TMT update (Google/antitrust)

Recent/upcoming developments… At the request of the United States District Court for D.C., the Department of Justice (DOJ) has filed a high-level framework of potential remedies in its antitrust case against Google and its conduct in the online search/search advertising market.

* In early August, Judge Mehta found Google liable for monopolizing the general search services and general search text ads markets.  In his decision, Mehta concluded that Google’s use of revenue sharing agreements (i.e., paying device manufacturers and browser developers) to make its search engine the default option amounted to exclusively dealing in violation of the Sherman Antitrust Act.  These agreements, in turn, gave Google a monopoly position in the search engine market that deprived rivals of scale, reduced incentives to invest and innovate, and allowed it to charge above-market prices in the search text advertising market (i.e., the ads which appear at the top of each search page).

* Mehta’s decision regarding liability was part one of the trial, and the proposal from DOJ relates to the second phase of the trial, which deal with remedies.  Mehta has indicated he plans to issue a decision by August 2025 on the remedies, following briefing by the companies this fall/winer and a two-week “trial” regarding remedies in spring 2025.  At the conclusion of the remedies phase, an appeal by Google is likely.

* In its framework for remedies (which does not need to be finalized by the DOJ until November 20, 2024), DOJ indicates it is considering four tranches of remedies.  First, Google would be barred for keeping its existing or developing new revenue sharing agreement with companies, and it would possibly have to divest Chrome, Play, and/or Android given that these are major distribution channels for its search product.  Second, Google would have to provide rivals (either through sharing or licensing) the data it got from its illegal conduct.  Third, Google would be required to allow publishers to opt-out of having their content used for Google’s AI training and display purposes.  And fourth, Google would be required to license its ad feed “independent of its search results” and give more power for advertisers over the placement of their ads in the search results.

Our outlook… Many of the DOJ’s proposed remedies are behavioral and were largely expected.  The allusion to structural remedies – specifically, a possible spin-off of Chrome, Play, and/or Android – is notable because it signals the DOJ is pushing the envelope on remedies in this case, as it is debatable whether structural remedies are necessary to alleviate the harms identified by Mehta.  However, this “ask” by the DOJ is indicative of the Biden administration’s broader interest in restructuring the tech industry and chilling the formation of large vertically integrated companies writ large.  As previously noted, we continue to believe behavioral remedies are most likely to be imposed by Mehta, particularly DOJ’s proposal ending the use of revenue sharing agreements – which are the crux of this case.  The other behavioral remedies outlined by the DOJ are possible but have some deficiencies.  However, we remain skeptical that Mehta will impose structural remedies on Google, as divestitures (in general) are extraordinary remedies which are infrequently used, and separating Google’s various components could result in disruption for consumers and could be technologically difficult to achieve.  In any case, regardless of how Mehta rules on the remedies, any changes to Google’s business model will not take effect until the appeals process is completed, which we expect will extend into 2026+.  We do not, however, expect the upcoming election to interfere with this process or timeline.

* With respect to behavioral remedies, the most likely remedy is Mehta barring Google from exercising existing and entering new exclusive dealing contracts (i.e., Google can no longer pay device manufacturers and browser developers to default to their search engine).  These contracts are what keep Google’s search engine as the default across many devices/browsers and are what Mehta viewed as primarily leading to Google’s monopolization of the search engine market.  Such a remedy would not prevent device manufacturers or browser developers from making Google’s search engine the default on their own accord (i.e., because it is what consumers want), but it would prevent Google from using financial arrangements to incent such conduct.

* The other behavioral remedies outlined by the DOJ should be considered possible, as they have deficiencies.  For example, requiring Google to share its search query and click-stream data with competitors would likely benefit competitors, but the benefit to consumers is less clear, particularly when one considers that requiring Google to share its data might raise privacy and that such sharing might be faced with technical/logistical barriers.  Similarly, giving advertisers more control over how and where their search ads are placed seems to provide consumers with little benefit, as it could limit the usefulness of Google’s search advertising service (i.e., advertisers deciding what consumers should see rather the company that controls the algorithm).  And the AI-focused behavioral remedy is somewhat questionable, as the court would be imposing limits on Google’s use of publisher content in its AI training – a restriction not imposed on other major tech firms and seemingly disconnected from the search monopoly Google has built (i.e., search was grown well before the AI boom began).

* In terms of structural remedies, we believe the court requiring Google to divest Chrome, Play and/or Android is unlikely.  With respect to Android, Google provides many products/services on its Android platform, and they are complementary to one another.  This combined with network effects might make this approach overly complicated to administer and result in consumer harm (i.e., Android operating system decreases in utility).  A divestiture of Chrome is also problematic.  In the U.S., Chrome is the leading browser in the computer market and has a large market share in the mobile device market.  Presumably, a divestiture of Chrome would free up a substantial portion of search access points.  However, separating Chrome and Google search could diminish the consumer experience, and it does not address search access points other than browsers (i.e., in-app or in-webpage search).  And with respect to Play, the connection between the anticompetitive conduct in the search engine/search ad market and the app-store is tenuous.

Watch for these developments… As the remedies phase progresses, we are watching for the arguments outlined by Google in its various filings, as these will foreshadow the legal strategy Google intends to deploy – and the strength of that strategy – as it fights against the DOJ’s proposed remedies and moves toward an appeal of the case.  Also, we are watching for whether and how DOJ alters its remedies requests in its final proposal to the court (due in November), as an abandonment of the structural requests would signal that the administration is more confident it can secure behavioral remedies than a divestiture in this case.