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Google vs the DoJ is a test case for reining in Big Tech
By: Financial Times | August 17, 2023

When the US Department of Justice’s complaint against Google goes to trial next month, it will be the first case to delve into the business practices of a big tech company since the US took on Microsoft a quarter of a century ago. If Judge Amit Mehta comes down on the side of the US, the remedies he orders could have a direct bearing on Google’s core business, opening the door for rivals to take a bigger slice of the mobile search market.

You wouldn’t know it from the share price. Alphabet, Google’s parent, is up 47 per cent this year, part of a powerful rally that has seen Big Tech lead the entire stock market higher. Ever since the “techlash” that set in around 2017, when politicians and regulators around the world began to look at reining in the power of the biggest tech companies, investors have had a new risk to handicap. The current stock market mood suggests they see very little danger.

It is easy to see why. Despite the sound and fury emanating from Washington in recent years, regulators have yet to score any big antitrust wins against the tech companies and Congress has failed to advance any important new legislation. And despite levying a series of fines against Google, Brussels has done little to change competitive dynamics in the markets it dominates.

The EU’s new Digital Markets Act may present a bigger risk. But in the absence of new laws in the US, regulators there have been forced to try to stretch existing ones. The courts, though, are wary of limiting business practices that confer immediate consumer benefits, such as lower prices. Tech companies are quick to warn that messing with their current way of doing business could threaten free internet services and low-price digital goods that have been popular with millions of consumers.

The US Federal Trade Commission‘s failure last month to convince a judge to block Microsoft’s $75bn acquisition of gaming company Activision Blizzard has again underlined the unwillingness of US courts to act without clear harm to consumers, however much the companies’ competitors complain.

The case against Google turns on a batch of deals the company struck with handset and browser makers to make its search engine the default on devices and handsets that run its Android software. 

Though some parts of the complaint were thrown out by Mehta this month, the trial will focus on an issue where Google could be vulnerable. Section two of the Sherman Act imposes a broad ban on any “exclusionary conduct” used to monopolise a market. The US succeeded with a similar complaint against Microsoft, which used exclusive contracts to promote use of its Internet Explorer browser and defeat browser maker Netscape.

But even if Google’s search deals shut out competitors, the company would still prevail if it can show pro-competitive intent for its conduct. Google argues that paying to make its search engine the default that users see on their devices is no different from the way makers of breakfast cereals pay for prominent placement on supermarket shelves. It also warns that if its own promotional deals are cut off and the courts prevent a normal business practice, then it could lead to a worse experience for consumers, including higher phone prices.

The legal test comes just as another big tech company appears set to face a complaint over its core business. There have been reports for weeks that the FTC is moving closer to filing a long-awaited lawsuit against Amazon’s ecommerce operations. The agency is said to be targeting Amazon’s treatment of the third-party sellers who use its online marketplace to reach customers. Amazon has long faced protests that it effectively forces these sellers to pay for extra services, such as its Fulfilment by Amazon storage and delivery, to ensure their products are given prominent placement in its marketplace.

As with Google, this appears to attack an important part of the core business. Independent sellers like this account for nearly a quarter of Amazon’s revenue, making this an important part of the company’s business. Yet Wall Street seems untroubled and Amazon’s shares have rebounded 57 per cent this year.

One calculation investors seem to be making is that even if the companies lose, they may be able to resolve the cases by adjusting the terms of some of their contracts rather than being forced into fundamental changes to their operations. Amazon, for instance, has already agreed to concessions in the EU and UK over how it deals with third-party sellers, with little impact to its business.

The Google trial will shine a light on the sort of practices that Big Tech’s critics claim have complained about for years. But if Wall Street is right, it won’t put a dent in the companies’ most profitable operations.

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