Today’s post by BC Law professor and associate dean for academic affairs Daniel Lyons originally appeared on the American Enterprise Institute (AEI) AEIdeas blog. You can view the post here.
By Daniel Lyons
For almost three decades, President Joe Biden has built an image as a champion of everyday Americans. So it’s surprising to see his antitrust policy increasingly place companies, not consumers, at the center of its agenda. This shift is on full display in next month’s United States v. Google trial, which challenges Google’s position as the default search engine for smartphones and browsers. Two pretrial motions present an interesting question: If the defendant’s conduct improves the consumer’s experience, how should this factor into the court’s analysis of whether the conduct is anticompetitive?
The case focuses on agreements between Google and companies such as Apple, Samsung, and Firefox, wherein the counterparty agrees to make Google the default search tool in exchange for a share of the search revenue thus generated. So, for example, when an iPhone user enters a search term in the Safari browser bar, the browser returns Google search results. This saves the consumer the step of entering www.google.com into the browser before searching. The government argues that such agreements reflect Google splitting monopoly rents with Apple and others to preserve its dominant position in search markets against other search providers.
At first glance, one sees some parallels to the landmark Microsoft case in the 1990s, which found pre-installing Internet Explorer on Windows computers foreclosed rival Netscape from competing in the browser market. But there is a key difference, which Thom Lambert discussed at length when the case was first filed. In the Microsoft case, no one argued that pre-installing Internet Explorer made the browser better. It just made it harder for Netscape to reach consumers. By comparison, Google argues that its default agreements improve the customer experience in two ways.
First, these agreements improve the quality of Google’s search results. Modern search markets exhibit economies of scale: The more searches a provider processes, the more it learns from user queries and the better its algorithms become at giving consumers the results they want. This means that by serving as the default search provider on various devices, Google is increasing traffic to its search engine, increasing its scale and thus improving its products’ quality vis-à-vis its competitors’.
Second, Google argues that serving as the default search provider enhances competition in adjacent markets. For example, integrating search into the browser bar, rather than making the consumer go to a search engine website, saves the consumer time and thus makes the browser better. And the revenue shared with browser providers allows those companies to improve their products. (Lambert notes that the independent browser Firefox generates 95 percent of its revenue from search royalties, suggesting that absent such agreements, independent browsers would struggle against Microsoft Edge and Google Chrome.)
These product quality arguments are central to Google’s defense, which is likely why the Justice Department filed two unusual motions in limine asking the court to instruct that such evidence of product improvement may not be introduced as a complete defense and to exclude evidence of consumer benefits in adjacent markets as irrelevant. As a technical matter, this was an odd vehicle to make what are effectively legal arguments. Motions in limine typically limit the evidence’s undue influence on the jury. But this is a bench trial, in which the judge serves as a factfinder. Presumably, judges need not remind themselves which evidence is admissible or for what purpose.
But setting aside the form, the legal argument is interesting. The government argues that Google’s procompetitive product enhancement must be weighed against the anticompetitive effect of foreclosing rivals from securing those scale benefits. As Herbert Hovenkamp notes, that’s a difficult comparison to make—reminiscent of Justice Antonin Scalia’s question whether this line is longer than this rock is heavy. The 9th Circuit has implicitly rejected such balancing in product quality cases. This makes sense: Antitrust does not require a company to keep prices high to protect less-efficient competitors. Neither should it require one to reduce product quality to protect rivals. Both results would benefit trailing competitors at the expense of consumers.
Of course, search engines such as Bing could simply outbid Google for the right to be a default provider, and that’s perhaps the most amusing aspect of this case. While the case is styled as a quest to protect competitors from Google’s dominance, the primary beneficiary of a government victory would be Microsoft—an even larger tech titan. Microsoft has the resources to buy preferential placement for Bing. It hasn’t done so, which suggests consumer preferences for Google are strong enough—and switching costs are low enough—that rivals would not significantly benefit from similar arrangements. If customers prefer Google defaults, then the government is literally asking the courts to put companies ahead of consumers.
Daniel Lyons is a BC Law professor and currently serves as the school’s associate dean for academic affairs. He posts frequently on the AEIdeas blog. Contact him at daniel.lyons.2@bc.edu.
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