Don't throw me in the briar patch!

The ironies of antitrust

Google just lost a big case in a federal court in the District of Columbia.

Who won?

In our adversarial legal system, cases are always listed as somebody against somebody else. This case was styled the United States versus Google. So the winner was the United States. That is, us.

But what did we win? And who really is us?

The court found Google guilty of monopoly practices. It said these practices damaged competition. But the court didn't say who exactly suffered from the lack of competition.

Antitrust law in America is a century and a quarter old. The founding statute is the Sherman Antitrust Act of 1890. The premise of the act is that lack of competition injures participants in the market other than the monopolist. These are principally consumers and competitors.

For most of the time since 1890, antitrust regulators have focused on damage to consumers. When they have mentioned damage to competitors, the corollary is usually that damage to competitors produces damage to consumers eventually.

This consumer emphasis makes political sense. Consumers are numerous and are typically voters. Competitors are other businesses. Why government should defend one set of businesses against other businesses is not obvious.

At various times a non-economic element has been added to the philosophy of antitrust. Progressives in the early 20th century asserted that uncompetitive economics made for uncompetitive politics—that monopolies endangered democracy. This view was politically appealing, albeit hard to quantify. 

It fell out of fashion by the mid-20th century, after which consumer protection was the guiding principle of antitrust supervision. But the progressive view has come back into vogue in the Biden administration, pressed by Lina Khan, head of the Federal Trade Commission.

The endangered-democracy argument has been critical to cases involving big tech companies, starting with Google. It's difficult to assert that Google customers, who don't pay anything for Google’s services, have suffered. They see advertisements, but these are unobtrusive compared to other advertisements. 

A key point in the prosecution's case was that Google had signed exclusive agreements with Apple to make Google the default search engine on iPhones. This tended to shut out competing search engines from the most popular phone in America.

There is nothing unusual about exclusive agreements. Nike has paid Michael Jordan many millions of dollars so that it can be the exclusive purveyor of footwear identified with Jordan. Brands that advertise themselves as the official watch, airline etc. of the Olympic Games pay a fee for that exclusive right. 

What made the Google arrangement with Apple objectionable to the court was that Google is the leader in search. If another search engine had signed an identical deal with Apple, there would have been nothing wrong with it.

This is a striking part of antitrust jurisprudence. Actions per se are not wrong. The wrong lies in who commits the actions. In other areas of law, this would be called selective enforcement and frowned upon. But it's standard in antitrust.

The judge in the Google case has not specified remedies. An obvious remedy would forbid the arrangement Google has had with Apple. Whether this would constitute punishment is unclear. The prosecution in the case did not contend that Google’s search engine was an inferior product. In fact all parties acknowledge that Google 's search engine is the best on the market.

What might well happen if the court forbids a paid arrangement between Google and Apple is that Google will get for free what it has been paying billions of dollars for. Users of iPhones will choose their own search engine, and most will choose Google. The big loser will be not Google but Apple.

Another possibility is that Google will be broken up in some way. This was a favorite remedy of the progressives, who believed that competition would work its wonders if it were simply enforced by government.

Yet even in the progressive era there was an alternative philosophy. Theodore Roosevelt believed in controlling trusts not by enforcing competition but by regulating the actions of the trusts. Partly this reflected Roosevelt's taste for power.

But it also reflected strategic thinking that came more naturally to Roosevelt than to others. Roosevelt studiously avoided taking on United States Steel, the biggest trust of his day, because steel was vital to the modern navy Roosevelt felt necessary for protecting American interests around the world. Roosevelt understood the economies of scale, and he reckoned that the steel trust could most efficiently produce the steel the navy needed.

Artificial intelligence is today's equivalent of Roosevelt's naval power. Google and other big American tech companies are the equivalent of U.S. Steel. America's international competitors, conspicuously China, are devoting enormous resources to advancement in AI. America 's champions need comparable large resources. To break them up might hand China an edge in AI, to America's detriment.

There's no guarantee the recent verdict will survive appeal and politics. The Clinton justice department brought suit against Microsoft in the 1990s, won in court, and was devising a breakup when the White House changed hands. The new Republican administration of George W. Bush dropped the case.

China to the rescue in the Google case? Donald Trump to the rescue?

Stranger things have happened.