Will the U.S. Break Up Google?

Google is the gateway to the Internet and a search advertising behemoth. Google achieves some success in its earliers, and no one begrudges that. But as the nitrust complaint filed today explains, it has maintained its monopoly power through exclusionary practices that are harmful to competition. So the Justice Department has determined that an antitrust response is necessary to benefit consumers.

But Google's director of Economic Policy, Adam Cohen, defended his company's tactics and, speaking to Bloomberg, we think this case is deeply fought and risks harming American consumers. We compete vigorously in the marketplace. Our industry, our sector is marked by prices that are free or falling and rapid innovation, and those are really hard hallmarks of a competitive industry. Joining me is antitrust law expert Harry First, a professor

at m y U Law School. Let's start broadly, Harry, how would you characterize this lawsuit in terms of its significance? The lawsuit is very significant in this sense. It's been more than two decades since the Justice Department has filed a monopolization case, more than two decades since the Justice Department has taken on high tech, more than two decades since they've paid attention to this area. It's really quite extraordinary. So seeing them file a case I count as a

real positive. Explain basically what the government's charges are of anti competitive conduct by Google. Well, the basic idea is that Google has monopolies. They are alleged three different markets, but basically in the market for search and the market

for some aspects of digital or online advertising. So the complain alleges that they have a monopoly in those markets that have very high market shares, and that they've maintained these monopolies not through legitimate competition, but through exclusionary agreements that sends out any potential rivals any upstarts, and that they are continuing to do this as the technology evolves. And you know, we have the Internet of Things, and we have wired cars, and we have these personal assistants.

That this is an effort just to keep control over and in some sense access to the Internet. It's not unlawful to be a monopoly in this country. And some people would say, well, Google is doing the things you can do as a monopolist, so what makes it illegal. So the law tries to distinguish between legitimate, even aggressive competition, and competition that isn't on the merits that tries to succeed by making sure competitors can't get to the market.

So if you have a great product and consumers love it and everyone uses it, let's say that's not a problem, and you can continue to innovate and bring out better features and lower prices things like that. But if you take efforts to squeeze out your competitors by as this complain alleges, some kinds of exclusive agreements, which say, okay, Apple, for your iPhone, you have to make Google Search the default. And we know that consumers don't change their defaults, you know,

they keep going with it. This means that other search engines can't get tractions, can't get enough people using their search engines to offer a good product, and that fences out competitive is not because you're better, but because you have this agreement with Apple. So now Google's response has been that its conduct doesn't raise prices for consumers. And he also compared its search engine distribution agreements to a serial brand paying a grocery store to be in the

best position on the shelves. Is that a good response, Well, it's a response um search two consumers. Of course, is not priced in dollars. The complain alleges that it's priced in other ways. We'll see how that develops in the litigation. They get your data, of course, that's really what they want, and it's priced in terms of your attention. You know, your eyeballs, you pay attention to it. But in the end, it's monetized, as the complaint says, by prices for advertising.

You know, if they control you and access, when they've got all these advertisements, monopoly share, they can charge prices for that. So that's one rejoinder to the Oh, but it's free, isn't that great for consumers? Maybe not so free? And what about Google's analogy to a cereal brand paying to get better placement on grocery store shelves. But as you were saying it, I was thinking, well, you know, usually the cereal maker doesn't own the whole store. Usually

it's just a placement on a shelf. And if you've ever bought cereal, you know there's another brand right next to it. So it's true they do pay for that. But the argument here is, well, Google owns all the shelves, and by paying for the best spot, there aren't other spots. Nobody comes into this store for something else. You know, if you were going to have the analogy to say, okay, consumers can go to a different store, but it's not

as convenient and they don't bother. So I've heard this analogy, I'm not sure how persuasive it's going to be legally. In the complaint, the Justice Department lawyers say that Google tapped the same playbook as Microsoft. How similar is this case to the Justice Department's suit against Microsoft decades ago. Well, the complaint itself says, as you say that it's governed by the principles for Microsoft, and they're talking about the legal principles I think that the Court of Appeals applied

in that case. So in that sense, the government wants to align with Microsoft. But also in a broad sense, this is similar to the kinds of complaints that the government made. Microsoft had a monopoly on Windows, it was threatened, and it made efforts to extinguish the ability of rival browsers and an escape browser to reach consumers and get its product to consumers by forcing the people who bought browsers, which basically were makers of computers, to install Internet explo

Lore rather than installing Netscape. So actually it's similar. One of the interesting issues is that it's not identical. So the world of mobile phones is different from the world of desktops in consumers may behave differently, the kinds of agreements are different. These are defaults, making Google Search the

default but not the exclusive. So it's possible for consumers to have different search engines on their phones, and they'll be arguments about, you know, how do consumers behave and do they multi home, do they look at different search engines or they end up sticking with Google because that's what's from their phone and they assume that's what they should use. Some Lettle experts say that this is a pair down complaint. To make an easier case at trial,

what would the Justice Department have to prove it trial? Well, the Jet Department has to show that Google in fact has a monopoly in the markets that the government alleges are shoe has to show that these really are markets. They talk about advertising, Well, you know, there's a lot of advertising in the world, and a lot of different ways to reach consumers, even on the Internet. I've heard there's something called Facebook. Facebook isn't mentioned in the complaint.

There's advertising on Amazon, people do searches on Amazon. So there will be lots of arguments about whether Google really is a monopolis or whether consumers have choices. So that's the first part. Are they a monopolis? But as you pointed out, that's not the end of it, because it's not a violation of US any trust law to be a monopolis. So then the second part is, well, how

do they maintain their monopoly position. Is it through anti competitive agreements that exclude competition, you know on some basis others and efficiency, or is it because as Google will certainly argue, it's got a great product, people like it because their search engine is really good. And their search engine is really good because there are a lot of

people who use it and feed that into it. So this, if it ever gets the trial, this will be I think, also disputed and the government's going to have to show it's not competition on the mirth. In this complaint, the Justice Department hasn't said what remedies it would like if it wins the suit. In Microsoft, they sawt a breakup

of the company. Is a breakup even on the table here, well, the table hasn't been set yet, so in the original complaint to the Justice Department file in Microsoft, there wasn't a specific remedy set out, and the Lidigans generally are pretty vague about what they want because they don't want to be confined by the time the trial ends to something they thought about before the trial started. So the complaint does mention the possibility of structural relief, which is

somewhat unusual actually for government complaints to do. That's almost more specificity than I would have expected. So it is on the tab able. It's been reported that one possibility is making Google the best itself of the Chrome browser. I think that's yet to be seen, and it may very well be that the government has an idea but not a fully executed plan about the remedy at once, because to some extent it still needs to find out more information. They'll be discovery and there's an idea of

what you want, but accomplishing it is another story. The state ages have been investigating as well. Is this going to set off a wave of other litigation from state ages and private complaints? Perhaps? Well, a number of states um joined this complaint. So um Uh the states which that have not UM lead I gather at this point by the Attorney General of Colorado was very good at

any trust lawyer and former professor serve any trust. UM are still investigating and UM trying to decide whether they want to file their own case and what that case might look like. Though. UM. They did issue as I assume you saw press release yesterday, UM commending this litigation and the close working relationship they have with the Justice Department. But we will see what will happen, UM. The state federal partnership in these cases. Well, we haven't had a

lot of monopoly cases. UM, so it's always a little touchy UM and uh this one apparently is as well. UM. But uh, yes, so I it will not surprise me at the states those other states do file UM their own case and then move to have a try together with the Justice Department's case. UM. That that gets to be seen whether UM that will be the case. As for private litigation, UM, I'm not sure taking on Google is a big deal. UM that some of the allegations are been well known for a while UM, and UM

private cases have not been filed. So I'm actually not looking for private litigation to happen at this point. UM. Probably later if the Justice Department continues this suit and how it develops, and maybe we will see some private litigants jumping in. But UM, uh you know, and that did happen in the Microsoft litigation. There was a lot of private litigation UM that came about as a result of the government suits against Microsoft. Is this a test

in any way of the current antitrust laws? Well, every case when in the a testment, UM, I don't so as I read the complaint, the government is not trying to push UM and USA any trust law in some sort of new direction. There. You know, lawyers are by nature and training somewhat conservative. They're trying to bring this case within the contours of current law. Um, and as they try to do in the Microsoft litigation. So um, you know, it may be a test of any trust institutions.

It may be a test of what you can achieve in terms of remedy in any trust laws. But I think the basic structure is not um something that the government is attacking in in this case. So I don't think it's a challenge in that sense. We don't know how long this case will go on. But is this a case where the government is out matched by the

resources of the defendant Google. Well, I haven't done the mass exactly, but if you if you figure out the budget of the any Trust Division and the budget of Google for litigation, half match might be you know, it might be a good word. Obviously, UM, in terms of a comparison of resources, You're not going to match Google. You're not going to match any of these tech giants

the government. You know, historically that's always the case. And still the government managed to litigate against a T and C, against IBM and Standard Oil to the the beginning of any trust law. So I'm less worried about that. Where I think this matters is Google knows a lot more about its business and its technology than the government does. That's sort of the nature of things, and this is always a problem, but it's particular problem in the tech area.

It's a problem for understanding how search engines are put together, how the advertising is done, how it's priced, all of these things. Google knows what it does. The government has to find out. So that's where the problem comes in. In terms of human capital. Well, the government here, unlike in Microsoft, hasn't hired outside council you know, I don't know where that's a plus for the professional staff, you know, show of support or some indication that there's a lack

of seriousness in this litigation. I don't know which it is. They'll need outside economics experts, but you know, the government has been able to hire those in other cases that I'm sure there are plenty of economists who would love to help out on the government's side. So I think it's knowledge more than anything else. Thanks for being on the Bloomberg Law Show, Harry. That's Professor Harry First of n y U Law School, and that's for the edition

of the Bloomberg Law Show. Remember you can always get the latest legal news on our Bloomberg Lawn podcast. You can find them on Apple Podcast or www dot Bloomberg dot com, Slash podcast, Slash Law. I'm June Grosso. Thanks so much for listening, and remember to tune to the Bloomberg Law Show every weeknight at Champion John right on the radio. Would you give the advantage to either side? Looking at the complaint? What is this way? The core

of the government's case is hardly startling. The European Union has already done this case, and the government could have filed us three years ago. So I think they've pleaded a case that's not a laydown case, but it's a plausible case, strong case. Hard for Google to say in the end, oh, we're not a monopoly in search. Oh search, isn't the market. I mean, if that's the core of

their argument, they don't win that way. Where they might win is convincing a judge that they've got a darn good product that consumers like And isn't that what the any trust laws and marketplace competition is all about? Thanks Harry. That's Professor Harry First of n y U Law School. The pandemic has affected every area of our life, bringing into stark contrast many areas of the law from bankruptcy

to corporate governance. So how can law, governance and regulation be structured to bring about a more just and fair legal system. Columbia law professor Eric Talley addresses those questions in a new podcast series called Beyond Unprecedented the Post Pandemic Economy, and he joins me, now start by telling us about this podcast series and what you wanted to

accomplish with it. Well, the podcast again again as sort of a brainchild between the mill Stein Center, which is a center that I co directed at Columbia, and our communications team and and and part of the idea was that, you know, everyone is so caught up in the dynamics of the current set of crises, but one of the things that seems to all of us that we need to be looking out for is how do we reimagine and reconfigure the way that you know, we organized laws

and institutions and regulations as we come out of it. And so it was almost sort of an organic process by which we we really wanted to go beyond the current unprecedented events. And that's how we came up with the title Beyond Precedent. Let's start with One of your podcast was on income inequality, which certainly is more and more in our conversation lately, especially with the elections upcoming.

How did the law contribute to income inequality? It's a great question, and there are a bunch of different ways that it has and you are exactly right to note that, you know, I think just about everyone would agree that wealth and income in equality has become almost one of the defining features of our time, whether you're an economist,

a political scientist, or a lawyer. So one of the things that we end up spending a lot of time doing, and particularly myself I will say, is, you know, I teach business law, which on some level can be thought of as a very large, ornate field for trying to structure organizations and businesses in large part to create value, which from a business perspective is how do you minimize

your tax liability? That's a big chunk of it. And just what it turns out that many of those structures that corporations are large, you know, limited partnerships or venture capital funds used for limiting their tax liability, they can carry over almost directly to family trusts, to family owned businesses, and if you are a person of considerable means it can be a vehicle by which to not only manage things like tax liability, but also protect those assets against

any you know, problematic creditors or downturns that that one sees later on. So the well healed in the United States and across the world, This is not news to them. This has been a set of structures that have been routinely utilized by particularly wealthy individuals and businesses over the decades um and in fact, in some respects, many of the tax reforms and business reforms that took place starting in the late nineteen seventies and through pretty much two

thousand added more fuel to the fire. It became possible not only to utilize some of these structures and tax protection devices as long as you're wealthy enough to make it worth while, but also to almost you know, almost weaponize it in some ways that that it it almost had an accelerating feature on on how you know, opportunity and wealth were distributed in a in a kind of a in a kind of a lopsided way within the

United States as well as the world. And you know, it's it's a it's a hard issue to tackle in part because, um, you know, part of those wealth creation moments were probably also social value creation moments. They were innovations. There were new businesses that were being put into play that I think anyone would say, yes, this is added to the welfare of the United States and the world.

But it but in the same moment that it did that, uh, that added productivity, that add growth also seemed to increasingly divide towards uh, towards the investor class. And uh and you know, we found ourselves even before this pandemic began, on the heels of a of a decade long migration that was often aided and assisted by some of these legal intax structures to put us ourselves in a position where, you know, we haven't seen this kind of uh of

lopsided form of wealth and income distribution since the nineteen twenties. Uh. And it carries over not just into that context, but there are also many other sorts of follow on artifacts of it as well. UH. Education and schooling tends to tends to track some of these some of these features. UH. Nutrition, health tends attract some of these features as well. So UH it it in many respects, I think is is of all the all the episodes. One of the biggest

and toughest eggs to crack. Speaking of cracking that egg, what can be done to address income inequality in our country. Well, one of the things that will come out when you listen to the to the episodes that there is not going to be a magic pill that we take it suddenly wealth and income into quality problems are going to be gone. I just don't think that that is, uh, neither of my guests in the podcast episode, and I

don't think that that's a realistic possibility. That having been said, it seems to me that there's growing and coalescing support behind a couple of different things that might work. First, it turns out that even though many of these different types of business and tax structures have over the years systematically favored the well to do and the people who could sort of afford to engineer them, the once engineered,

they're not that hard to copy it. So there are definitely some ways that that some of these structures can be incorporated into ordinary um individual finance, not at the you know, ten million dollar net worth level, but at a far at a far lower network level. So on some level, this is you know, access to reasonably good legal advice and how to navigate these very very same structures that the well to do have been able to navigate for years. Now, that's obviously only one, uh, one

piece in the bucket. There is now, I think, growing impetus for trying to figure out how not only to engage in some sort of support of particularly of the lower middle class and the and the and the poor, but also to do so in a way that that is going to um allow them to to to be retrained for what is a you know, a changing workforce and and one that is probably changing, uh, you know, more dramatically than it has in my life, and I

think the pandemic on some level. When you think about the the effects of the pandemic, it doesn't take too long for you to open up the Wall Street Journal and the Financial Times in the New York Times to read an article that says, yet another industry that has been focusing on, you know, an awful lot of a mix of of person power and an automation has decided to go fully automated because, uh, you know, slowdowns due to COVID make the economics of automating appropriate right now.

So you know, my sense is that the crisis that the pandemic is going to send us even further into a type of a transition zone where even you know, jobs manufacturing, jobs that we thought were likely to be populated by humans for years to come are now going

to be accelerated in that automated fashion. And and that doesn't mean that there won't be other employment opportunities in fact, nature of horrors of vacuum in this regard, but it will mean that the types of what employment opportunities are going to be different than the types that we saw even seven or eight years ago. If in fact, this this pandemic ends up visiting the types of transformation that that a lot of people think are going to happen.

The pandemic has led to a number of bankruptcies, and we see small businesses closing all the time. One of your podcast is entitled making Bankruptcy a Better Tool for Resilience. First of all, what are the major problems that you see right now with the bankruptcy code? Yeah, well, this was a fascinating uh, this is a fascinating episode podcast.

And one of the things that's interesting about it is that that when this pandemic started, I think people were expecting to see just a cavalcade of bankruptcies, and while there has been a little bit of an uptake, particularly with with with some larger firms, it's been way smaller

than people expected it to be. And I think that may be in part simply because we bought ourselves in time with the Cares Act and and that payroll protection program that essentially allowed some businesses to limp a law probably until December of this year, things like uh forbearance on on various types of leases and mortgages as well. Um that having been said, you know, it seems to me that there are an awful lot of people that are in fact predicting that the rate of filing of

bankrupts you're going to go way up. And there's also a shadow bankruptcy. There's a there is. You know, bankruptcy is really just the legal proceedings by which an insolvent person restructures their debts. But but knowing that that maybe on the road ahead often gets rise to almost any

type of private restructuring that you can possibly imagine. And so so one of the areas that that is really kind of fascinating to think about is, you know, how do you design bankruptcy laws not necessarily so that the bankruptcy process itself is the is the key focus, but also how to help facilitate some of those private decisions to restructure. And we get the sense that a lot of that has been happening over the last six months.

But let me give you an example of one area where bankruptcy law has not done a particularly good job of trying to figure things out. There are you know, and and and and the example might be in various types of securitization. And what I mean by a securitization is just, you know, maybe someone uh you know has borrowed money for a mortgage for a commercial property, and their mortgage is put into a pool with a bunch of others, and then the cash flows from that entire

pool are sold off. Well, it turns out that that structure was sent around for a long time and very much contributed to the last finance of crisis we had.

Is a very rigid one. There are so many parties involved, and there's this sort of master contract that governs when and under what circumstances, uh, those things can be restructured in environment where you didn't have all those things thrown into a pool and locked into a securitization system, it would be somewhat easier to restructure the mortgages, to kind of alter the terms in a way that would allow them to be paid back in a in a way

that better accommodates the current economic crisis. But those structures are hugely rigid, and so there is a definitely a lack of information about what they look like and a real lack of of perceived ability to kind of induce the restructuring of those sorts of contracts. And and they

haven't played out yet. There's a reasonable chance that that kind of a horror show that we saw play out in the two thousand and eight two thousand nine financial crisis could recur again where um, you know, no one is able to really restructure their mortgages. Their cash flows has gone way down because you know, you know, economic operations and economic activity is much lower, and it ends

up almost forcing people either into insolvency or bankruptcy. So one of the things that that uh that you know, I think you know, bankruptcy scholars and you know also commercial law you know, policy makers can think about is how can we you know, how can we reconceptualize these deals that that makes them a little bit more resilient

in the face of of a systemwide economic crash. And you know, on some level, it's a little embarrassing that we weren't able to solve this, given that we went through a financial crisis twelve years ago and exactly the same issue occurred. So related to this is small businesses. And you have UH podcast called Helping Small Businesses Survive and Thrive. This is a really tough time for a

lot of small businesses. And you know, you look in your own neighborhood, you're bound to see small businesses that have closed. Yeah. Absolutely, this is a this is a big issue, and it is closely related to the bankruptcy issue.

You know, I I love right by Columbia Law School, and we're up in in northern Manhattan and Harlem, and and this was this is a vibrant area of entrepreneurs opening restaurants and coffee shops and stores and and and that's been underway for many years and UH and many of the local residents around here and local businesses have really taken in the shops during the course of the

of of this particular crisis. And it's exactly the group of businesses that you would think the businesses that end up relying on uh, you know, a business model that requires people to congregate in some area, you know, fitness clubs and cafes and UH and and and and bars and some restaurants. There's so there're been other ones that that, in fact have probably done a little bit better things, you know, things having to do with home delivery services

and so forth. But on the whole, it's been very, very difficult for a lot of these entrepreneurs to make it through. Now, some of them took advantage of the payroll Protection Program and we're able to you know, make make it this far, you know, paying their their employees with the assistance of some of these grants that were made by the federal government, but those are about to

run out. And in addition, a lot of these businesses just realized, look, we're not going to be generating revenue in this you know, in this bar or restaurant or or or or gym for for for months, if not years, and let me just shutter. And so you know, if you if you look at some of the more reliable databases on small businesses, like yelp, uh, it's a it's an astounding number of small businesses that are not just

temporarily closed, but are permanently closed. UM. And so so this is in many ways one of the big as tragedies. With the current of the of the current uh you know situation, there may be some benefits on the uh you know going forward, but I think they would also require a little bit of of attention from a legal

and regulatory perspective. So, for example, UM, one of the things that that is, you know, if you're an owner of a vacant commercial uh you know space that you were you know, thinking maybe I'd like to lease out someone who's thinking about opening a business, but you've been leasing it for you know, fifty thou dollars a month, and now it's going to be really hard to lease

it for anything more than thirty thou dollars a month. UM. It may in some circumstances be more profitable just to leave it vacant, to leave it um, to to leave it shuttered, um and use those tax losses to offset gains that you have somewhere else. Wint on some level is a little bit crazy, but but you know, our tax code systems sometimes rewards UH owners who really just don't want to to uh to to to you know, rent their commercial properties and anything lower than their historical value.

And there are some legal reforms that can be helpful in doing that. San Francisco is about to you know, is implementing a vacancy tax for for for for businesses they look but it will also be costly for you to keep those businesses vacant. Another thing that's probably worth thinking about is these entrepreneurs who have gone out of business. A lot of the value of those business businesses is in the entrepreneur himself or herself. And so I think there is a sense in which some of these folks

they are going to be back in business. They may not be exactly the same business, or it may not be cast exactly the same way, but the very same imaginativeness and creativeness and and uh and grit is out there. Um And one of the key things that we need to think about is how do we facilitate that resurgence want it occurs and you know, some of these you know, you know ideas on how you would incentivize commercial real estateholders to welcome back these folks they try to outlap

businesses is a key part of the Equation. Thanks Eric. That's Eric Tallely of Columbia Law School and you can listen to his podcast series Beyond Unprecedented on Apple Podcasts, Spotify, or Columbia Law School's website. And that's for this edition of The Bloomberg Law Show. Remember you can always get the latest legal news on our Bloomberg Lawn Podcast. You can find them on Apple podcast or www dot Bloomberg

dot com slash podcast Slash Law. I'm June Grosso. Thanks so much for listening, and remember to tune to The Bloomberg Law Show every weeknight at chenpm East Joan right here on Bloomberg Radio