and other rivals, mainly Microsoft’s Bing, as well as Yahoo and DuckDuckGo, which syndicate Microsoft Ads. But once Google fully integrated SA360 into its ad business, it gave clients buying ads on Google’s search engine the ability to make those ads more profitable compared to those bought on other rivals.
Essentially, SA360 is supposed to be a neutral intermediary between advertisers and Google’s search rivals, but Google is allegedly using it to advantage itself and crush rivals. Fully 92% of the ad spend on SA360 goes to Google even though the platform serves ads for all search engines.
Judge Mehta’s comment may also have implications for another pending case against Google brought by DOJ and several states. That suit, whose trial will start September 9 in the federal court in Alexandria, Virginia, charges that Google more generally monopolizes and manipulates the digital ad exchange market in which publishers and advertisers meet to sell and buy ads through a series of auctions.
The plaintiffs in that case are demanding a full divestiture of the advertising technology (ad tech) products owned by Google in this market that generate conflicts of interest, be that an ad exchange or other products that manage publishers’ inventory and advertisers’ demand simultaneously. In both cases, if Google is found guilty of manipulating digital ad markets, that could lead to remedies that will dramatically change the structure of digital advertising markets, with wide-ranging implications for the financing of journalism and the market structure of the internet more generally.
Open Markets’ Barry Lynn Testifies at US Trade Rep Hearing
on Supply Chain Resilience
Last week, Open Markets Executive Director Barry Lynn testified at a U.S. Trade Representative public hearing on “Promoting Supply Chain Resilience.” In his testimony, Lynn drew from his two decades of reporting on how corporate control over our supply chains has resulted in regional concentration of production and dangerous supply chain choke points. He also presented a series of solutions to de-concentrate and dramatically strengthen our supply chains. Among his recommendations were bright-line rules that are easy to understand and enforce; viewing trade and industrial policy as a subset of competition policy to avoid concentration; and applying common carrier-style rules to dominant online platforms like Google and Twitter. Two years ago, Lynn delivered similar testimony in a House Judiciary Committee hearing on how extreme and growing market concentration chokes supply chains and worsens inflation. Read the full testimony here.
Open Markets Files Amicus Brief on Deceptive Business Model of App-Based Companies
In late April, the Open Markets Institute filed an amicus brief in El Koussa v. Campbell, a case before the Supreme Judicial Court of Massachusetts, arguing that the business models of app-based gig companies like Uber and Lyft are deceptive in nature. The brief supports a group of workers and voters challenging a proposed ballot initiative in that state which they say violates Article 48 of the Massachusetts Constitution, which prohibits distinct policy issues from being lumped together in one ballot initiative that voters must then approve or disapprove as a whole.
The Open Markets brief argues the proposed ballot initiatives present many separate questions, not just one, for voters. “The proposed initiatives raise a number of important questions, which is exactly why they do not pass muster as single-issue choices for voters as the challengers have argued,” said Sandeep Vaheesan, Open Markets’ legal director and one of the authors of the brief. The brief was coauthored by Open Markets’ legal counsel Tara Pincock and Joel Fleming of Equity Litigation Group LLP, Read the full brief here.
📝 WHAT WE'VE BEEN UP TO:
The Open Markets Institute’s chief economist Brian Callaci published an article in Dissent contrasting the successful unionization of Starbucks workers with employees who work for fast-food franchises like Dunkin’ Donuts, which can claim that its workers are not employed by the corporation itself but by the thousands of independent franchisees who own and operate its restaurants. Calling for states to pass sectoral bargaining laws, Callaci writes, “States can supplement federal law by creating sectoral councils like the one in California for workers who want them.”
OMI editorial director Anita Jain wrote a book review for Washington Monthly of Fareed Zakaria’s latest book Age of Revolutions: Progress and Backlash from 1600 to the Present. “Much of what Zakaria writes is familiar, but that doesn’t make it unappealing,” Jain writes. “Age of Revolutions is Zakaria’s attempt to contextualize our modernity. In that sense, it’s a welcome background to the many elections taking place globally this year, from Zakaria’s native India to the U.S.”
OMI senior reporter Karina Montoya wrote an article for Tech Policy Press on closing arguments in the DOJ case against Google for monopolizing the search market. “Judge Mehta’s questions seemed aimed at dissecting the argument that Google’s direct competitors are not only search engines such as Bing, DuckDuckGo, or Yahoo, but also all other specialized search engines of the likes of Amazon, TripAdvisor, Yelp, or even Kayak,” Montoya writes. She was also quoted in an article on the trial in Digiday.”
Center for Journalism and Liberty Director Dr. Courtney C. Radsch published a statement on World Press Freedom Day that argued competition policy offers solutions to the declining journalism industry. “On World Press Freedom Day we must recognize that press freedom is impossible in the face of corporate monopolization of the public sphere,” Radsch writes. The existing extreme power of tech corporations over news publishers allows them “to steal, censor, and co-opt journalism with impunity.”
Open Markets’ policy director Phillip Longman’s article in Washington Monthly earlier this year, “How Fighting Monopoly Can Save Journalism,” was cited in a Substack article by media advocate Matt Pearce, who wrote about a proposed bill out of California that would levy a data-mining fee on Big Tech to fund $500 million in journalism jobs.
Open Markets released a statement in support of a motion by the American Booksellers Association (ABA) for the Federal Trade Commission to include Amazon’s monopolistic actions to control the publishing industry in its wider antitrust case against the tech giant. “The American Booksellers Association is fighting back against Amazon's years of stifling competition in the books market that has directly affected not only their members, but also Americans across the board in what we read and debate,” executive director Barry Lynn said.
🔊 ANTI-MONOPOLY RISING:
The Spanish Startup Association sued Microsoft for abusing its dominant position across cloud, operating system, and productivity software markets by unfairly bundling products and locking out competitors. (Bloomberg)
A federal jury in Colorado ordered the building construction manufacturing company Johns Manville, a unit of Berkshire Hathaway, to pay $20.3 million in damages after finding that the dominant market player threatened distributors who did business with its rivals. (Reuters)
The Federal Trade Commission launched a full review of Walmart’s move to acquire TV manufacturer Vizio for $2.3 billion. (Bloomberg Law)
📈 VITAL STAT:
$58 billion vs $5.9 billion
The percentage in fees that would go to Apple when users of music streaming services opt to purchase digital goods or services outside of Apple under a proposal to let Spotify and other such services inform users of payment options outside its App Store. (Reuters)
📚 WHAT WE'RE READING:
The Wolves of K Street: Wall Street Journal investigative reporter Brody Mullins and Washingtonian magazine senior writer Luke Mullins pull back the curtain on the powerhouse lobbying firms that dominate Washington. By telling the stories of how three lobbying empires rose to prominence, the authors demonstrate the sweeping influence large corporations have on American policymaking.
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