Google Accused of Abusing Monopoly Power

than two decades. So let's get to the legal and business sides of this story. We've got two great voices, Jennifer Ree, senior litigation analyst at Bloomberg Intelligence on the phone from Cleveland, and a voice very familiar to our Business Week audience, Michael Moe, co founder of gs V Asset Management, author of the Global Silicon Valley Handbook. Jed, Let's start with you. So, what's the legal case of this story. Well, the d o J finally filed this

lawsuit that I think was no big surprise. We all knew this was coming um and and honestly it was a little bit more targeted and narrowed, and I expected it to be What essentially it accuses Google of doing

is what we call an anti trust exclusive dealing. Now, it runs through a whole series of different kinds of agreements and payments that Google makes two device manufacturers and wireless carriers and browser developers like Mozilla to secure the default status for Google's general search engine and sometimes prohibit these third parties from dealing with some of Google's competitors. And in antitrust we'd call it exclusive dealing, which is

sometimes illegal and sometimes not. But when a company that has monopoly status, and in this case, it's probably fairly easy to show that Google does of a monopoly at least in general online search, and they foreclose they close up more than about of the available outlets out there to its rivals through exclusive agreements, it can be anti competitive.

So I think the trick here is going to be to show that foreclosure for the d o J, because even though Google enterst these agreements, it does really different users from changing the default through a tension. Hey, Michael, let's look at it from the business side. Here, Jen laid out some of the legal issues from the business side. I'm looking at the stock goes up one point four today, not exactly. The market kind of running for the hills here.

What do you make of this, Well, it's it's a little bit from business standpoint um and from a traditional antitrust standpoint, it's sort of hard to figure out. You kind of scratch your head because you're saying, who's the victim here? I mean, consumers love Google. They vote with their feet, you know, that's the antitrust is about, uh, you know, protecting the consumer and promoting innovation. And Internet economics are about disproportion gained the leader in the category.

That's true almost everywhere. And what that means for the consumer is they get better algorithms. The scale that they get, the AI that they have provides better search results, so you know, the search product is you know, it's hard to argue that, you know, the the economics of the

marketplace don't benefit the consumer. I think what this ultimately really gets about as the data, because it's you know, the data is where the all the value is and the business model Google has has a really advantaged way to get very valuable data. So well, it's interesting, Jen, So Michael brings up a good point. I mean, who

is the victim here? It's a very good point because Google could will likely claim here that look, the reason we have our position and everybody uses us as their search engine is because we're just better than everybody else, and users could switch over to being or to order one of the others as their default, and they don't

because they like us better. Um, what the d J has claimed is that Google has secured this position and it hasn't really allowed any of these other search engines to get to a scale where they could be as good as Google, because you need to tale, you need access, and you need that size, and you need to users in order to be as good as Google is. And they claim the DMJ claims that what Google has done

is reduced quality, innovation, and choice. And interestingly, they haven't talked about price because obviously search for consumers is free, we're not paying for it, and the typical anti trust harm, which is increased price, is not really in here. Um, it's sort of inn a side bar, but but really they're talking about quality, innovation, and choice, and that is another aspect that's going to make this case a bit challenging because those are not channelally typically anti trust harms

without also some sort of an increase in price. Or they're harm to consumers. And and the point that Michael's made the consumers don't reappear, at least superficially to be harmed and have a great product, It's a very good one in terms of Google pretending to see So, Michael, this isn't Microsoft correct Soft you know, used its advantaged position on the desktop to basically keep innovation um away

and you know, and and guage customers. I mean to be blunt, you know, this is a whole different dynamic, as I said, you know, for the custom of consumer. You know, you basically you're getting an exceptional product for free and scale brings advantages to the consumer. And Google is innovating all the time. I think when in the world you're saying you need more choices, I don't think people want more choices. I think what we have is

a problem of what I call infadecity. There's too much information and so being able to have that you know, great product at no cost. You know, who's losing here? I do think what the interesting part here? I think it is ultimately about the data and advantages that Google gets from that data. But that's not what the that's not what the you know, that's not what the anti

trust the suit said. All right, Well, you know the one thing I do wonder, Michael, is it's Silicon Valley like just sitting up and taking notice and saying, Okay, maybe if it's not this one that becomes a problem, there is something else. Because there's more and more you know tech you know, exacts being hauled before Congress, and there's more discussions. I mean, I'm just curious, what if anything reverberating through Silicon Valley. Well, I think there's a reality.

I think Silicon Valley needs to be hyper sensitive to the to the fact that a lot of the America, a lot of the world's hurting and yet digital you know, Silicon Valleys driving you know, Nazas up, which is basically tech, and the Dow Jones is down for the yearth So the bottom line is, I do think there's not a lot of sempathy towards technology, and so I think that you know, the strength of these businesses and the position they have in society, they've got to be extremely careful

not to do things that are anti competitive or that take innovation or you know, hurt the consumer. And so I think that's the that's the delicate dance that we're dealing with, because I do think there is a negative sentiment about Silicon Valley just because of success. Hey, Jen, you are my favorite anti trust lawyer, and I must say you're the only anti trust lawyer I know. But still, how do you think this is going to play out? You sit there, You've seen these things for a long time.

Have you expect this high profile case will play out? Well? The first thing is it's going to take a long time. I mean, you know, we're saying all this news today and there might be some for quite a while, but then it's just going to get quiet because this case is going to drag on um. You know, we saw the FTC's lawsuit against Qualcom from monopolizations that had some

similarities to this one. Before we had a disrecord the decision um and uh, it was about three years and I think that's fast, and you know, and at that point either company can appeal and drag it on even further. So that's one thing. This is going to be a marathon and we aren't going to have any discernible impact um or outcomes for quite some time. And the second thing is, as an exclusive dealing case, I think the

d o J has some hurdles here. There's some evidence that it looks like from the complaint and what they say that's on their side, But the these can be difficult cases to win. Historically, UM exclusive dealing arrangements have been challenged for many years under the anti trust laws, and you know, a plaintiffs can win, but it is

also difficult. It's an uphill climb. UM. And one thing that makes this quite different from Microsoft, which might make it a little more difficult, is that Microsoft actually technically prevented users of the Microsoft operating system from being able to use Netscape or Java. UM. You couldn't change it as a default as the consumer if you wanted to,

and Google hasn't gone that far. You know, Google might set itself in these agreements where it's the default search engine, but any consumer can go in and change that, and so it's not really technically forced foreclosing its rivals. UM. It's more of a de facto exclusive greeling exclusive dealing than explicit and that makes it just a little bit tougher too. But but I think that the main thing is it's going to be some time before we really understand what direction this is going to go in So

I gotta ask you guys, what about the timing? Is it kind of interesting that here we are just thirteen days out from an election? Michael, Mom, what do you make of that? And I do wonder, you know, does a new administration change anything when it comes to a case like this. Well, I don't think it's a coincidence, that's for sure. And you know, I think, uh, you know, California last time I checked, as in a battleground state. Um, I think I think it's pretty safe to say that

California is gonna go for Biden. So yeah, I think that's you know, I think that's reality. Um, I think that's unfortunate. Again, I think this. You know, I'm not an anti trust lawyer, but I think just looking at sort of what a COmON sense, looking at sort of the allegations, to me, it just as nonsensical it makes it makes complete sense. I guess for the political standpoint, what why it was filed now? But it's it's, it's it's it seems a little bit um crazy to me. Jim,

what do you make of the timing of this? I think the timing is interesting as well. Um, you know, look the dj has been investigating Google for more than a year now and off. Oftentimes that is the timing. I mean, these investigations go on for a year, sometimes

two years, and then a lawsuit is brought. Um. But we did see some news reports that leaks coming from some d o J staffers saying that they didn't think they were quite ready and that they would have liked to have more have had more time to flesh out their case a little bit more, and they thought they'd have a stronger case if they had more time. So it does look it looks a little odd. So you know, Jen,

what are next steps here? Um? You know, I think they they they've been served here that now what right? So the next step would be, you know, they'll get together, they'll get assigned to a judge. They'll get together to set up a schedule. And the schedule really is just a discovery schedule, meaning collecting of documents from each other, deposing witnesses um that will be used for trial. And that is a long process that can take about a year.

But before you jump into that the heavy duty part of discovery, the defendant, Google has the opportunity to file what's called emotion to dismiss an emotion to dismiss this basically saying just based on the allegations in this complaint and not digging into the evidence, they haven't released, they haven't plausibly stated, and then she trust claim here. I think Google will do that and we could see that within the next couple of months. I don't see that

being successful. So this is what's called a rule of reason case, which means a judge really has to weigh the evidence and dive into the evidence before they can make a determination. So so I think this will continue on past that, but it's likely Google with file something like that. And I think the other thing we may see is other states signing on to this case or another suit being filed by a different set of states that might contain additional allegations. Be honest, all right, We're

gonna leave it on that note. Um, folks, thank you so much. Jennifer Ree, she's senior litigation analyst Hepp Limburg Intelligence on the phone from Cleveland. Michael Mouh, thank you as well, co founder gsb Asset Management, also author of

the Global Silicon Valley Handbook. But really understand what's going on in Silicon Valley and as he said, you know, some of the issues about who owns our data, um, you know, and the free speech issues, issues in censorship are some of the things that you know, he thinks maybe big tech really needs to be looked at. Yeah, I think so, because that's something that Congress is looking at. And whenever you have Congress, they can look at your industry,

your company. Uh, that's a big issue. VISA be just a typical regulator.