knowledge | 27 October 2020 |
U.S. v Google – What Relevance for Ireland?
The U.S. Department of Justice (“DoJ”) civil lawsuit against Google, filed at the US District Court for the District of Columbia (the “District Court”) on 20 October 2020, is a first step in what will doubtless be lengthy, highly contentious litigation.
Google Chief Legal Officer, Kent Walker, called the complaint “profoundly flawed.” U.S. Attorney General William P. Barr’s described it as a “monumental case.” It is likely the most important legal challenge to Big Tech dominance worldwide. Deputy Attorney General Jeffrey A. Rosen explicitly compared it to “historic antitrust actions against AT&T in 1974 and Microsoft in 1998,” each of which had lasting worldwide effects. What might the case mean for consumers in Ireland and what, if any, are the implications for Dublin’s Silicon Docks?
The DoJ’s Case
The DoJ alleges that Google maintains its status as “the unchallenged gateway to the internet for billions of users worldwide” through an unlawful web of exclusive and interlocking business agreements with distributors that shut out competitors, including:
- exclusivity agreements that forbid preinstallation of competing search services;
- arrangements that force reinstallation of its search applications in prime locations on mobile devices;
- long-term agreements with Apple that require Google to be the default – and de facto exclusive – general search engine on Safari;
- generally using monopoly profits to buy preferential treatment for its search engine on devices, web browsers and other search access points. Google uses billions of dollars from advertisers to pay for Google’s status as the preset default search engine on mobile phones, laptops, desktops and browsers, such as Apple’s Safari.
By these arrangements, the DoJ alleges Google unlawfully maintains its monopolies in search and search advertising.
Unlike EU cases against Google, which focus on the Search Engine Results Pages, Google Shopping, and Google’s broader targeted ad business, the DoJ complaint is thus fundamentally about distribution – the “key pathways to search on mobile phones, browsers, and next generation devices.”
In return for their commitment to choose Google as the all-important preset default search engine, Google incentivises counterparties to continue to choose Google over competitors, raising barriers to entry for other search companies.
As a result, “consumers are forced to accept Google’s policies, privacy practices and use of personal data.” More specifically, the DoJ alleges that Google’s conduct “has harmed consumers by reducing the quality of search (including on dimensions such as privacy, data protection, and use of consumer data), lessening choice in search and impeding innovation.”
In 1984, 10 years after the DoJ first filed antitrust charges against AT&T, Judge Harold H. Green approved an order to break up AT&T’s phone monopoly, a move that forced the pace of deregulation of telecom markets worldwide and propelled the tech revolution. According to the DoJ, the 1998 Microsoft lawsuit paved “the way for a new wave of innovative tech companies – including Google.” Can we expect similar big things from the Google case?
- A Worldwide Break-Up of Google?
- The DoJ asks the District Court for "structural relief as needed to cure any anticompetitive harm” and "permanent relief necessary and appropriate to restore competitive conditions in the markets affected by Google’s unlawful conduct."
- This is a key difference to competition law challenges Google faces in other jurisdictions. The European Commission, for instance, has fined Google over €8 billion for three EU competition law violations: €1.5 billion over its AdSense policy, €4.3 billion over software bundling in Android and €2.4 billion for manipulating shopping results in Google search and imposed behavioural remedies. To little effect, some say. Google’s market valuation has risen to $1 trillion and its annual revenues have risen to $120 billion.
- The DoJ complaint does not, however, specify what is meant by “structural remedies.” Recent merger guidelines issued by the DoJ provide some guidance: according to those September 2020 guidelines “[s]tructual remedies generally will involve the sale of businesses or assets.”
- The $1 trillion question is what kind of break-up of Google is warranted, if any?
- The DoJ case aims to promote "dynamic competition for general search services would lead to higher quality search, increased consumer choice, and a more beneficial user experience.” At the same time, according to the DoJ complaint, “establishing and maintaining a commercially viable general search engine is an expensive process. Google’s search index contains hundreds of billions of webpages and is well over 100,000,000 gigabytes in size. Developing a general search index of this scale, as well as viable search algorithms, would require an upfront investment of billions of dollars. The costs for maintaining a scaled general search business can reach hundreds of millions of dollars a year.”
- The DoJ complaint also recognises that “[s]cale is of critical importance to competition among general search engines for consumers and search advertisers. Google has long recognized that without adequate scale its rivals cannot compete. Greater scale improves the quality of a general search engine’s algorithms, expands the audience reach of a search advertising business, and generates greater revenue and profits.”
- Neither Bing nor DuckDuckGo, each of which are tiny compared to Google, offer viable alternatives, at least as things currently stand. In other words, even if Google’s distribution practices highlighted in the complaint are ceased, the likelihood of a true rival general search engine emerging in the near future, requiring upfront investment of billions of dollars, probably remains low. An order to force the sale of part of Google’s search index and/or some key algorithms – the crown jewels – seems unlikely.
- Until clarity on remedies is available, which could take years, the implications for Google’s Irish operations will be unclear. Google has its European headquarters in Ireland, employs between 7,000 and 8,000 here and pays corporate tax here in excess of €250 million annually. A structural remedy could involve hiving off certain of Google’s operations here. If Google is required to divest Chrome, for instance, the part of the Irish business involved on that side might transfer to new ownership. But, even if the DoJ succeeds at trial and persuades the Court to break up Google (something that is by no means certain), it could take a decade to reach that point.
- What about Apple? The DoJ complaint notes that “Apple has not developed and does not offer its own general search engine.” The DoJ complaint focuses on a “multi-term” revenue sharing arrangement between Google and Apple, whereby Google pays Apple $8 – $12 billion annually to preset Google’s search engine as the default for Apple’s Safari browser. Via this arrangement, Google gains privileged access to Apple’s massive consumer base. According to the DoJ complaint, “[t]he revenues Google shares with Apple make up approximately 15–20 percent of Apple’s worldwide net income.”
- Why Google pays Apple so much given the relative weakness of Google’s competitors will doubtless be a question at trial. One hypothesis is that the arrangement may act to disincentivise Apple developing its general search engine. Thus, the complaint states that “[b]y paying Apple a portion of the monopoly rents extracted from advertisers, Google has aligned Apple’s financial incentives with its own.”
- Greater U.S. – EU Friction on Antitrust Enforcement for Online Platforms?
- The complaint heralds a major shift in the enforcement of competition law by US authorities, which have until recently been reluctant to challenge domestic tech giants.
- The DoJ complaint signals clear U.S. intent to tackle online dominance of U.S. firms. This will doubtless assist the U.S. administration arguing against parallel enforcement by agencies in other jurisdiction (including the EU), especially if such jurisdictions disagree on the remedies required to address identified concerns.
- Unless the EU accepts that the U.S. authorities are best placed to impose structural remedies, as home agency of the online giants, parallel enforcement by the two blocks could potentially introduce friction in trade relations. Ireland, which plays an important role in enforcement of EU law (including via expert representation on the powerful EU Advisory Committee) will need to balance interests carefully.
- According to Deputy Attorney General, Jeffrey A. Rosen, the DoJ complaint is a “milestone, but not a stopping point. We plan to continue our review of competitive practices by market-leading online platforms, and where necessary address those as well.” Reports are that federal antitrust enforcement action against Facebook is also planned. More challenges to come, in other words.
- Notable also is the fact that the DoJ complaint “is based solely on traditional antitrust principles and is aimed at promoting consumer welfare through robust competition.” This contrasts with the EU approach, which is to propose new legislation to regulate online platforms as internet gateways. That the U.S. relies solely on traditional antitrust principles may allow the U.S. to characterise and challenge new EU rules as unnecessary and protectionist.
Also contributed by Ruairí Roantree
This document has been prepared by McCann FitzGerald LLP for general guidance only and should not be regarded as a substitute for professional advice. Such advice should always be taken before acting on any of the matters discussed.