🚫 ANTITRUST

Alphabet's Woes

Google has abused its monopoly status to stifle competition in the Internet search market.

So ruled Judge Amit P. Mehta of U.S. District Court for the District of Columbia on Monday in a landmark case that may redefine how we use the web.

"The court concludes that Google has violated Section 2 of the Sherman Act by maintaining its monopoly in two product markets in the United States—general search services and general text advertising—through its exclusive distribution agreements," Judge Mehta wrote in his ruling.

Google currently accounts for some 90% of global Internet search traffic, a fact that in and of itself isn't illegal. Rather, it was revealed over the course of the trial brought by the Justice Department that tech behemoth had been paying Apple, Samsung, and other platforms to ensure that Google was the default search engine on those devices.

While Google has argued that this default setting can be readily changed by consumers, and that Google's dominance is a result of its superior product, Judge Mehta noted that "at every stage of the search process user data is a critical input that directly improves quality." In other words, Google has abused its dominance to ensure a positive feedback loop for its search product that blocks innovation from rivals.

“This decision recognizes that Google offers the best search engine, but concludes that we shouldn’t be allowed to make it easily available. …As this process continues, we will remain focused on making products that people find helpful and easy to use,” ,” Kent Walker, Google’s president of global affairs, said in a statement according to NPR.

The ruling is the first major antitrust decision in the US since Microsoft in the late 1990s, and the first major case of the modern Internet. The comparisons between the two cases were not lost on Mehta.

“The end result here is not dissimilar from the Microsoft court’s conclusion as to the browser market….Just as the agreements in that case help[ed] keep usage of Navigator below the critical level necessary for Navigator or any other rival to pose a real threat to Microsoft’s monopoly, Google’s distribution agreements have constrained the query volumes of its rivals, thereby inoculating Google against any genuine competitive threat," Judge Mehta's ruling notes. The key irony here is that ruling against Microsoft 30 years ago paved the way for Google's meteoric growth.

As for what happens next, it's unclear. Will key parts of Alphabet's business be broken up? Will limitation be placed on the company? That is yet to be seen. But it stands to reason that the Internet may soon be changing in a foundational way.

“It’s hard to say at this point what the DOJ is going to seek and what the judge is going to accept,” Bill Baer, who formerly ran the antitrust division at both the FTC and DOJ, told CNBC. Though George Hay, a law professor at Cornell and a former member of the DOJ's antitrust division, told NPR he sees it more clearly: “The remedy here is pretty obvious. He's going to say those contracts with Apple and Samsung have to go away.”

More To Come

The Justice Department's case against Google is one of a few major antitrust cases it's filed, including those against Apple, Meta, and Amazon.

“This is the first significant monopolization case against one of the dominant digital companies — it’s super-important in that sense,” Nancy Rose, an MIT economist, explained to the New York Times.

This win thus gives the DOJ a momentum and a sort of precedent as it continues to prosecute Google's peers.

But Jef Pearlman at the USC Gould School of Law told the Los Angeles Times, says this case should work as a warning to AI companies building out their own search deals: "they will be thinking of this as they pen those deals.”

Verdict

No doubt this ruling will lead to two things—a change in the Internet search as we know it today, and a stronger hammer for the DOJ in its other antitrust cases. With both, legal departments should be planning for how these changes will begin to affect their own business.

🧑⚖️ LAWSUIT

X Takes On Its Critics

"We tried peace for 2 years, now it is war," Elon Musk wrote on X this week.

He was referring to the ongoing battle he's had with advertisers on the platform he purchased in 2022, and which was formerly called Twitter.

Linda Yaccarino, X's CEO, echoed the sentiment in an open letter and a video message she posted. "The illegal behavior of these organizations and their executives cost X billions of dollars... To those who broke the law, we say enough is enough. We are compelled to seek justice for the harm that has been done by these and potentially additional defendants, depending what the legal process reveals," her letter states, notes Ars Technica.

While X is no longer a publicly traded company, a report by Emarketer estimated that the social media platform lost 52 percent of its ad revenue in 2023, cites the New York Times. Much of that decline is a result of what firms see as a rise of right-wing hate speech and conspiracy theories on X, leading them to pull their ads.

But can Musk and Yaccarino stop the damage done?

“Unilever, and Unilever alone, controls our advertising spending…No platform has a right to our advertising dollar,” Herrish Patel, president of Unilever USA, told a Congressional hearing earlier this year, reports the Associated Press.

However, according to Reuters, X's lawsuit claims that it has become a "less effective competitor” in digital ad sales as a result of what it classifies as an illegal boycott by advertising groups like the Responsible Media Initiative launched in 2019.

X would need to prove that every advertiser explicitly agreed to boycott the platform, and "Proving this requirement is no small hurdle,"Christine Bartholomew of the University of Buffalo law school added.

For Ruben Schreurs, chief strategy officer at marketing consulting firm Ebiquity, the lawsuit strategy is inherently flawed. As he told the New York Times: "To the extent that Elon hadn’t already burned all bridges and ties with the entire advertising community, I don’t see how this will get any advertisers to come back to X. …It’s a last-ditch effort to force brands who don’t want to be in the cross hairs of this kind of legal action to return to the platform.”

A String Of Lawsuits

Elon Musk has seen a string of lawsuits dismissed or dropped.

In March, a federal judge dismissed his suit against the Center for Countering Digital Hate (CCDH), which Musk claimed scared advertisers away by publishing a report on the rise of hate groups on X. A judge tossed a similar suit Musk brought against Bright Data for helping CCDH and others scrape data off X.

In June, Musk, a co-founder of OpenAI, dropped his lawsuit against Sam Altman and OpenAI for an alleged breach of contract.

Verdict

While Musk and Yaccarino are trying a final Hail Mary to win advertisers back, suing them may prove to push advertisers away further. However, it may also create an opening for some advertisers to return claiming that they felt pressured by other firms in their advertising initiative to boycott X.

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