Tech

DOJ case against Google has strong echoes of Microsoft antitrust case

Key Points
  • The DOJ lawsuit against Google is narrowly focused on how it used distribution, particularly on mobile, to bolster its alleged search and search advertising monopoly.
  • The complaint makes specific references to the outcome of the Microsoft-DOJ dispute from almost 20 years ago.
  • This narrow focus is in sharp contrast to more sprawling attempts to rein in Google, and therefore could stand up better in the long run.
Bill Gates, (R) talks with Steven Ballmer, who was named President of Microsoft July 21, 1998 in Redmond, Washington.
Jeff Chistensen | Getty Images

The Department of Justice's long-expected antitrust lawsuit against Google draws explicitly from the government's antitrust case against Microsoft almost 20 years ago, offering a narrowly focused argument that has a better chance of holding up than the Microsoft case did.

The Microsoft case included several lines of argument, but the core of it was whether Microsoft illegally bundled its web browser, Internet Explorer, with its market-dominating Windows operating system, in turn closing out opportunities for other browsers, including Netscape Navigator.

After many twists and turns, including a breakup order that was overturned on appeal, Microsoft and the government reached a fairly narrow settlement in 2001. That settlement did not establish that Microsoft's bundling of Internet Explorer with Windows was illegal, nor did it require Microsoft to unbundle its browser from Windows. However, it did restrict the terms and conditions that Microsoft could impose on PC makers who distributed Windows.

In other words, after all was said and done, the Microsoft antitrust case in the U.S. was mainly about distribution.

This time around, the DOJ is cutting straight to the chase and focusing on how Google uses distribution, particularly on mobile devices, to bolster its alleged monopolies in search and search advertising.

'Exclusionary agreements'

The DOJ's argument focuses on how Google pays distributors, including mobile device makers and mobile carriers, to ensure they make its search engine the default. In exchange, the complaint says, Google sometimes requires these distributors to take other Google apps, including search apps, "and feature them on devices in prime positions where consumers are most likely to start their internet searches."

Specifically:

  • Google allegedly requires some device makers who want some Google apps to accept other apps they don't want, keep them permanently installed on the device and give Google apps and services "the most valuable and important real estate on the default home screen."
  • For some mobile devices, Google allegedly prohibits device makers and carriers from preinstalling or setting defaults to rival search engines.

The complaint goes on to say that more than 80% of mobile search queries are covered by these allegedly exclusionary agreements.

It also goes into detail about how Google exercises control over the Android mobile operating system, which it created and distributes under an open-source license.

In theory, open source licenses give anybody the right to copy, modify and redistribute the code used to create a piece of software. But Google essentially offers tiered versions of Android. If device makers want, they can take the basic operating system and do whatever they want with it. But if they want access to particular Google apps or services, they must sign agreements that limit what they can do with Android.

Google uses this control to boost distribution of its search engine and search ads business, the complaint says.

Microsoft cited as precedent

The complaint draws a specific parallel between what Google is doing now and what Microsoft did more than 20 years ago, saying that both companies used these agreements to shut off distribution for rivals. Notably, the complaint calls back to the D.C. Circuit's decision -- that's the court of appeals, which overturned much of the lower court's much broader ruling:

"Almost 20 years ago, the D.C. Circuit in United States v. Microsoft recognized that anticompetitive agreements by a high-tech monopolist shutting off effective distribution channels for rivals, such as by requiring preset default status (as Google does) and making software undeletable (as Google also does), were exclusionary and unlawful under Section 2 of the Sherman Act."

The DOJ complaint also claims that Google learned from Microsoft's mistakes, and carefully avoided using certain language to shield its actions from antitrust regulators. For instance, the complaint cites Google's chief economist telling employees to avoid using terms like "Cutting off the air supply" -- a phrase that a Microsoft exec allegedly used to describe its stance toward Netscape. (The exec, Paul Maritz, denied he ever said it).

The DOJ complaint also says that Google instructed employees to avoid terms like "bundle" and "kill" when talking about the competition, and to avoid observing the company had "market power" in any market.

No kitchen sink

Google is a sprawling conglomerate with many different business lines. This can often lead to arguments against the company that lack focus.

For instance, when Democratic-led staff of the the House Judiciary subcommittee on antitrust released its massive report last month on antitrust and Big Tech, it called the company "an ecosystem of interlocking monopolies" and touched on many alleged abuses, including how Google displays search results to favor its own properties, its acquisition of ad tech companies like DoubleClick and AdMob and how it uses other products like Chrome, Android and the Google Play Store to bolster its dominance.

The DOJ complaint smartly avoids this kitchen-sink approach and focuses very specifically on Google's strongest and most important businesses -- search and search ads -- and how it allegedly uses distribution on mobile devices to foreclose competition.

By focusing its arguments and calling very specifically back to the Microsoft case, the DoJ increases its chance of prevailing in this case while leaving the door very much open for future cases in other areas.

The outcome is unlikely to be a single blow that destroys Google or opens the door to a wave of new competition. Rather, as was the case with Microsoft, this is likely the beginning of a decade-plus wave of antitrust litigation that could distract and slow the company, leaving it more vulnerable to encroachment from large and well-funded competitors like Facebook and Amazon.

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Department of Justice announces antitrust lawsuit: Google unlawfully maintaining monopoly