The shift against Big Tech has been a long and tumultuous road. It appears in late 2020 the US reached a pivotal turning point against the big players, known as GAFA (Google, Apple, Facebook and Amazon)[1], launching what could be considered 4 of the highest profile antitrust cases since the break-up of AT&T[2]. These cases follow on from the 2017-2019 Google Saga in the EU (Google Shopping[3], Google Android[4] and Google AdSense[5]). In October 2020 the House of Justice Committee also released their report, ‘Investigation of Competition in Digital Markets’, primarily taking aim at GAFA (“the HJC report”).

The Cambridge Analytica scandal appeared to be the final nail in the coffin for not only Facebook specifically, but for digital monopolists as a whole. These new cases will likely garner even more support from the democratic senate and will all likely be years-long affairs but could ultimately result in dramatic restructuring of their business models amongst other remedies.This paper seeks to understand and analyse the cases made against both Google and Facebook as well as their conducts’ effect on competition in the digital market. It is important to first acknowledge the HJC report in this discussion, as it outlines the backbone off of which the specific complaints made against Google and Facebook can become fully realised.

The HJC report identifies numerous areas of harm[6] in the digital market, the most relevant of all pertaining to GAFA controlling key channels of distribution, thus stifling competition, forecasting that in a decade’s time, 30% of the worlds gross economic output may be attributed to these undertakings[7]. Small/medium businesses are forced to comply with whatever market conditions are enforced by GAFA, as it is almost impossible to depart from norms without suffering (being forced to operate in the way they are presently, is also economic harm in itself[8]). They are forced to rely on Big Tech in order to access users and markets despite the fact that such utilisation only furthers a monopolist’s power[9].For example, small businesses rely on Amazon to sell their products, as they retain dominance due to their scale. Sellers may confer some benefit from this, as consumers will be more likely to purchase their products due to the incentives Amazon can provide (e.g. free shipping). However, Amazon also sells on its platform, thus allowing them to utilise the data it collects as a selling platform, creating a significant risk to sellers, as Amazon may begin to produce their product at a lower cost (as it can afford to), pushing them out of the market. This dominance on multisided markets is a recurrent theme throughout the recent antitrust developments, now discussed below.

 

Google Search

Department of Justice v Google 2020[10]

The first major development arose when the Department of Justice (DOJ) filed an antitrust suit against Google in October 2020[11]. The DOJ accuses Google of entering into numerous exclusionary agreements with distributors such as Apple, to secure Google as the default search engine on devices. Some of these agreements include a requirement for distributors to include a number of apps on devices, featuring them in specified positions. For example, Manufacturers and distributors are often required to sign an anti-forking agreement[12], as well as agreeing to install a ‘bundle’ of Google apps, some of which are undeletable. They are also required to install said apps in the most valuable spots on devices’ default home screens[13]. They are also accused of prohibiting distributors from dealing with their competitors in search.

Lastly, the DOJ accuses Google of inhibiting competition by sharing some of its $40bn income made from advertisers with distributors (e.g. Apple) in order to ensure their commitment in using Google as their default search engine, thus incentivising distributors to remain within the agreement, creating high barriers of entry for competition. Some of these agreements even include an express prohibition of pre-installation of general rival search services as well as setting any other rival search engines as other defaults[14].

Thus the DOJ concludes that Googles practices and terms of agreement work to foreclose competition in the search market by denying them scale[15]. The importance of scale in the digital market cannot be ignored, without significant mass, monopolists would not be in the position they are today. By preventing rivals from reaching adequate scale, they cannot effectively compete on the market, this is something Google is well aware of and is clearly a significant cornerstone of its strategy[16]. The greater scale a company has the better-quality search algorithms are, the greater consumer reach for advertisers is and this of course, all results in greater profits[17].

 

Colorado v Google 2020[18]

On the 17^thof December 2020, a bi-partisan coalition of states, filed a much broader suit against Google for its anticompetitive behaviour in search[19]and the states involved will seek to combine their case with the DOJ’s federal suit detailed above[20]. The case concerns again the consensus that Google engages in anticompetitive conduct to thwart competition in search, by the use of exclusionary agreements which include efforts to ‘tie’ their apps to their search engine as well as monetary incentives for distributors[21].

In addition to this core argument, the complaint condemns Google’s Search Ad 360 tool (SA360), which is marketed to advertisers as a neutral platform for them to purchase and compare the performance of Google search ads with rivals, however its real function is, according to the complaint, to severely limit the tools interoperability with competitors[22]. Google consistently favours its own ad service over competitors, refusing to make SA360s’ system compatible with ad features from the likes of Microsoft, thus denying advertisers the opportunity to evaluate other ad services[23].

The complaint also accuses Google of throttling consumers opportunity to bypass their general search engine to reach their chosen site. ‘Specialised vertical providers’ (SVPs) such as travel sites, pose a significant threat to Google as it means consumers who use SVPs can bypass their search engine[24], thus bypassing search ads and preventing Google from being able to obtain more consumer data. In order to prevent this, Google takes advantage of the reliance SVPs have on Google (for traffic) due to their exclusionary agreements, that prevent them from engaging in competition. Google places further unnecessary limitations on SVPs when selling them advertisements, such as prohibiting them from displaying their own brand name when advertising, thus throttling the establishment of a consumer relationship, whilst at the same time still extracting customer data, which it then uses to compete against them[25].

 

Market Dominance

One of the first hurdles in finding an undertaking liable for its anticompetitive conduct, is proving they are dominant enough to do so in the first place[26]. It is likely Google will argue that the assertion of their dominance in the ‘general search services’ market (among others)[27]is ill-defined[28], as Google argues it competes with a multitude of online sources of information such as news sites and social media platforms and is thus, interchangeable[29]. Whilst there may be some merit in this argument, as the DOJ would find it difficult to use its usual qualitative test[30]in determining its position due to the fact that online search is at no cost to the consumer, this paper is of the view that Google does retain a monopoly on the search market, given the statistics provided by the complaints (concluding Google owns 88% of the relevant market)[31]and disagrees that Google is interchangeable with the likes of Facebook[32]. A general search engines purpose is to categorise all information on the internet, index such data and then produce a ranked list of results when something is searched for[33]. A search bar isa feature of social media and news platforms, but it is far from their primary functions which pertain to multimedia content (e.g. Facebook’s news feed) and reporting news. There is also a requirement for the plaintiffs to assert Google as having a durable monopoly[34], which, inferring from the facts, appears obvious.

 

Anticompetitive Conduct

The real point of contention, therefore, lies in the exclusionary conduct itself. It is clear that both complaints find Google to derive a significant amount of power from enforcing itself as a default browser on most devices, as it both furthers its own market power in this position whilst blocking out competitors in tandem. The conduct itself brings about a familiar sense of déjà vu, in the aforementioned Google Android case in the EU, the Commission also found similar practices to be anti-competitive. It is clear from the cases presented by both the DOJ and the Commission that consumers will very rarely switch default browsers, and by ensuring your position there, with large enough scale, your business will retain its monopoly.

The requirements of pre-installation of apps in a certain order etc, is also reminiscent of Microsoft, in which their conduct –pre-installation of Microsoft media player onto their operating systems- was deemed ‘tying and bundling’ and thus anti-competitive[35]. By requiring the pre-installation of apps as a condition of use, Google is effectively tying these apps with its search engine, as installation of such apps is only made possible where there is an agreement to set Google as the default search engine[36]. As was the case in Microsoft, tying products to others results in an unfair advantage as again, consumers are unlikely to go out of their way to remove a default setting such as in search, thus contributing to Googles’ monopoly.

Revenue sharing agreements made between Google and distributors such as Apple, which include within some of them, very strict prohibitions on interactions with rivals, appears to be blatantly anticompetitive. By forming such agreements distributors are incentivised by both the promise of the world’s most popular search engine, as well as a monetary gain for their loyalty. This is of course to the detriment of the market, as it prevents rivals from competing with Google for the default spot. This is to the wider detriment of consumers as they are offered less choice, and less innovative product[37]as a result of the stagnant market.

Finally, the use of SA360 to limit interoperability of rival’s ad data and the self-preferencing of Google’s own search ad spots essentially kills a competitor’s opportunity to host advertisements, by steering them to their own port instead[38]. Throttling consumer traffic to SVPs also clearly restrains competition by further insulating Google from the threat of SVPs as real competition, by stifling their ability to connect with consumers out with Google’s search engine[39].

A valid counter argument to this all however would be the fact that competition is only ever ‘1 click away’, and that consumers benefit from Google as a default browser, as it is the most comprehensive and well-rounded search engine on the market[40]. If they wish to change their default, they have the option to do so. The same can be said for distributors who enter into the various agreements described above, they always have the option to walk away[41]. Whilst this argument is technically correct, it negates the fact that Google has strong incentives pulling consumers and distributors in and even locking the latter into strict, anticompetitive agreements which create high barriers to entry and make it impossible to meaningfully compete. In particular, these exclusionary agreements and market tactics like SA360 and the manipulation of SVPs not only lock out competition at the time, but also insulate Google from any future competition, as rivals are unable to gain scale and actively compete against them[42].

 

Google Advertising

Texas v Google 2020[43]

Only a day before Colorado’s suit was filed, a complaint was lodged by another bi-partisan coalition, accusing Google of anticompetitive practice in the digital advertising market[44]. The complaint revolves around Googles role on the advertisement exchange market, and their own exchange platform, AdX. The suit states that Google manipulated the market by representing both ad buyers and sellers, as well as the platform on which the exchange occurred, allowing them to charge both parties as well as taking an even larger fee for the transaction[45]. Once in their position as a monopoly, they imposed a ‘one-exchange-rule’ which barred publishers from routing their ad inventory to more than one exchange at a time, as well as demanding ad sellers route their ad space to AdX also. Unhappy with the market conditions, publishers began using ‘header bidding’ (‘HB’)[46]which routed ad inventory to multiple exchanges at once, returning the highest bid. Google seen this as a significant threat and began allowing multiple ad routings, however it would secretly let its own bid win, despite higher offers being made[47]. Google is also accused of general deceptive practices to quash HB such as lying to a publisher about a rival exchange slowing down their servers[48].

The second key element to this complaint regards the deal made between Google and Facebook, where Facebook agreed to refrain from supporting HB (as was threatened) in exchange for information pertaining to bidding and other informational advantages from Google, essentially, the conduct boiled down to bid rigging, as both platforms bid on publishers’ mobile app ad inventory[49].

 

Market Dominance

As discussed above under the Google Search cases, anticompetitive conduct may only be deemed in violation of the Sherman act where the undertaking has a durable monopoly on the market. Google is deemed by the complaint to have market dominance in all the relevant markets[50]. It again appears obvious, as Google could only have manipulated the market to this extent by being dominant.  

 

Anticompetitive Conduct

In essence, Google has stifled both present and future competition. Google’s monopoly and subsequent manipulation of the ad publishing market, forcing sellers and buyers to use their exchange, inhibited competition as it used multiple pursuant strategies to foreclose competition[51]. Google also significantly hindered the real threat of the alternative HB system through its use of deceptive practice and its illegal collusion with Facebook. HB offered a real alternative which facilitated true competition, culminating in competitive bidding which meant publishers could produce more quality content for consumers[52]. Google’s thwarting of HB meant it could continue to block out competition from ad exchanges, facilitating its ability to trade insider information to advantage its own undertakings (such as Google Ads) and prevent price competition[53]. As a result, barriers to entry remain significantly high as exchange places are unable to effectively compete. Moreover, advertisers and publishers aren’t even receiving competitive prices as Google is secretly letting its own bids win. Forcing out HB has depleted any chance of genuine competition in digital advertising, ultimately resulting in higher prices and no alternatives on ad exchanges, to the eventual detriment of the consumer[54].

In more general terms, Google’s anticompetitive practices have facilitated its ability to control every aspect of the online advertising chain. The most damning evidence against not only Google but Facebook also, is their agreement, which amounts to a violation of section 1 of the Sherman Act[55]as a restraint of trade[56]. The alleged agreement amounts to market allocation and price fixing, both of which have a detrimental effect on competition[57]and by virtue of the practice itself, is illegal.

 

Facebook Mergers

FTC v Facebook 2021[58]

Last month the FTC filed a suit against Facebook, accusing them of eliminating competition in the ‘personal social media platform’ market, through its acquisition of Instagram and WhatsApp[59]. The reasoning for the acquisitions is best summed up by Zuckerberg himself, as “It is better to buy than compete”[60]. Facebook benefits from high barriers to entry as well as strong network effects due to the nature of the platform, the more users use, engage and upload content, the more likely others will follow[61]. This makes it difficult for new platforms to compete as they have to first acquire a consumer base to enjoy network effects. Therefore Instagram and WhatsApp posed a significant threat to Facebooks’ dominance on the market, as they had the benefit of being differentiated from Facebook[62], therefore offering consumers a different experience/utility, whilst still competing for the same attention Facebook was. Thus, instead of competing with them, Facebook bought them out, stifling competition.

Facebook is also accused of anticompetitive conditioning due to its use of application programming interfaces (APIs) which it makes available to third parties who wish to communicate with Facebook (send them data), however APIs were only made available on the condition that third parties would agree to refrain from providing the same core functions as Facebook[63].

 

Market Dominance

The FTC finds Facebook to be dominant in the relevant US market, ‘personal social networking’ pertaining to services that allow social connections between friends/family, the ability to share content and the ability to find and connect with strangers[64]. The FTC may have issue holding this argument that they are differentiated from video/audio services[65], as TikTok, a video-based app has grown exponentially, and has recently been proven to compete for the same attention as Instagram[66], therefore the FTC may face a significant hurdle here in holding a narrow market.

 

Anticompetitive Conduct

Both acquisitions are considered anticompetitive due to the fact that they further enable Facebooks ability to ‘deter, supress and neutralise’ competition[67]. Ultimately this results in less innovative products/services as Facebook no longer needs to invest as heavily into research and development due to its position, and any potential rivals can’t gain significant enough scale in order to be able to invest into innovation either. Forcing smaller third parties to agree to refrain from encroaching onto their core services was another way in which Facebook could insulate themselves from the possibility of competition, again to the ultimate detriment of consumers, as these third parties are unable encroach upon the market to offer more dynamic, innovative services[68].

What’s perhaps more interesting however, is the FTC asking for a ‘do-over’[69]via the divesture of Facebook, now discussed below.

 

Divestiture/Restructuring

Akin to all the aforementioned cases above, the FTC has requested the divestiture or restructuring of the business as a remedy. What was once considered to be a drastic measure, has become more and more attractive. Particularly in Facebook’s case, the divestiture of WhatsApp and Instagram appears far more plausible, as each limb still appears separated from a consumer perspective and is likely far less integrated than other Facebook subsidies[70]. Whilst an order of divesture or restructure is a powerful tool, it may also be a costly one, a restructuring of Google would likely lead to less streamlined services and could result in a starfish effect[71]. This may, however, be a risk we need to take in order to actually facilitate real competition, by allowing rivals to gain scale. The necessity for real change is becoming more apparent, a private suit has even been lodged against Facebook and Alphabet (parent of Google) by a US newspaper chain, accusing them of controlling digital news in a way akin to the conduct described in Texas v Google[72]. Whilst it remains true that an injunction preventing the conduct will put a stop to what is presently at issue, GAFA are already one step ahead and likely participating in other anticompetitive practices that regulators are yet to comprehend. Hence, more dramatic intervention such as divestiture/restructuring appears necessary.

 

Conclusion

In conclusion, these cases mark what will hopefully be the start of a significant turning point in the push against Big Tech. Google and Facebook have become dictators in the digital market through a range of anticompetitive and collusive conduct that has had far reaching implications, all to the detriment of both potential competitors and consumers. It has therefore become apparent that significant structural reform is necessary to curb both monopolists if the US wishes to revive competition in the digital market.

 

Lisa KENNEDY

 

 [1]See: Subcommittee on Antitrust, Commercial and Administrative Law of the Committee on the Judiciary, ‘Investigation of Competition in Digital Markets ’(Majority Staff Report and Recommendations, 2020)

[2]United States v. American Tel. and Tel. Co., 552 F. Supp. 131 (D.D.C. 1983)

[3]Summary of Commission Decision, Case AT.39740 — Google Search (Shopping), (2017), C(2017) 4444

[4]Summary of Commission Decision Case, AT.40099 — Google Android, (2018), C(2018) 4761

[5]European Commission, ‘Antitrust: Commission fines Google €1.49 billion for abusive practices in online advertising’<https://ec.europa.eu/commission/presscorner/detail/en/IP_19_1770>Accessed 19 Feb. 21

[6]E.g. inadequate privacy regulation, loss of innovation.

[7]HJC n1 11

[8]ibid

[9]ibid

[10]United States v. Google LLC, (No. 1:20-cv-03010) (D.D.C, 2020), Russel Brandom,‘The US government has filed antitrust charges against Google’,(2020) <https://www.theverge.com/2020/10/20/21454192/google-monopoly-antitrust-case-lawsuit-filed-us-doj-department-of-justice>Accessed 19 Feb. 21

[11]For being in violation of s2 of the Sherman act 1890 15 U.S.C. § 2

[12]An agreement which prevents manufacturers who utilise Google’s applications from selling devices that do not comply with Googles technical standards.

[13]US v Google n10 54-55

[14]Ibid 56

[15]Ibid 57

[16]Ibid 35

[17]Ibid

[18]Colorado et al v Google LLC (2020)< https://coag.gov/app/uploads/2020/12/Colorado-et-al.-v.-Google-PUBLIC-REDACTED-Complaint.pdf> see: Makena Kelly, ‘ Google accused of search manipulation in third major antitrust lawsuit’ (2020) <https://www.theverge.com/2020/12/17/22186994/google-search-antitrust-lawsuit-colorado-nebraska-state-ags>Accessed 19 Feb. 21

[19]Also accusing Google of violating s2 of the Sherman act 1890 15 U.S.C. § 2

[20]Ben Brody, David Mclaughlin, Google is hit with another antitrust lawsuit, adding to its legal woes’(2020) <https://fortune.com/2020/12/17/google-antitrust-lawsuit-colorado/>Accessed 20 Feb 2021

[21]Colorado n18 12

[22]Ibid 13

[23]Ibid 50

[24]Ibid 52

[25]Ibid 54

[26]United States v. Grinnell Corp., 384 U.S. 563(1966)

[27]Both complaints specify 3 general search markets: search services, text advertising and search advertising. For simplicity, this piece fronts the main point of contention in the general argument of search services.

[28]Google may also argue that the amassment of data which contributes to their scale does not contribute to the advancement of their algorithms and thus creates a major barrier to entry. See: Andres V Lerner,‘THE ROLE OF “BIG DATA” IN ONLINE PLATFORM COMPETITION’ (2014)

[29]Jennifer Elias,‘Google CEO Sundar Pichai plans to tell Congress the company faces plenty of competition’ <https://www.cnbc.com/2020/07/28/alphabet-ceo-sundar-pichai-google-has-plenty-of-competition.html>Accessed 20 Feb 2021

[30]Asks whether or not a hypothetical monopolist could raise their prices by 5% in the relevant market, see: Congressional Research Service, ‘The Google antitrust lawsuit: initial observations’ (LSB10544, 2020)

[31]Ibid 2, US v Google n10 92

[32]CRS n30 4

[33]Colorado n18 62

[34]Ibid 90-102

[35]Case T-201/04 Microsoft Corp v Commission of the European Communities [2007]

[36]CRS, n30 5

[37]US v Google n10 115

[38]Colorado n18 149

[39]Ibid 198

[40]Kent Walker,‘A deeply flawed lawsuit that would do nothing to help consumers’ (2020) <https://blog.google/outreach-initiatives/public-policy/response-doj>Accessed 20 Feb 2021

[41]CRS n30 5

[42]US v Google n10 113

[43]Texas et al v Google (No 4:20-cv-00957) (2020), see: Russel Brandom,‘Texas attorney general announces ad tech antitrust probe against Google’ (2020) <https://www.theverge.com/2020/12/16/22178988/google-antitrust-ad-tech-lawsuit-texas-attorney-general-paxton>Accessed 21 Feb 2021

[44]Accusing Google of being in violation of s1 and 2 of the Sherman Act 1890 15 U.S.C. § 2

[45]Texas n43 4

[46]‘What is Header Bidding?’(2017) <https://www.lotame.com/back-basics-header-bidding/> Accessed 19 Feb. 21

[47]Texas n43 11

[48]Ibid 15

[49]Ibid 14

[50]Ibid 61-97

[51]Ibid 100, for example, its one-exchange-rule, self-preferencing on bids etc.

[52]Ibid 158

[53]Ibid 159

[54]As publishers confer less profit from low/stagnant bidding offers, so produce less/lower quality content.

[55]S1 Sherman act 1890 15 U.S.C. § 2

[56]Gilad Edelman,‘Texas Accuses Google and Facebook of an Illegal Conspiracy’(2020) <https://www.wired.com/story/texas-accuses-google-facebook-illegal-conspiracy/> Accessed 19 Feb. 21

[57]See for a more general discussion on conferring between undertakings: S Ciprian,‘The Exchange of Information between Competitors and the Antitrust Rules’, (ESS, 29) 575–585 (2020)

[58]Federal Trade Commission v Facebook Inc (No 1:20-cv-03590-JEB) (2021)

[59]In violation of s2 of the Sherman Act 1890 15 U.S.C. § 2

[60]FTC v Facebook n58 5

[61]Ibid 6

[62]Ibid 7-8

[63]Ibid 23

[64]Ibid 53-55

[65]Ibid 59

[66]Casey Newton,‘The good and the bad in the government’s case against Facebook’,(2020) <https://www.theverge.com/2020/12/10/22166978/facebook-ftc-antitrust-instagram-whatsapp-tiktok> accessed 21 Feb 2021.

[67]Facebook n58 68

[68]Ibid 157

[69]Jennifer Newstead,‘ Lawsuits Filed by the FTC and the State Attorneys General Are Revisionist History’, (2020) <https://about.fb.com/news/2020/12/lawsuits-filed-by-the-ftc-and-state-attorneys-general-are-revisionist-history/> accessed 21 Feb 2021.

[70]Herbert Hovenkamp,‘Antitrust Remedies for Big Tech’(2021) <https://www.theregreview.org/2021/01/18/hovenkamp-antitrust-remedies-big-tech/> accessed 21 Feb 2021.

[71]Cutting one monopoly up into smaller monopolies, who still control the market.

[72]Kim Lyons,‘West Virginia newspaper chain is suing Google and Facebook over digital ad revenue’,(2021) <https://www.theverge.com/2021/2/8/22272230/west-virginia-newspaper-google-facebook-lawsuit-digital-ad-revenue>Accessed 21 Feb 2021.