Google's Huge Antitrust Loss & Musk Pay Package

of course Google says it will appeal the decision. Joining me is anti trust expert William Kavassk, a professor at the George Washington University Law School and the former chair of the Federal Trade Commission. Will this decision stand as a landmark, along with say, the AT and T, Stay and Oil and Microsoft cases.

probably issues that by the end of the year. But then we go through the inevitable process of appeals where Google and maybe the government, point is, decide to appeal different issues raise different points about Judgemta's decisions on liability and remedy. So this promising first step for the government is only the first step in the process that will lead through a fairly difficult gauntlet of appeals. And I think ultimately this is a case that gets to the

US Supreme Court. The Supreme Court hasn't informed me about whether that's the case, So this is speculation that I can't defend in any scientific way, but it's a case of such significance both were with respect to doctrine and commerce, that it's a natural candidate to be reviewed by the Supreme Court, and that process could take us well into twenty twenty six. So your crucial question about what kind of landmarks this is I will answer with the typical

academics evasion. It depends on the final resolution of the matter through the appeals, an answer that won't come to us probably for two more years.

And the government, to judge Metta's satisfaction, proved that in that market consisting of general search services that Google and Danism, it does not have effective competitors, that it accounts for an overwhelming share of activity of searches that are carried out, and as a consequence, its power is not only significant today, but the court concluded it's going to be durable. But in any trust law, it's not enough to simply be big.

There are lots of expressions by courts over time that's saying achieving a position of preeminence is a mark of distinction, it's not a badge of shame. So you have to do something more. You have to show that that power was achieved to means that are improper, that you achieved it through improper means, you protected it through improper means. A colleague once told me that it means in US law that you need not only be big, you have

to be bad as well. And on that point, Judge Betta found that Google's behavior in a number of instances was improper, that it excluded rivals from having access to business opportunities that they needed to compete, and it did it through a variety of different forms of exclusivity agreements that gave it the sole access to a crucial asset in dealing with third parties such as Apple and the Menta. Competitors didn't have the opportunity to use that valuable asset

to compete effectively with Google. So for those two core elements of the monopolization case, Judge Meta validated the heart of the government seriod not in all respects. Google has some things in this opinion that that I'm sure liked.

Disappointed with the larger outcome, I imagine the government did not get everything it wanted here, but it got validation of its core interpretation of this crucial principle of monopolization law that the firm in question must indeed have tremendous power within a specific part of the marketplace and must have achieved or protected that position through improper means on those larger themes. Judge Meta concluded that the government had proven its case.

their behavior. It has not told them they can do anything they want, but it's imposed fairly severe burdens on government and private planets trying to attack the behavior of dominant firms, so that the arena in which the appeals will take place is one in which the doctrine is generally sympathetic to the kinds of arguments that Google has offered about its own work in just the last twenty

four hours and developed during the trial. Another advantage is that they'll point to the evidence in the record that suggests that people turn back to Google when they have a choice, When the starting point of their experience is another product, they switch to the default, they abandoned that product and turn back to Google. So Google's going to stay. There's evidence in the case that says people come back to us because we're offering them the better experience. Those

aren't silly arguments. Those are arguments that enjoy some philosophical and doctrinal support and what courts have done in the past. So Google would be standing before the Court of Appeals saying that the practices that the government complains about cannot appropriately be deemed to be improper. And the remedial hearings will focus a lot on what Google should be allowed

to do in the future. How much should it be able to bid for, say the placement on the iPhone when it comes to the famous rectangle on the iPhone? Should it be more cautious and how it bids, Should it bid less aggressively? What exactly should its position be.

Those are hard issues to be resolved in the remedial proceedings, and Judge meta in a couple of places is an opinion expressed a concern that has appeared in earlier Supreme Court decisions about the difficulty judges face in trying to tell companies whom they must deal with and on what terms they must deal with them, and express concern about mandating a general obligation on the part of dominant firms to deal with other companies, anxiety about the role that

courts would undertake, and becoming a referee that examines and evaluates each of these interactions between the dominant firm and a third party. Court said, we're not wealth suited to do that. The intervention that we have to undertake has to be much cleaner and not involve such long term,

ongoing entanglements. We can't do that. You know, during the remedy proceedings and probably in the appellate process, Google will be saying, well, in light of that express concern, how do you write an order or an injunction that tells us what we can and can't do without in some crucial ways just disabling us. How do you do that? So those would be very live and important issues for debate during the and as you mentioned before, you know we're probably about two years away from a final decision.

If I'm right about the likelihood of Supreme Court review as the last stage of the process.

And Google's operating in a judicial environment, a duct final environment built up especially since the late nineteen seventies that tends to be sympathetic to some of the kinds of

arguments that Google has been making. So it's really a caution that, you know, notwithstanding the exceptional result that the government achieved yesterday, that there are many rivers to cross before the final outcome validates the approach that they've been taken, and Google is not yet defeated in its efforts to persuade the appellate judges that it didn't behave improperly.

just been talking about the Boulder. In some sense the Boulder, the more visually striking solution is to force the company to divest asset. That's the breakup solution. Theoretically, it's in the solution set. It's a well established anti trust remedy for monopolization. Going back to the earliest phase of enforcement of the Sherman Act in the late nineteenth and early

twentieth centuries. It's also been a remedy the courts have applied with some reluctant, some anxiety on the part of individual federal judges about whether they are performing surgery of a sort that's going to make the commercial system better or worse off. So I would say there's an implicit additional burden that government plaintiffs carry when they're trying to argue for divestiture remedies in monopolization cases. It's not impossible

to bear that burden. And the famous DOJ prosecution of Microsoft, DOJ succeeded in persuading the trial judge to mandate to the separation of Microsoft into two parts, an operating systems company and an applications company. The Court of Appeals rejected that remedy for a variety of reasons, but one of them was that Judge Jackson, the trial judge in the case, held an adequate set of hearings on the remedy. He basically had a two hour conversation with the parties in

the court room and that was it. That he should have done more. But the Court also did not uphold the full scope, but the finding of liability that the district judge had found at the trial, and it said that we've narrowed the footprint of the finding of liability. You have to take that into account in designing the remedy.

The Court of Appeals didn't say you can't mandate the vestiture, but be cautious, be careful in designing the remedy because our finding of liability is narrower than the one that you found. That was perhaps an oblique way of the court saying, don't come back to us with a breakup solution. So conceptually, legally, theoretically it's part of the solution. Set in practice, it's been a challenging remedy in some instances for the government to obtain, I say, to get the remedy,

the government has to do two things. Wants to say that the misconduct created serious competitive clause in the relevant line of commerce, seriously retarded competition, and that the structural solution is vital to restoring competition and making it effective in the future. That impossible, but very challenging, which tends to mean that a more likely outcome, perhaps is some set of controls on conduct rather than mandated divestitures.

out that way. I suppose if I were the Attorney General, i'd make the same claim. But he can't know that yet.

influence over there. Thinking internationally, Google is the subject of a myriad collection of regulatory and anti trust law interventions globally, everything from the Digital Markets Act and the European Union to monopolization cases and investigations in Asia and Africa and Latin America, in Australia and now of course in North America too. This case provides them some encouragement to carry on. It says that the US government thought this was a

serious problem that required intervention, and they intervened. A federal judge thought there were serious problems here and found in an infringement. It helps blunt the argument that the countries overseas. They're simply picking on American companies, and they're doing it for protectionist treats. It gives them the ability to say, we are operating in a mainstream of policy already occupied by the government of the United States, and we're not

doing anything different from what they're doing. It gives them some encouragement, It gives them some reinforcement for the path they've taken, and it enables them to say, if the US government is taking this step, if the US courts they're coming up with these decisions, how can you claim that we're operating, in some sense in an extreme radical fashion.

founder's veto rights overboard decisions. Joining me is business law expert Eric Talley, a professor at Columbia Law School. Eric tell us about this new amendment to Delaware law.

end up proving to be a big deal. And what it concerns is something known as shareholder agreements or stockholder agreements, which traditionally sort of the OG version of these things were exactly what they sounded like, agreements among and between stockholders or Delaware companies that basically said, we're going to coordinate our actions, we're going to vote together, we're going

to cooperate together, and so forth. And these have been around for a long time, and Delaware Law has bus said these are completely fine, and over time they became

more and more prominent. And then what started to happen is that these OG shareholder agreements kind of turned a little bit more into what you might call a gen Z shareholder agreement, which is that it wasn't just an agreement on the shareholders, but now that company was a part of the agreement, and the company also or its board had duties themselves for actions that boards usually do, like whether they're going to pursue financing or a new

business opportunity or an m and a transaction, or issuing new stock or dividends and so forth, and so these gen Z agreements often would give shareholders or more often just a select group of shareholders control or veto power over whether that happened. So that's a little bit different of a model than just shareholders saying we're going to agree to coordinate with each other in doing things that

shareholders usually do. Now the companies involved, and particularly what the board of the company does, is involved, and that creates attention. It puts these new age sort of shareholder agreements on a collision course with traditional Delaware law, and Delaware law is sort of the standard bearer in corporate law and has been for the last century, even though

it's under a little bit of strain recently. And it basically puts forth a model of how companies, at least as a default matter, are going to be governed, and it's going to be centralized through the board of directors. The board of directors is going to have sort of centralized authority and duties to act on behalf of the company.

the companies. But corporations are complex. They have a bunch of different interests, not just stockholders and managers, but employees and creditors and suppliers and customers, and so it would invite havoc. Just to say, let's have a free for all of everyone entering contracts with one another. It would just be a complete mess because the contracts might not

even you know, be consistent with one another. So traditionally, the Delaware approach has basically sort of mediated this by saying, we're going to put the board at the center of all things, and there's a hierarchy of contracts that are going to be used. At the top of that hierarchy is something known as the corporate charter, it's almost like the constitution of a company. Then below that is kind of another set of documents called bylaws, and then sort

of contracts and board resolutions are at the end. And so if you wanted to change your company in a way that's a little different than the background rules of Delaware would lay out, you could do it for the most part, but you'd have to make sure you did it through an authoritative document, one one of these high

in the hierarchy documents like the charter. And that's how this collision occurred because once parties started to enter into these gen Z stockholder agreements not just between shareholders, but also had implications for the board's power, there was kind of a looming armageddon between what was going to win out this traditional hierarchy of hey, now the charter controls everything versus these contracts that are entered into between maybe just a couple of shareholders and the board, or maybe

someone who's thinking about becoming a shareholder on board, they may have precedence over those traditional powers of what boards do. And so that is essentially the breach that this new statute dives into, and it ends up putting a pretty strong thumb on the scale on behalf of stockholder agreements, basically saying, even if they are inconsistent with the charter, for the most part, they're going to have effectiveness and

enforcement power inside Delaware Corporation. And that's what I think some people are trying to figure out, Well, how far is that going to reach?

veto and control rights over things that boards usually do, but did it through a contract. And the chance Re Court judge, by chance Hi Laster basically said, look, you can probably do this stuff, but doing it through a side contract and not doing it through the charter is inconsistent with Delaware law. And these provisions are going to be invalid. He held them to be invalid if they weren't included in the charter, that constitution of the company.

That this created all kinds of havoc because over time, people had gotten so comfortable with stockholder agreements and they had, you know, essentially conjectured that, yeah, these are going to be totally fine, and so they kind of ended up sort of feeding the beast of creating more and more of them, and a lot of transactional attorneys had basically

assumed that they were going to be perfectly enforceable. I think when you step back a little bit, the tension between the traditional way that Delaware law lays out the hierarchy of charters and by laws and contracts made this armageddon point almost inevitable. But by this point, you know, a bunch of transactional attorneys had already advised, you know, hundreds, if not thousands of their clients, Yeah, you can go ahead and do this, and I'll all work one up

for you. So I think it became a little bit of an affraded point for many the transactional attorneys who had sort of put their name behind these stockholder agreements, and so the statute ended up doing something that is

a little bit unusual. There have been cases in the past where Delaware has changed its law in response to a case that's come out, but usually you wait until the case goes all the way up to the Delaware Supreme Court and the final judgment has entered into and in this case, the Delaware legislation you're basically was lobbied to get in on the action very early on in the process, shortly after the trial court opinion came out and before the Delaware Spreme Court got a chance to review it.

area of law. The thing that probably compounds a little bit is that in Delaware, the job of proposing and putting forward new amendments to the Delaware statutes has largely been delegated out to a non legislative committee called a Delaware Council. And this is essentially a collection of lawyers who either practice in front of the court or do transactional work in the court. It's pretty heavily represented by, you know, folks who would be writing these stockholder agreements.

And they were thrown into i guess a little bit of a panic from this trial court opinion, and so you know, they ended up you know, sort of putting out the proposal. The proposal itself was viewed by several folks when it first came out as being you know, pretty radical in the changes that it might end up visiting on the law, and that caused attention and it

caused intention in a couple of different areas. There were several people who you know sort of you know, critique the speed with which this reform proposal was coming forward and had not really sort of anticipated all the different

ways that it could go sideway. And in fact, there was a group of about almost sixty law professors and I was one of them I should note and also kind of helped author the letter that signed a letter that said, hey, let's slow down this process and try to figure out what makes sense, because this may change a lot of things that you don't intend to change.

But in addition, two of the judges on the Delaware Chancery Court, Chancellor McCormick herself and by Sensor Laster, both had started to go public about their own reservation about this statutory reform, and that ended up causing a much more heated environment than you usually see with corporate law reform. I don't recall, certainly, in my academic lifetime, anything nearly as contentious as this. Usually this is a pretty sleepy area.

Whether you agree or disagree with the new statute, it ends up being sort of a thing that you know, people sort of say, well reasonable by its different. But here I think there really was a much more public debate than the proponent of the statutory reform had anticipated.

their jersey. It's sort of a judgment call. And so most people who play basketball, they will sort of try to push the boundaries of that room a little bit and do a little bit of jersey grabbing and it won't get called. And you know, the general idea is that, yeah, we know that this isn't allowed, but if we do it just a little bit, you know, the referee is

not going to call us on it. And if the referee in this case is the judge, that might have been the case with these stockholder agreements, right that when you overstep the Delaware pattern just a little bit, it just wasn't worth anyone's time to really challenge in court. But yet kind of knew not to go too far. We now have a Delaware statute that basically says it's not entirely, but it's pretty close to open season to

do these things. It's almost like the basketball rules got changed and say, yeah, it's okay to grab someone else's jersey. I mean, don't be too bad about it, but go ahead and grab someone's jersey. I think it's going to change the way that the team plays defense. I think it's going to change the way that these contracts get executed because they have a little bit more of a hall pass now to engage in creative contracting. And that's

that's what good transactional attorneys do. So when you know it looks like what they have been doing is now something that the Delaware like legislature says, okay, the next logical thing to do is to try to test the boundaries of that, to try to figure out if there are ways that you can use these contracts in a

manner that overrides what sort of fiduciary principles would otherwise entail. Now, the Delaware Assembly basically say we're not changing the doduciary law, and they say so specifically in the statute, but it's really hard to know whether that's going to prove true or not because if you've got a contract in the contract that just getting complied with, and the contract also isn't getting disclosed to other folks, which is a big

potential danger here. Who's going to enforce the fiduciary obligations, Who's going to even know about the existence of the contract. And so I think that one of the areas where I was a little bit alarmed isn't as much the idea that you shouldn't be allowed to use contracts, but the fact that this was a change that was made pretty much for every Delaware incorporated company, is it's now

okay to do this. It's not clear that the shareholders who invest in those companies had assented to that, and now that's a rule they're going to have to live by. And for many of these companies, particularly the ones that aren't publicly traded, these stockholders may not even know that there's a favored stockholder that has extra influence at the board level, or maybe even prospective stockholder who's not even a stockholder yet, who has that kind of influence at

the board level. And so that's one of the things that I think is a bit of a concern is that with this new license to generate these contracts. You know, transactional attorney's going to do what transactional attorneys do, which is they're going to then try to test the next boundary out. And if you didn't do that as a transactional attorney, I say, you're not doing your job.

pay package. Last week, Musk's attorneys were back in Delaware Chancery Court to ask the judge who blocked the deal to change her ruling, and Chancellor Kathleen McCormick said, this has never been done before. There's no Delaware law on this. Correct. Tell us what Musk's lawyers were trying to pull off here.

a specifically heavy end. And so if you're going to try to defend that contract, there's only a couple of ways to do it, and some of them aren't very clean. They just involved protracted litigation. But one way to do it is to say, hey, we got approval from the stockholders and maybe even independent board members, and even better both of those groups to go forward. One of them would help. And so when Tesla first granted this compensation package to mister Muskin twenty eighteen, they did go out

for a vote of the stockholders. But chancelleror McCormick basically said, you know what, it didn't accurately disclose all of the tom foolery and shenanigans that were going on at the board level when it came to putting this package together. And so when the stockholders voted on it, they were voting on an incomplete basis of information. And so you get one chance to do this, you didn't do it right,

and she invalidated the contract. So what Tesla did is that it said, Okay, we're going to go back out for another vote of our stockholders. We're going to make all kinds of disclosures to them, including attaching the entirety of Chancellor McCormick's opinion, and get another vote. And that's what happened in June. The stockholders came back and voted, you know, seventy two percent to validate the compensation package.

And then, you know, everyone sort of expected that this is going to happen with Tesla attorneys came forward and said, okay, so this really just counts as stockholder approval. Yeah, we got it way after the fact, that after we had already lost with a defective stockholder approval. But it should have the same weight, it should carry the same weight

as if we did it right the first time. And this clearly troubled chance for McCormick because there's almost sort of a question of if this were, you know, something that she could sign on to, does it basically give companies license to try, you know, an infinite number of times to try to get stockholder approval, even years after they've gotten, you know, an adverse judgment against them, and

that has never been tried before. This particular approach is one that I think probably if most students of Delaware law would say, it's a it's a bit of a long shot. But you know, Elon Musk is known for taking long shots, and so we'll see how this comes out. And you know, I think in some ways, the debate over the new statute in Delaware, you know, bears some relationship to this. It's not really a compensation sort of issue with this new statute, but it does deal with

influential stockholders who get into contracts with companies. Delaware came under a lot of fire, at least from mister Musk and his accolytes, for invalidating the contract. You know, on some level, the Delaware legislature might have been, you know, working on a little bit of concern that they wanted to signal to people that now we're friendly to big stockholders and so here's the way we're going to do that. So it'll be interesting to see, you know, how these

two things kind of progress simultaneously. The new statute is now law, we don't know exactly how people are going to be responding to it. I will tell you, June, that is someone who you know, basically makes a living studying how different sorts of legal rules change corporate behavior. You know, even though I'm a little concerned for the Delaware franchise here, it's a it's going to be a gold mine of new data to study because this is a fly significant and by some lights risky experiment with

Delaware law. And so we're just going to have to see how it plays out. And then at the same time, we've got chance McCormick is going to have to come up with some sort of the allocation, and maybe even she might even be convinced to revisit her ruling. That if she decides not to do so, I suspect she probably won't revisit the ruling, then it'll go up to the Delaware Supreme Court, and so we may have more funding games with elon Block as well.

at the second vote? If the magic is that you can come in after the fact, clean everything up with a full disclosure and get stockholders to approve it, then if you fail the second time, you know, And there's there's actually an argument that when the stockholders voted this time around, they had a lot of information, They were fully informed, but they were also really concerned, probably about statements that mister Musk had made that he was going

to remove the AI assets from Teshwood and them somewhere else. So is the key thing on a stockholder vote is you got to be fully informed and you can't be voting with a metaphorical gun to your head. So there's a chance that this second vote, even if it would count, would be invalidated because of what's known as coercion of the vote. Could they come back with a third vote.

If that's what happened, then it's really hard to know what is in store, As it is always hard to know what is in store with Elon Musk, I predict that chance, McCormack is probably going to stick to her guns if for no other reason that you know, there's a developed record, this can be sent up to the Delaware Supreme Court and then they can kind of take a second path on it.

that the judges have so much expertise. Once you start to allow contracts to have this kind of overarching governance power, you may end up kicking into gear things that go beyond Delaware law. What if you have a contract that says, oh, this is going to be heard in California, or in Texas or in New Hampshire. Is that something that's going to basically pull stuff out of Delaware law, including the judgment of whether this contract was consistent with the douciary dudents.

So we're going to have a California court deciding that. In addition, there is a federal law that says that if you enter into a contract that says, we're going to have arbitration. Federal law basically requires you to as a court, to surrender jurisdiction to a third party arbitter. So it could be the case that you have one of these stockholder agreements that really does come close, if not does violate fiduciary principles that says, hey, there's an

arbitration provision in here. It's not even going to land in front of a Delaware court. This is going to go in front of you know, someone could be you or me. Who's the arbitrary Me? Yeah, well, I kind of hope it's not mean as well to determine not only how do you enforce the contract, but whether the

contract is consistent with the duciary principles. And so one of the other areas where this statute could go sideways is that, you know, Delaware may have shot itself in the foot in terms of its ability to keep control

over how its companies get adjudicated in courts. If in fact, doing things through contracts cause corporate governance to get adjudicated in front of arbitrators or in front of non Delaware courts, there is no guarantee that those other judicial or sort of judicial actors are going to have the same view

of what fiduciary principles entail. And if they don't have the same view, then, you know, even sort of saying don't worry if fiduciary principles are still in play is kind of an empty consolation given that it's not even Delaware judges who are going to be determining whether the contract that's a dispute ends up offending certain piduciary principles

and that we just don't know the answer to. But I certainly would expect that one of these creative transactional attorneys might start playing around with arbitration provisions or choice or forum provisions that cause the dispute to wander wellside the borders of Delaware.