Two weeks ago, the House subcommittee on antitrust released a 400-plus page report detailing the anti-competitive practices of the four major digital platforms — Google, Amazon, Apple, and Facebook — and called for the Department of Justice (among others) to take action. And this week, the government did exactly that, filing a landmark antitrust case against Google, one the DoJ has reportedly been working on for some time. Depending on whom you ask, it is either a cravenly political gambit by Attorney General Bill Barr designed to make the Trump administration look tough, a legal quagmire that is significantly weaker than the 1998 Microsoft case and almost certain to fail, or a sign that the government is finally taking strong action to correct some of the blatant antitrust failures of the past two decades. It’s even possible that it may be all three of those things simultaneously.
What it is almost certain to be if it survives the election (and there’s good reason to believe it will continue even if Joe Biden becomes president) is a full-employment program for antitrust lawyers both inside the DoJ and elsewhere. The Microsoft case generated work for thousands of lawyers for the more than five years it took to reach a conclusion. As a number of experts have pointed out since the Google case was filed, it also ended with a negotiated settlement and a series of fairly modest restrictions on Microsoft’s conduct, a deal the Justice Department was forced to reach after its proposed remedy — breaking the company into two parts — was rejected by the courts. That said, however, some tech veterans believe the case was successful despite its weak conclusion, because it tied Microsoft up in legal knots, and made the company hyper-sensitive to criticism, and therefore leery of being too aggressive. (This actually helped the rise of Google.)
Those who subscribe to the theory that the case was rushed to make Trump look good point to reports before the indictment’s release that suggested Barr was pressuring the DoJ to launch the case before the election, and that some members of the staff had balked, saying it wasn’t ready. Barry Lynn, executive director of the Open Markets Institute, doesn’t buy this theory: he told CJR during a discussion on our Galley platform Wednesday that “it’s actually a very strong case, and a well-written case. So this was anything but a rush job”. Zephyr Teachout, a professor of law at Fordham University and a former Democratic candidate for governor of New York, said in a similar discussion that while she believes Barr “should be impeached, and I don’t trust him for a second”, the case is well-grounded, and should have been brought years ago. Both Lynn and Teachout said that despite the appearance of political divisions in the House report that preceded the Google case, there is more agreement than disagreement about the necessity for regulation.
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Google, unsurprisingly, disagrees. In a blog post, the company called the Justice Department’s case “deeply flawed”. Google said the money it pays Apple — estimated by the DoJ at between $8 billion and $12 billion a year — to make its search engine the default choice is similar to the way cereal makers pay grocery chains for preferred locations on their store shelves. It’s an appealing analogy, but as antitrust expert Gary Reback noted, “It’s not just Google has a better shelf and its competitor is on the next shelf, it’s that Google has all the shelves and its competitor is in a different store in a bad neighborhood 400 miles away”. Analogies aside, Google and its defenders argue that the case is doomed to fail because the company provides its services for free, and people freely choose to use its search engine. Antitrust law for the past 40 years or so has been based around the concept of consumer harm, and it’s difficult to see how Google’s free services harm consumers in any tangible way.
In order to win their case, in other words, the government has to either convince the courts to ignore several decades of judicial precedent, or come up with a novel definition of consumer harm that covers what Google does. The closest it can probably get are the deals that the company makes with phone makers, where it forces them to install all of Google’s apps if they want to use its free Android operating system. But even that makes smartphones significantly cheaper than they otherwise would be, which looks a lot like a win for consumers, and therefore a tough argument for traditional antitrust. That’s a fairly slim branch to be hanging a landmark case on. But if experts are right about the lessons of the Microsoft case, it might be enough to just tie Google up for awhile, and make it less aggressive. And then we might see new competitors emerge in the same way Google itself did 25 years ago.
Here’s more on Google and antitrust:
- What harm? Technology analyst Ben Thompson notes in his subscription newsletter Stratechery that the Google case suffers from the same problem that an antitrust action against Facebook would: both provide free services that are chosen willingly by users. “If I had to bet on an outcome, I would bet on Google winning”, he writes. “Apple and everyone else are free to enter into whatever contracts they wish, and consumers are free to undo the defaults that flow from those contracts. Where is the harm”? However, Thompson also says that even an unsuccessful case could lead to regulatory changes that might curb some of Google’s anti-competitive behavior.
- Throwback: In a discussion on Galley after the House subcommittee held its last hearing with the chief executives of the four major platforms, CJR spoke with a number of experts on antitrust. They included Teachout, as well as David Dayen, executive editor of The American Prospect, Matt Stoller of the American Economic Liberties Project, and Scott Rosenberg, technology editor at Axios. “A lot of the conduct that the members of Congress were appalled at was conduct that’s neither surprising nor illegal”, said Rosenberg. Sandeep Vaheesan, legal director at the Open Markets Institute, said the hearing “felt like a throwback to an earlier time when Congress took its oversight function and matters of market governance seriously”.
- Weak: Technology writer Mike Masnick at Techdirt writes that one of the Justice Department’s central arguments, about Google paying Apple somewhere around $10 billion a year to be the default search engine, is one of its weakest examples. “The fact that Google’s deal alone is 15 to 20 percent of Apple’s considerable revenue alone seems damning to the underlying argument for the case”, he says. “If Google were a monopoly, then by any normal economic analysis, it would be driving down how much it pays because Apple would have nowhere to go”.
- Strong: In contrast, legal analyst Herbert Hovenkamp, a professor at the University of Pennsylvania Law School, tells the New York Times that he thinks the Department of Justice is on fairly firm ground because it concentrates on exclusive deals like the Apple one, which theoretically restrict consumer choice and therefore produce harm. “The case looks narrow but fairly strong”, he said. “The focus on restrictive contracts by a dominant company is as old as the Sherman Act”, the document that started the modern tradition of antitrust law in 1890.
Other notable stories:
- Mother Jones magazine alleges Facebook manipulated its News Feed to exclude certain left-leaning publications — including Mother Jones — in order to satisfy conservatives. According to interviews with Facebook employees, the report says, “Facebook actually ran experiments to see how the changes would affect publishers, and when it found that some of them would have a dramatic impact on the reach of right-wing “junk sites” the engineers were sent back to lessen those impacts”. As the Wall Street Journal reported on Friday, the second iteration down-ranked progressive news organizations instead.
- The Media Voices podcast talks to a number of journalists who have left their traditional jobs to make a living writing a newsletter, including former Verge writer Casey Newton, who recently launched a newsletter on the Substack platform. Although some newsletter writers make a good living from subscriptions, it can take a long time to get to that point. Media writer Thomas Baekdal says he spent years saving money before he launched his newsletter: “I had more than a year of salary in my bank account when I started. And I burned through that almost completely. I almost went bankrupt within the first three years”, he says.
- Subscriptions and circulation made up around two-thirds of the $423 million in revenue that The Economist generated last year, according to a report from Digiday, including an interview with president Bob Cohn. Even before the pandemic started, the magazine had shifted its subscription strategy from focusing on acquisition to more of a retention push, Cohn says, but the coronavirus crisis created “a kind of urgency” to keep the newly acquired users. “We were an acquisition machine; we were not focused as diligently as we could on retention”, prior to his arrival, Cohn says. “We came into this year with a determination to be better at that”.
- Hollywood and Silicon Valley heavyweights Meg Whitman and Jeffrey Katzenberg said Wednesday that their streaming entertainment startup Quibi is being shut down after it failed to gain enough of an audience, and the two founders failed to convince any of the entertainment or media companies to acquire it. The company raised $1.7 billion in financing, but only wound up with about 75,000 subscribers at its peak. In a note to staff, the founders said the company didn’t succeed “for one of two reasons: because the idea itself wasn’t strong enough to justify a standalone streaming service or because of our timing. We suspect it’s been a combination of the two”.
- Columbia journalism professor Bill Grueskin writes for CJR about the Democratic party’s infamous worries heading into the election. “Fret. Worry. Fear. Reporters linked those words to Democrats in nearly 50 percent more stories over the past six months than they do to Republicans”, he says. “Why is the Democratic Party, which ought to be feeling like Simba, so often portrayed as the Cowardly Lion? There’s no one reason that explains this, but there are plenty of theories. First, of course, is the lingering post-traumatic stress from the 2016 election”.
- Marker magazine, published by Medium, profiles Nick Quah, a journalist who started a newsletter devoted to the business of podcasting as a side project while working for a number of media companies, and eventually turned it into a full-time job. “Within a couple years of starting his newsletter, this random guy was able to quit his day job and become, for lack of a better word, a full-time expert” who gets quoted in the New York Times and the Wall Street Journal, the profile says. Quah says his newsletter now has between 20,000 and 25,000 subscribers and he earns six figures from it.
- Staff at the Daily Gamecock, an independent student newspaper published at the University of South Carolina, are taking a break due to burnout, the paper announced on Tuesday. “For the next week, The Daily Gamecock will not be producing content of any kind”, the editor’s note said. “At the beginning of the year, we made a promise to prioritize mental health not only in our coverage, but in our newsroom — in ourselves. This decision is a fulfillment of that commitment”.
- Hearst Corp. offered employees of the San Francisco Chronicle voluntary buyouts on Tuesday in an effort to cut its expenses as the economic effects of the coronavirus pandemic and the outlook for many businesses remain unclear, the Chronicle reported. “This is a voluntary program”, publisher Bill Nagel said in an email to staff. “The events of the past seven months have affected us all in different ways, and some colleagues may be considering a lifestyle or career change, which we hope this offer could help them achieve”. Managers said there was no set goal for the number of buyouts.