Supporters Of Using Antitrust Against Big Tech Should Be Very Disappointed In How Weak The DOJ's Case Is

from the this-won't-go-far dept

As you've already heard, the DOJ filed the long-expected antitrust case against Google earlier this week. Karl has already discussed how it appears to be a politicized weapon wielded by Attorney General Bill Barr to create a bogus culture war around how Trump is "taking on" big tech. Cathy has looked at one weird aspect of the case -- how its own argument regarding trademark genericide actually cuts against the idea that Google is a monopoly.

However, what strikes me as most noteworthy about the filing is how insanely weak the argument is. As was already discussed, many lawyers in the DOJ had said they really needed more time to put together a complete case against Google... and it shows. I know that the folks who have been agitating for antitrust actions against Google for years are cheering this on, but that seems incredibly short sighted. As is currently filed (and it will likely change!), the case is so weak that Google would likely win in court, and it would then be more difficult (though not impossible) to craft another antitrust case later.

First, the case is fairly limited in what it argues. It focuses on Google's search distribution deals (e.g. getting Google to be the default search engine in things like Firefox or iOS, for which Google pays many, many millions of dollars). This seems like a weird choice for a variety of reasons.

For years, Google has entered into exclusionary agreements, including tying arrangements, and engaged in anticompetitive conduct to lock up distribution channels and block rivals. Google pays billions of dollars each year to distributors—including popular-device manufacturers such as Apple, LG, Motorola, and Samsung; major U.S. wireless carriers such as AT&T, T-Mobile, and Verizon; and browser developers such as Mozilla, Opera, and UCWeb— to secure default status for its general search engine and, in many cases, to specifically prohibit Google’s counterparties from dealing with Google’s competitors. Some of these agreements also require distributors to take a bundle of Google apps, including its search apps, and feature them on devices in prime positions where consumers are most likely to start their internet searches.

It seems worth noting here that Google pays a ton for those deals. Mozilla practically lives off of that contract. If Google is somehow forced to stop, that'll do a lot more to hurt Mozilla/Firefox than help it.

Also, when you're talking about abusive monopolies, it's normally how companies use their power to drive down how much they have to pay (because they're the monopoly). And yet, as the filing itself shows, these search deals have involved strong competition from Microsoft, meaning that Google ends up having to fork over huge chunks of cash.

Under the current agreement between Apple and Google, which has a multi-year term, Apple must make Google’s search engine the default for Safari, and use Google for Siri and Spotlight in response to general search queries. In exchange for this privileged access to Apple’s massive consumer base, Google pays Apple billions of dollars in advertising revenue each year, with public estimates ranging around $8–12 billion. The revenues Google shares with Apple make up approximately 15–20 percent of Apple’s worldwide net income.

Perhaps my understanding of how monopolistic markets work is different than the DOJ's, but I don't recall ever seeing it described as being a market where the "monopolist" pays billions of dollars just to be an (easily changed) default. The fact that Google's deal alone is 15 to 20% of Apple's revenue (and Apple makes a shit ton of money) alone seems damning to the underlying argument for the case. If Google were a monopoly, then by any normal economic analysis, it would be driving down how much it pays because Apple would have nowhere to go. The fact that Google has to pay so much suggests that there's actual competition for these deals.

There is also the question of what users want. Frankly, if my phone/browser didn't have Google as the default, I'd change to it. I've tried the alternatives (Bing, DuckDuckGo) many times over. And they just are rarely as effective as Google.

The other troubling aspect of the lawsuit is that it insists totally reasonable (and indeed, important to protect consumers) activity is somehow anti-competitive. Some of these seem to put Google into a no-win situation. They would get killed if they did things differently, and they're getting killed for doing things this way. Here's an example. A key part of the DOJ's argument is that Google's anti-forking agreements regarding Android are anti-competitive. And, as someone who uses a non-standard, Android-based mobile OS on my phone, there are definitely times that I wish there were more competition in forking and building out Android alternatives. But there are non-nefarious reasons why Google would do this:

Google’s anti-forking agreements, however, have inhibited operating system innovation through forking, ensuring that manufacturers and distributors are beholden to Google’s version of Android. Distributors know that any violation of an anti-forking agreement could mean excommunication from Google’s Android ecosystem, loss of access to Google’s must-have GPS and Google Play, and millions or even billions of dollars in lost revenue sharing. Thus, distributors avoid anything that Google might deem “fragmentation”—a term that Google “purposely leave[s] . . . very vague” and interprets broadly.

Pursuant to the preinstallation agreements discussed below, Google also has final say over whether a device is found to be compatible with the technical specifications Google requires manufacturers to meet before they can preinstall GMS. As a Google engineer noted, it must be “obvious to the [manufacturers] that we are using compatibility as a club to make them do things we want.” Google views its anti-fragmentation mandate, and its final approval of devices before they launch, as a “poison pill” to prevent deviation from the Google-controlled Android ecosystem.

One interpretation is that this is anti-competitive and giving Google control. But, remember, this is open source in the first place. The only reason forking is even any option at all is because Google made Android open source. No one can fork iOS. Or Windows. Because those are proprietary. Just the fact that it's open source seems like a weird thing to be the crux to hang an antitrust lawsuit over.

But, more to the point, another (non-nefarious) reason why Google might make those agreements is to hold various device companies to a standard that delivers users the experience they expect. Without those agreements, then you could get bad implementations of Android in which lots of things don't work correctly -- and end users would likely blame Google for that. Also, fragmentation has already been a problem in getting some apps to work smoothly across the wider Android ecosystem. So the efforts at standardization for those who want to offer the wider Google ecosystem are easily explained for the benefit of everyone, rather than as some attempt to block competition.

The lawsuit then immediately undermines its own point that everyone is afraid to fork Android... by showing how Amazon forked Android:

Google’s broad interpretation of the anti-forking agreements, and the reluctance it creates among Android distributors to support alternative versions of Android, presents barriers to entry. These were on display when Amazon developed its Fire OS operating system, a competing fork of Android. Rather than preinstall Google’s search engine, GPS, Google Play, or other Google apps on Fire devices, Amazon preinstalled its own proprietary apps and agreed to make Microsoft’s Bing the preset default general search engine. Amazon originally sold only Fire OS tablets, but in 2014 it launched a phone that ran on Fire OS. The phone was not a commercial success and Amazon quickly exited the phone business. Amazon continues to sell Fire tablets, which account for less than two percent of mobile device usage in the United States.

Right. As the DOJ says, this ended up being a flop for Amazon, but that also undermines the case. It shows that users like the Google services and apparently were not as interested in buying a device without them. So, the entire crux of the DOJ argument seems undermined in the filing itself. Basically, the argument is that Google prevents people from forking (except it didn't), and then shows when Amazon did fork, and says that failed in the marketplace. Which just looks like evidence that Google isn't blocking competitors, but rather consumers just prefer Google's offering.

Also, as Alex Stamos pointed out, a key problem with the assumptions in the DOJ's lawsuit is that the lack of startups entering the general search market is because of these practices by Google. But a much more reasonable assumption is that building a good general search engine is fucking hard.

And, a few have tried over the years, but they've had trouble, not because of Google's search deals, but because their products just weren't that good.

If your goal was to breakup Google or even cause real harm for the company... this isn't the lawsuit you're looking for. It's one of the weakest antitrust claims I've seen. I'm honestly perplexed by the people cheering this on because it's so weak that it's not going to work and will make any real antitrust harder down the road.

I will note that this might change. I imagine that there will be amended complaints down the road, and NY's attorney general put out a statement noting that while she and the AGs of a bunch of other states are investigating Google for antitrust, if they do file a case, they will seek to consolidate it with the DOJ's case. It's possible that whatever case the states bring could be much stronger.

I'm open to being convinced that this approach will work, but as it stands, this case looks incredibly weak, seems likely to fail, and even if it somehow succeeded wouldn't create any real structural change. Indeed, at best it would just limit how much Google has to pay out to lots of other companies, which helps support the wider ecosystem. I knew that this was a blatant political move by Barr, but I still expected a lot more meat to be found in the filing.

Filed Under: antitrust, doj, exclusive deals, market power, search
Companies: google

Trademark Genericide And One Big Way The DOJ Admits That Its Antitrust Lawsuit Against Google Is Utter Garbage

from the admitting-their-own-bullshit dept

Don't misread the title of this post to think there's only one thing wrong with the DOJ's antitrust complaint against Google. There's plenty. But on the list is this particular self-defeating argument included in the complaint -- the complaint where the DOJ basically has but one job: show that Google is a monopoly.

To understand it, we need to first understand the idea of "trademark genericide." That's what happens when your brand name is, well, just too good and people start using your branding as the default word to describe the product or service in general. Famous examples include "Band-Aid," "Thermos," "Xerox," and plenty of other words we're all used to using in lower-case form to describe things that aren't actually produced by the companies that had those trademarks.

The issue here is not actually whether Google has lost its trademark rights due to genericide, which is a technical question particular to the operation of trademark law and not relevant to the issues raised here. The DOJ isn't actually arguing that Google has anyway. But what it is arguing is that the same basic dynamic has occurred, where the branded name has become a widely adopted synonym to describe other people's similar goods and services. However, in doing so, it has blown up its own argument because that means there are other similar goods and services. Which means that Google is not a monopoly.

Look at what it argued (emphasis added):

Google has thus foreclosed competition for internet search. General search engine competitors are denied vital distribution, scale, and product recognition—ensuring they have no real chance to challenge Google. Google is so dominant that “Google” is not only a noun to identify the company and the Google search engine but also a verb that means to search the internet. [complaint p. 4]

This argument makes no sense. On the one hand it asserts that Google has foreclosed competition for Internet search, and in almost the next breath it asserts (and as an attempt at proving the first assertion, bizarrely) that "Google" has now become the generic word for Internet searching offered by everyone. If "Google" is now being used by consumers to describe the use of competing goods and services, it means that there are competing goods and services. Ergo, Google is not a monopoly, and thus the alleged premise for bringing this antitrust action is unsound.

There are, of course, many reasons why this antitrust action against Google is unsound, but it does seem odd that the DOJ would so candidly confess such a notable one in the introduction of its own complaint.

Especially because even the DOJ itself admitted later in the complaint that there are actually competing search engines, namely Bing, Yahoo, and DuckDuckGo.

Google has monopoly power in the United States general search services market. There are currently only four meaningful general search providers in this market: Google, Bing, Yahoo!, and DuckDuckGo. According to public data sources, Google today dominates the market with approximately 88 percent market share, followed far behind by Bing with about seven percent, Yahoo! with less than four percent, and DuckDuckGo with less than two percent. [p. 29]

But the argument it made in this later section to try to wish away the import of these competitors did not do much better than the previous one in the logic department.

There are significant barriers to entry in general search services. The creation, maintenance, and growth of a general search engine requires a significant capital investment, highly complex technology, access to effective distribution, and adequate scale. For that reason, only two U.S. firms—Google and Microsoft—maintain a comprehensive search index, which is just a single, albeit fundamental, component of a general search engine. Scale is also a significant barrier to entry. Scale affects a general search engine’s ability to deliver a quality search experience. The scale needed to successfully compete today is greater than ever. Google’s anticompetitive conduct effectively eliminates rivals’ ability to build the scale necessary to compete. Google’s large and durable market share and the significant barriers to entry in general search services demonstrate Google’s monopoly power in the United States. [p. 31]

Once again, the DOJ has managed to swing and miss in trying to argue that Google is a monopoly with its rushed and unthoughtful lawyering. Google obviously isn't, not with actual competitors, and the DOJ's apparent fallback argument of it being a monopoly somehow due to monopolistic effect similarly fails. It whines that scale is important for a search engine's success, and that there are significant barriers to entry to becoming a competitive player in the search engine space. But the DOJ offers nothing more than "it must be antitrust!" to hand-wave away why Google has managed to succeed better than its rivals, including rivals like Yahoo that had entered the market long before Google (and for whom barriers to entry should not have been an issue), and rivals like Microsoft (which the DOJ acknowledges is able to achieve the same scale as Google). The market has had choices—choices that even the DOJ cannot ignore, no matter how much it is desperate to because of how their existence undermines its case.

And so with the "la-la-la-I-can't-hear-you" approach to antitrust enforcement the DOJ tries to wish these inconvenient facts away, arguing that Google's size and share of the market somehow magically evinces an antitrust violation, with little more support than "because we said so."

Which is not nearly a good enough basis for this sort of extraordinary action.

Filed Under: antitrust, doj, genericide, trademark
Companies: google

Bill Barr's Google 'Antitrust Inquiry' Is A Weaponized Farce

from the unserious-people dept

Last month we noted how Bill Barr was rushing DOJ staffers (much to their chagrin) to launch his "antitrust inquiry" into Google. Why? Three reasons. One, it helps Trump allies and Google adversaries like "big telecom," Oracle, and Rupert Murdoch. Two, it helps put the utterly false narrative of "social media unfairly censors Conservatives" into headlines during an election. And three, it creates leverage over companies that have finally just begun to take online hate speech and disinformation (a cornerstone of Trumpism) seriously. Genuine concerns about "monopoly power" are the last thing on these folks' minds.

Right on cue, Bill Barr this morning announced that the Department of Justice is suing Google, claiming that the company's anticompetitive practices in arenas such as search "have had harmful effects on competition and consumers." The initial press release compares Google's dominance to historical natural monopolies of note, such as 80's era AT&T:

"The antitrust laws protect our free market economy and forbid monopolists from engaging in anticompetitive practices. They also empower the Department of Justice to bring cases like this one to remedy violations and restore competition, as it has done for over a century in notable cases involving monopolists over other critical industries undergirding the American economy like Standard Oil and the AT&T telephone monopoly. Decades ago the Department’s case against Microsoft recognized that the antitrust laws forbid anticompetitive agreements by high-technology monopolists to require preinstalled default status, to shut off distribution channels to rivals, and to make software undeletable. The Complaint alleges that Google is using similar agreements itself to maintain and extend its own dominance."

You're to ignore that this is the same Bill Barr DOJ and Trump administration that has rubber stamped every last fleeting whim of natural telecom monopolies (like the recent T-Mobile merger). Monopolies like Comcast that, unlike search, leave consumers trapped in punitive, expensive relationships they simply cannot opt out of. The DOJ's announcement was launched in cooperation with a handful of GOP states, apparently because many other states -- many of which are pursuing their own inquiries into legitimate problems at Google -- didn't think much of Billy Barr's rushed effort.

Many lawyers don't think much of the effort either, noting that the rushed complaint is, as you might expect, filled with odd misses and whiffs. Like here, where the DOJ attempts to claim that Google's efforts to reduce smartphone and device bloatware imposed by wireless carriers is something that should be illegal:

Others were quick to note that Google's effectively being lambasted by Barr's DOJ because its search engine -- which, unlike telecom, consumers can choose not to use -- is extremely popular:

Again, that's because this is being driven by cronyism and election season politics, not a serious concern about monopoly power. Worse, while the DOJ's announcement will be applauded by well-intentioned folks eager to see Google's power knocked down a peg, tackling Google's domination in a politicized, half-assed fashion could actually make it harder to hold Google accountable down the line. The DOJ of course wants to have its cake and eat it too, providing Trump with election season fodder while breathlessly insisting that's not what's happening:

"So, I think it's fair to say, this case has nothing to do with that subject," [Deputy Attorney General Jeffrey] Rosen said. "This is an antitrust case about competitive conditions in the marketplace, and as I said earlier, it's been a matter of nonpartisan, bipartisan, kind of across-the-board interest."

To be very clear, there's plenty of things Google does (especially on the advertising end) that can be deemed anticompetitive, inconsistent, and infuriating, many of which could use a serious good faith inquiry. But folks like Bill Barr and the GOP mainstays applauding this inquiry don't genuinely care about monopoly power, unchecked corporate power, or the downsides of consolidation. They simply don't. The DOJ (under both parties) pretty consistently doesn't either:

Mindless rubber stamping of megamergers and flimsy antitrust enforcement is what the United States does. It's our biggest pastime outside of baseball. The one Trump example usually trotted out to claim otherwise, AT&T's lawsuit to stop the AT&T Time Warner merger, was more about pissing off CNN for Trump and helping Rupert Murdoch than any serious concern about media consolidation. Rupert wanted the deal blocked after Time Warner first rebuffed his merger affections in 2014, and AT&T rejected his offer to buy CNN twice in 2017. It's extremely likely he's the motivating force in this effort as well.

So despite what folks like Josh Hawley and Ted Cruz would have you believe, there's no evidence that monopoly power has ever been a genuine concern for the modern Trump GOP (simply look at its treatment of telecom, airlines, banks, and countless other heavily consolidated and monopolized sectors that routinely churn out a steady stream of consumer and competitor nightmares). And yet folks who've built entire careers on the backs of not giving a flying shit about corporate power, consolidation, and monopolization will now get to spend two weeks before an election pretending otherwise:

Why look at all the very serious, good faith, anti-monopolists just super and genuinely concerned about mindless consolidation and corporate power:

The idea that Jordan, Cruz, or Cotton genuinely care about corporate power, monopolies, or U.S. antitrust enforcement is laughable, and it's astonishing that anybody could take this performative stage play seriously. While they're doing their best to pantomime genuine concern, these gentlemen see the vilification of "big tech" as a matter of political convenience, providing leverage in their ongoing efforts to force the carriage of political disinformation, with the added perk that it's of great benefit to GOP megadonors and longstanding GOP allies like Rupert, AT&T, and Oracle.

Again, reporting indicates that while there may have been some kernels of good faith intention at the heart of the inquiry, Barr quickly got to work politicizing the effort -- and rushing it against the wishes of staff so it could be used as election season fodder. Trampling the law and government integrity for his authoritarian boss is what Bill Barr does. It's unclear how many examples are needed for the message to get through. Barr and friends should no longer enjoy the benefit of the doubt.

It's a lot like the sordid TikTok affair, which had more to do with cronyism (nabbing Oracle a hosting deal) and political convenience (amplifying xenophobia) than any genuine concern about consumer privacy or internet security. Bill Barr's inquiry is politicized bad faith bullshit dressed up as serious adult policy making, and it's relatively astonishing how many folks (including both of the country's biggest cable news outlets and numerous tech reporters) literally can't tell the difference, or be bothered to include even the faintest hint of context that the investigation may not be entirely on the up and up.

Filed Under: antitrust, bill barr, doj, monopolies
Companies: google

Stop Pretending The Trump GOP Genuinely Cares About Monopoly Power

from the gullible-and-adorable dept

Over the last year or two, a constant drumbeat has permeated tech news coverage. It goes something like this: the GOP is embracing a "populist" agenda by standing up to "big tech." The modern Trump GOP (with heroic consumer champions like Josh Hawley and Marsha Blackburn in the lead) we're told, have become stalwart opponents of monopolization, especially in tech. They're just super concerned about what this power means for free speech, especially given that conservative voices are routinely "censored" on the internet.

One problem. It's all bullshit. And there's a long line of journalists and experts who still somehow haven't quite figured that out yet. Or have figured it out but are too afraid of upsetting readers or advertisers to be honest about it.

Case in point: the New York Times, which this week explored how the GOP's interest in "reining in big tech" has stalled because "solutions" to modern tech problems could hurt revenues or don't include adequate hand-wringing over "conservative censorship":

"The Republicans’ chief objections to the report are that some of the legislative proposals against the tech giants could hamper other businesses and impede economic growth, said four people with knowledge of the situation. Several Republicans were also frustrated that the report didn’t address claims of anti-conservative bias from the tech platforms. Mr. Buck said in “The Third Way” that some of the recommendations were “a nonstarter for conservatives."

The Times, like most big outlets, proceeds from the assumption that the Trump GOP genuinely cares about reining in "monopoly power" in technology. But that gives the GOP way more credit than it has earned or deserves, and helps prop up bad faith bullshit as legitimate grievance.

For one, the GOP's breathless concerns about "monopolization" aren't apparent anywhere else. As the GOP freaks out over "big tech," for example, "big telecom" has been allowed to effectively guard the chicken house and eat the lion's share of the chickens. The GOP-controlled FCC effectively neutered itself at AT&T's and Comcast's request. Terrible job and competition killing telecom mergers have been repeatedly, rubber stamped by the GOP. Similarly there's zero evidence of any serious attempt to rein in other monopolized sectors from banking and airlines to pharmaceutical and energy.

There's also still no evidence that "conservatives are being censored." As in, none. Oddly, the New York Times can't be bothered to mention this. The lion's share of those being kicked offline are being kicked offline because they're simply...behaving like assholes on the internet. And in fact, there's far more evidence that platforms like Facebook are ignoring their own rules to protect right-wing speech because it's more profitable to let inflammatory bullshit bumble around the information ecosystem (see: Breitbart being a trusted news ally and nobody giving a damn that Ben Shapiro games Facebook systems to inflate traffic).

Here's the thing. This steady flood of shitty Section 230 bills aren't about policing monopoly power. And folks like Marsha Blackburn and Josh Hawley, who've never had a single bad thing to say about telecom monopolies, couldn't give any less of a shit about monopoly power. They do however care about political power. And the over-arching goal right now is to apply enough pressure on Silicon Valley giants that they don't start adequately policing political disinformation. Because if they do, many of the cornerstones of the modern Trump GOP (race baiting, divisive bullshit, inflammatory garbage, rampant disinformation) fall apart.

Yes, Democrats have plenty of bad ideas and frequently can be found doing nothing or making things even worse. Congress needs a reboot and fresh blood on a tragic scale. But that doesn't change the fact that the entire, multi-year GOP quest to tackle "big tech's monopoly power" has never actually been about monopoly power. It's about political power and money. It's about trying to shovel more ad revenue to accountability-immune telecom monopolies or Rupert Murdoch. It's also about preventing anybody from tackling the mountains of hateful internet bullshit that has become the cornerstone of Trumpism.

And despite countless gullible news reports and experts eager to portray GOP "big tech" pearl clutching as a good faith, earnest examination of the very real problems popping up in tech, it's simply not. And those who continue to pretend otherwise are part of the problem.

Filed Under: antitrust, big tech, gop, josh hawley, marsha blackburn, monopoly, republicans

T-Mobile Merger Approval Violated Every Last One Of the DOJ's Updated 'Antitrust Principles'

from the do-what-I-say,-not-what-I-do dept

Earlier this month, the Department of Justice issued a new, "modernized" merger remedies manual that's supposed to dictate agency behavior as it ponders approving, denying, or applying conditions to major U.S mergers. Superficially, many of the changes outlined in the document make perfect sense. For example, the new breakdown dictates that any merger remedies (including blocking deals outright) should do most of the things you'd expect, such as preserving competition:

Remedies must preserve competition.

Remedies should not create ongoing government regulation of the market.

Temporary relief should not be used to remedy persistent competitive harm.

The remedy should preserve competition, not protect competitors.

The risk of a failed remedy should fall on the merging parties, not on consumers.

The remedy must be enforceable.

In a statement, DOJ antitrust boss Makan Delrahim crowed about how the new guidelines would result in more consistent, transparent antitrust review:

"The modernized Merger Remedies Manual reflects our renewed focus on enforcing obligations in consent decrees and reaffirms the Division’s commitment to effective structural relief,” said Assistant Attorney General Makan Delrahim of the Department of Justice’s Antitrust Division. “It will provide greater transparency and predictability regarding the Division’s approach to remedying a proposed merger’s competitive harm."

The "funny" part? It was just a few months ago that the DOJ rubber stamped T-Mobile's $26 billion merger with Sprint, ignoring countless experts who clearly noted that the deal would not only erode competition, but raise rates, lower sector pay, and result in potentially tens of thousands of lost jobs (layoffs that are already well underway). Said approval violated every last DOJ guideline espoused above. Every, last, one.

The DOJ proposed "remedy" for these problems was to try and shovel some spectrum off to Dish Network, which will spend seven years piggybacking on the T-Mobile network in the hopes of someday being a viable replacement fourth carrier for Sprint. It's a proposal that's not likely to work for a long list of reasons, the biggest being that the remaining three carriers (AT&T, Verizon, and T-Mobile) have a vested interest in ensuring the proposal never works to prevent real price competition. That and the fact that industry-cozy regulators like Ajit Pai, who crow endlessly about the need for "hands off" "oversight" of the telecom sector, will never effectively nanny the proposal to fruition or seriously penalize Dish or T-Mobile for flaking on their promises.

Economists that pointed out the flaws in the deal in court found the DOJ's new guidance a bit entertaining:

Again, blocking the T-Mobile merger was the most sensible, cleanest solution. Just like the last two times this kind of merger was attempted (AT&T/T-Mobile in 2011, Sprint/T-Mobile in 2014). But because T-Mobile kissed enough Trump ass to gain his political support, the Barr DOJ twisted itself into knots to ensure the deal was approved. Not only did the DOJ ignore all objective data showing the deal would clearly be terrible for customers, the market, and employees, Delrahim himself used his personal phone and email accounts to guide T-Mobile to deal approval and actively lobby U.S. regulators and lawmakers.

That is, if you're new to this, the exact opposite of what an "antitrust enforcer" is supposed to do. The T-Mobile merger approval process was glorified cronyism disguised as serious adult policy making, and it placed the entire onus of remedy failure on the backs of sector employees and consumers. It was an embarrassment of corrupt, performative theater, and is important to remember as Bill Barr's DOJ shifts its antitrust attentions to one of the biggest enemies of the GOP and his friends in the telecom sector: Google.

Filed Under: antitrust, antitrust principles, competition, doj
Companies: sprint, t-mobile

Bill Barr's 'Antitrust Crackdown' Of Google Is Going To Be A Weaponized Farce

from the bad-faith-bullocks dept

Back in May we discussed how strange it was that folks would assume that Bill Barr's "antitrust inquiry" into Google would be in good faith, given Barr's history of, well, everything. It's abundantly clear by now that Barr's DOJ has been eager to weaponize antitrust to go after companies Trumpland is politically opposed to (like the legal cannabis sector), while turning a blind eye to every monopolistic whim of his BFFs in the telecom sector. The DOJ's petty lawsuit against California automakers also made it clear there's no real intellectual consistency being applied at the Trump DOJ when it comes to antitrust.

Now reports indicate that Barr has been expediting the DOJ "antitrust inquiry" into Google, in a transparent bid to get his "crackdown of big tech" into the headlines during the election cycle:

"In an unusual move, Mr. Barr placed the investigation under Jeffrey A. Rosen, the deputy attorney general, whose office would not typically oversee an antitrust case. Mr. Barr and Mr. Delrahim also disagreed on how to approach the investigation, and Mr. Barr had told aides that the antitrust division had been asleep at the switch for decades, particularly in scrutinizing the technology industry."

Context here matters. As the net neutrality fracas made abundantly clear, Google has long been the nemesis of the telecom sector, which has been clamoring for greater scrutiny of "big tech" while successfully convincing the Trump administration to neuter pretty much all oversight of telecom monopolies. Barr, a former Verizon lawyer, has eagerly rubber stamped numerous telecom consolidation efforts with less than zero interest in hard data, most notably the job and competition eroding merger between T-Mobile and Sprint.

Despite an ocean of data showing that deal would reduce competition, harm sector pay, kill overall jobs, and result in higher prices, T-Mobile did everything in its power to kiss the Trump administration's ass to gain merger approval. As a result, DOJ antitrust boss Makan Delrahim not only approved the deal without listening to experts, but used his personal phone and email accounts to help lobby the deal to approval. That is what "antitrust enforcement" looks like at Donald Trump and Bill Barr's DOJ. It's just cronyism dressed up as serious adult policy.

Now, apparently, we're to believe that Barr genuinely cares about "big tech" monopolies.

The speed at which Barr is moving to shovel the inquiry into the spotlight for election season fodder has apparently upset many staffers at the DOJ, who say the rush has eroded the integrity of the investigation:

"Many career staff members in the antitrust division, including more than a dozen who were hired during the Trump administration, considered the evidence solid that Google’s search and advertising businesses violated antitrust law. But some told associates that Mr. Barr was forcing them to come up with “half-baked” cases so he could unveil a complaint by Sept. 30, according to three people with knowledge of the discussions.

Some lawyers who felt they needed more time laid out their concerns in the memo and left the case; about 20 lawyers remain on the team."

There are clearly several goals here for Billy Barr.

The first is to get the false "Conservatives are being unfairly targeted" victimization complex in headlines ahead of the election. The second is to gain leverage over companies like Google as they ponder cracking down on Trump disinformation during an election season. The third is to aid telecom giants and folks like Rupert Murdoch that have long coveted Silicon Valley's advertising revenue. None of these motivations have anything to do with a genuine "antitrust inquiry," but we're going to spend the next month or two watching experts and journalists, who should know better, pretend otherwise.

Some economists have pointed out that Barr's quest to use antitrust to police viewpoint diversity not only isn't particularly legally sound, it (like so much in Trumpland) flies in the face of everything Conservatives claimed they believed in over the last thirty years. For example, there was decades of right wing histrionics about the "fairness doctrine" -- a concern that's suddenly and mysteriously absent as Barr attempts to mutilate antitrust to support his quest to police "viewpoint diversity":

Google engages in plenty of dodgy behavior that requires intelligent, adult antitrust and regulatory scrutiny. But Iran Contra cover upper Billy Barr, fresh off endless bouts of sycophancy, obvious falsehoods, and antitrust abuse, is probably the last guy capable of doing so with even a modicum of integrity.

Filed Under: antitrust, cronyism, doj, william barr
Companies: google

Judge Rejects Epic's Temporary Restraining Order Request For Fortnite (But Grants It For The Unreal Engine)

from the and-so-it-goes dept

On Monday there was a... shall we say... contentious first hearing in the antitrust fight/contract negotiation between Apple and Epic over what Apple charges (and what it charges for...) in the iOS app store. The issue for the hearing was Epic's request for temporary restraining orders against Apple on two points: first, it wanted a restraining order that would force Apple to return Fortnite to the app store. Second, was a restraining order on Apple's plan to basically pull Epic's developer license for the wider Unreal Engine.

As the judge made pretty clear would happen during the hearing, she rejected the TRO for Fortnite, but allowed it for the Unreal Engine. The shortest explanation: Apple removed Fortnite because of a move by Epic. So Epic was the cause of the removal. The threat to pull access for the Unreal Engine, however, seemed punitive in response to the lawsuit, and not for any legitimate reason.

More specifically, for a TRO to issue, the key issue is irreparable harm (i.e., you can get one if you can show that without one there will be harm that can't be easily repaired through monetary or other sanctions). But here, as the court notes, Epic, not Apple, created the first mess, and so it can fix it by complying with the contract. So there is no irreparable harm, since it can solve the issue. The opposite is true of the Unreal Engine, though:

The Court finds that with respect to Epic Games’ motion as to its games, including Fortnite, Epic Games has not yet demonstrated irreparable harm. The current predicament appears of its own making. See Second City Music, 333 F.3d at 850 (“Only the injury inflicted by one’s adversary counts for this purpose.”). Epic Games remains free to maintain its agreements with Apple in breach status as this litigation continues, but as the Seventh Circuit recognized in Second City Music, “[t]he sensible way to proceed is for [Epic to comply with the agreements and guidelines] and continue to operate while it builds a record.” Id. “Any injury that [Epic Games] incurs by following a different course is of its own choosing.” Id. Epic Games admits that the technology exists to “fix” the problem easily by deactivating the “hotfix.” That Epic Games would prefer not to litigate in that context does not mean that “irreparable harm” exists.

By contrast, Epic Games has made a preliminary showing of irreparable harm as to Apple’s actions related to the revocation of the developer tools (SDKs). The relevant agreement, the Apple Xcode and Apple SDKs Agreement, is a fully integrated document that explicitly walls off the developer program license agreement. (See Dkt. No. 41-21 at 16.) Apple’s reliance on its “historical practice” of removing all “affiliated” developer accounts in similar situations or on broad language in the operative contract at issue here can be better evaluated with full briefing. For now, Epic International appears to have separate developer program license agreements with Apple and those agreements have not been breached. Moreover, Apple is hard-pressed to dispute that even if Epic Games succeeded on the merits, it could be too late to save all the projects by third-party developers relying on the engine that were shelved while support was unavailable. Indeed, such a scenario would likely lead to nebulous, hard-to-quantify questions, such as, how successful these other projects might have been, and how much in royalties would have been generated, much less the collateral damage to the third-party developers themselves.

This same analysis effectively shows up on the other issues, such as the "balance of equities" question:

... the Court observes that Epic Games strategically chose to breach its agreements with Apple which changed the status quo. No equities have been identified suggesting that the Court should impose a new status quo in favor of Epic Games. By contrast, with respect to the Unreal Engine and the developer tools, the Court finds the opposite result. In this regard, the contracts related to those applications were not breached. Apple does not persuade that it will be harmed based on any restraint on removing the developer tools.

None of this is all that surprising, but it certainly suggests that the judge is not being distracted by Epic turning this whole thing into an anti-Apple marketing campaign.

Filed Under: antitrust, fortnite, temporary restraining order, tro
Companies: apple, epic

The Fortnite App Store Battle: A Real Antitrust Conundrum, Or Just A Carefully Planned Out Contract Negotiation?

from the a-little-from-column-a... dept

Last week there was quite a lot of news paid to Apple kicking Fortnite out of the iOS app store for violating the rules by avoiding Apple's in-app payment setup (out of which Apple takes 30%). Epic, who had been hinting at this for a while, introduced a direct payment offering that effectively avoided the 30% charge that Apple (and Google) require from developers.

There have been arguments over the last decade or so since Apple implemented its policy requiring subscription revenue to go through Apple's system -- but this is probably the biggest fight yet. Epic was clearly expecting Apple to do this because almost immediately after Fortnite was removed from the app store, Epic first released a Nineteen Eighty-Fortnite parody ad, mocking Apple's infamous 1984 Superbowl ad.

Almost immediately, Epic also sued Apple over the removal in a legal complaint that was clearly prepared well in advance. Represented by some of the top antitrust lawyers in the country, and weighing in at 65 pages, Epic had spent some time preparing for this fight. To drive this point home, the lawsuit itself references 1984 in the opening paragraph, tying into Epic's marketing campaign:

In 1984, the fledgling Apple computer company released the Macintosh—the first mass-market, consumer-friendly home computer. The product launch was announced with a breathtaking advertisement evoking George Orwell’s 1984 that cast Apple as a beneficial, revolutionary force breaking IBM’s monopoly over the computing technology market. Apple’s founder Steve Jobs introduced the first showing of the 1984 advertisement by explaining, “it appears IBM wants it all. Apple is perceived to be the only hope to offer IBM a run for its money . . . . Will Big Blue dominate the entire computer industry? The entire information age? Was George Orwell right about 1984?”

Fast forward to 2020, and Apple has become what it once railed against: the behemoth seeking to control markets, block competition, and stifle innovation. Apple is bigger, more powerful, more entrenched, and more pernicious than the monopolists of yesteryear. At a market cap of nearly $2 trillion, Apple’s size and reach far exceeds that of any technology monopolist in history.

The coordination between product, marketing, and legal shows that Epic was well aware of what it was doing.

And, almost immediately after all of that, Google also kicked Fortnite out of its app store, and Epic sued Google too. Rather than opening with the 1984 line (which wouldn't apply to Google), in this case, Epic's lawyers leaned on the "Don't Be Evil" line:

In 1998, Google was founded as an exciting young company with a unique motto: “Don’t Be Evil”. Google’s Code of Conduct explained that this admonishment was about “how we serve our users” and “much more than that . . . it’s also about doing the right thing more generally”. Twenty-two years later, Google has relegated its motto to nearly an afterthought, and is using its size to do evil upon competitors, innovators, customers, and users in a slew of markets it has grown to monopolize. This case is about doing the right thing in one important area, the Android mobile ecosystem, where Google unlawfully maintains monopolies in multiple related markets, denying consumers the freedom to enjoy their mobile devices—freedom that Google always promised Android users would have.

Google acquired the Android mobile operating system more than a decade ago, promising repeatedly over time that Android would be the basis for an “open” ecosystem in which industry participants could freely innovate and compete without unnecessary restrictions.2 Google’s CEO, Sundar Pichai, represented in 2014 that Android “is one of the most open systems that I’ve ever seen”.3 And Andy Rubin, an Android founder who is described by some as the “Father of Android”, said when he departed Google in 2013 that “at its core, Android has always been about openness”.4 Since then, Google has deliberately and systematically closed the Android ecosystem to competition, breaking the promises it made. Google’s anti-competitive conduct has now been condemned by regulators the world over.

Both lawsuits argue that this is an antitrust violation. Also, in both cases, Epic makes it clear (again, strategic marketing at work) that it's not seeking monetary damages, but is demanding that both companies change their practices regarding what cut they take from in-app payments via the app stores. Of course, if it gets rid of having to hand over 30% to Apple and Google, Epic stands to make a lot more money (even if it then discounts in-app purchases that are done directly, as it did with this update).

Of course, when various mutli-billion dollar giants battle in court, you know there's a lot happening behind the scenes. From a pure narrative perspective, you can see Epic's point. Fortnite's success on mobile is not about the benefits provided by the app stores on either of the major mobile operating systems. And, to be clear, Epic had explored this area in the past. Two years ago it tried to avoid the Google Play Store to protest the 30% cut (which is possible, though clunky, on Android), but eventually gave in and went back into the Play Store.

From Apple's standpoint, Epic's move put it in a no-win position. If it let Epic do this with Fortnite, tons of other developers would claim that Epic was getting preferential treatment, and thus letting Epic's move slide would create massive problems in its own way. But pulling Fortnite down from app store created a new set of problems as well (including this antitrust suit). Then Google was similarly put in an impossible situation. Right after seeing what happened with Apple, Google basically had to make a similar call, knowing that it had to decide if it was going to stand firm like Apple (and face a certain lawsuit) or cave and create a whole host of other problems.

From Epic's vantage point, this was a shot that the company had to take. The company's CEO, Tim Sweeney, has a history of not liking rent-seeking by middlemen. And while the antitrust fight can be costly, a win (either by settlement or by the results of litigation) would be a huge win, and a loss would effectively leave Epic in the same position it's in now (though with some quite hefty legal bills that the company can easily afford).

As for the legal arguments... I think it's an uphill climb. The public narrative may sound good, but the actual antitrust laws are going to make this quite difficult to win.

To some extent, this comes down to one of the key differences between the mobile universe -- which is much more closed, limited, and controlled by gatekeepers -- and the wider, more open internet ecosystem. And, to their credit, both Apple and Google have done a lot to build the entire smartphone/tablet ecosystem with iOS and Android, though it is disappointing that over time Google has progressively moved away from its more "open" promises regarding Android. That said, being more closed and proprietary has allowed both companies (and especially Apple) to argue that their devices are a lot more secure than computers and an internet where anything goes.

Also, much of this fight ignores that in the console world, 30% is also the standard fee. It certainly looks like, pretty much across the board, devices used for gaming have decided that the entrance fee to get on a device is about 30% of any in-app purchases. As John Gruber notes, Sweeney seems to handwave around the dedicated gaming consoles argument -- suggesting that somehow the 30% makes sense there, because of the nature of those consoles. But that does seem to undermine his overall argument (and may also doom his legal argument).

I don't know what the right answer is here, and I don't find myself particularly rooting for any one of these giant companies in this fight. I wish mobile platforms were more open, but I understand why they're not. I also don't think that the activity Google and Apple engage in will trip the wire under current antitrust law. And thus, if Apple and Google do stand firm, I think Epic loses in the long run. But it can be a very long run, and it might just be worth it for Epic to try to force its view of the mobile app market onto that world.

But, of course, to some extent, everything is a negotiation. And there's a part of me that wonders if Epic isn't just hoping to use this as an "initial offer" to get Apple and Google to agree to a favorable deal to allow Fortnite back into the app stores. That, of course, would raise a bunch of other questions -- including other developers demanding similar treatment. But I could see some sort of tiered system worked out, whereby Apple and Google agree that at certain levels of revenue, the cuts they take drop. Just to get this lawsuit out of the way.

No matter how you feel though, this is going to be a big fight to watch over the coming months and years. It's almost as fascinating as Fortnite itself.

Filed Under: 30%, antitrust, app store, fortnite, marketplaces, play store, tim sweeney
Companies: apple, epic, google

It Was Nice While It Lasted: 9th Circuit Rejects Lower Court Ruling On How Abuse Of Patent Monopolies Can Violate Antitrust

from the wait,-what dept

Last year we had a detailed post about judge Lucy Koh's district court ruling that outlined exactly how Qualcomm abused its patents in an anticompetitive way to shake down the entire mobile phone industry for decades. This was in a case that was brought by the FTC and it was a stunning ruling on multiple accounts. First, it's rare for a court to recognize how patents and copyrights grant monopoly rights that can be abused in violation of antitrust rules. Second, it exposed a stunning degree of anticompetitive behavior on the part of Qualcomm.

Unfortunately, this week, the 9th Circuit overturned that ruling, though did so in a somewhat confused manner. Indeed, this ruling may significantly limit any kind of antitrust activity (at least in the 9th Circuit).

There are a lot of details, but the key element at stake was Qualcomm's "no license, no chips" rules. No company could buy Qualcomm chips, which were necessary for mobile devices, without licensing Qualcomm's entire patent portfolio. This snippet from the lower court ruling gives you the basics:

These high royalties reflected an unusual negotiating tactic called "no license, no chips." No one could buy Qualcomm's cellular chips unless they first signed a license to Qualcomm's patent portfolio. And the terms of these patent deals were heavily tilted in Qualcomm's favor.

Once a phone maker had signed its first deal with Qualcomm, Qualcomm gained even more leverage. Qualcomm had the right to unilaterally terminate a smartphone maker's chip supply once the patent licensing deal expired.

"If we are unable to source the modem, we are unable to ship the handset," said Motorola executive Todd Madderom in a deposition. "It takes many months of engineering work to design a replacement solution, if there is even a viable one on the market that supports the need."

That made Qualcomm's customers extremely vulnerable as they neared the expiration of a patent licensing deal. If a customer tried to negotiate more favorable terms—to say nothing of formally challenging Qualcomm's patent claims in court—Qualcomm could abruptly cut off the company's chip supply.

But, it got worse. The licensing terms for the patents required that you paid based on every device sold even if your devices did not include Qualcomm chips. Basically, even if you chose not to use Qualcomm's chips, you still had to pay for them. That seemed obviously anticompetitive, because if someone is already paying for Qualcomm's technology, why then pay another company as well?

However, the 9th Circuit rejects all of that as anticompetitive. Why? Because it says it wasn't anticompetitive, it was just hypercompetitive.

This case asks us to draw the line between anticompetitive behavior, which is illegal under federal antitrust law, and hypercompetitive behavior, which is not.

The ruling opens with a weird hagiography of Qualcomm. I mean, parts of it read straight out of a puff piece advertorial:

Qualcomm’s patent licensing business is very profitable, representing around two-thirds of the company’s value. But Qualcomm is no one-trick pony. The company also manufactures and sells cellular modem chips, the hardware that enables cellular devices to practice CDMA and premium LTE technologies and thereby communicate with each other across cellular networks.

A key part of the ruling is arguing that Qualcomm's "no license, no chip" plan in selling to OEM's is sensible because of the concept of patent exhaustion. If you don't recall, back in 2008, in the LG v. Quanta case, the Supreme Court made the correct call that patent rights "exhaust" upon sale. That is, if I sell my patent-protected widget to Company A, and Company B buys it and includes it in its contraptions, I can't then sue Company B. This makes sense because it's the same chip that was already legally purchased.

Yet, the 9th Circuit panel seems to conclude that this kind of ruling forced Qualcomm into its "no license, no chip" business model. Indeed, the panel seems in awe of such a business model -- jacking up prices and limiting competition by using the Supreme Court's rule as leverage to cut out a key part of the market.

Qualcomm reinforces these practices with its so-called “no license, no chips” policy, under which Qualcomm refuses to sell modem chips to OEMs that do not take licenses to practice Qualcomm’s SEPs. Otherwise, because of patent exhaustion, OEMs could decline to take licenses, arguing instead that their purchase of chips from Qualcomm extinguished Qualcomm’s patent rights with respect to any CDMA or premium LTE technologies embodied in the chips. This would not only prevent Qualcomm from obtaining the maximum value for its patents, it would result in OEMs having to pay more money (in licensing royalties) to purchase and use a competitor’s chips, which are unlicensed. Instead, Qualcomm’s practices, taken together, are “chip supplier neutral”—that is, OEMs are required to pay a per-unit licensing royalty to Qualcomm for its patent portfolios regardless of which company they choose to source their chips from.

But, what does Qualcomm "obtaining the maximum value for its patents" have to do with anything here? The only way to obtain maximum value for your patents is, by definition to be anticompetitive.

And here's where the ruling gets truly bizarre. It says that because the device manufacturers (the OEMs) don't compete with Qualcomm, then it's clearly not anticompetitive.

Although Qualcomm’s licensing and modem chip businesses have made it a major player in the broader cellular technology market, the company is not an OEM. That is, Qualcomm does not manufacture and sell cellphones and other end-use products (like smart cars) that consumers purchase and use. Thus, it does not “compete”—in the antitrust sense—against OEMs like Apple and Samsung in these product markets. Instead, these OEMs are Qualcomm’s customers.

Later it goes even further:

Thus, a substantial portion of the district court’s ruling considered alleged economic harms to OEMs—who are Qualcomm’s customers, not its competitors—resulting in higher prices to consumers. These harms, even if real, are not “anticompetitive” in the antitrust sense...

But... that gets almost everything backwards. First off, for years, antitrust experts have been saying the proper determination of whether or not something is anticompetitive is the impact on its customers. And here, it's clear that Qualcomm is using this bundling policy to jack up the prices (massively) for its customers. It seems like a quintessential example of anticompetitive behavior... and the court says no?

The ruling is worth reading in detail, as it bends over backwards to basically say that nothing that Qualcomm does violates antitrust law, it's all just good business to squeeze as much money as possible out of its patents. It even repeats again that since it doesn't see Qualcomm's actions hurting "competition itself" and merely just some competitors:

... the anticompetitive harm identified must be to competition itself, not merely to competitors.... The FTC identifies no such harm to competition.

Now, there is some reasonable logic to that line. Any kind of competition can harm competitors. If I market myself better than a competitor, that's harm to a competitor, but it's not an antitrust issue. But if that harm to the competitor is because of my monopoly power it's a different story. And here, that is absolutely the case.

Also, there are a few lines in here that, at the very least, might doom any attempts at bringing an antitrust case against companies like Amazon, Google, Apple or Facebook (at least in the 9th Circuit). For example, the court suggests that any new competitor entering the market proves there's no antitrust problem, no matter how well they did in that market, or whether or not they were hindered from obtaining market share through abuse of monopoly power:

The FTC’s conclusion that OEM-level licensing does not further competition on the merits is not only belied by MediaTek and Intel’s entries into the modem chip markets in the 2015–2016 timeframe, it also gives inadequate weight to Qualcomm’s reasonable, procompetitive justification that licensing at the OEM and chip-supplier levels simultaneously would require the company to engage in “multi-level licensing,” leading to inefficiencies and less profit. Qualcomm’s procompetitive justification is supported by at least two other companies—Nokia and Dolby—with similar SEP portfolios to Qualcomm’s.

In finally talking about the fact that Qualcomm is able to use its monopoly position to charge an anticompetitive surcharge, the panel basically says "nah..." because "patent monopolies are cool."

We hold that the district court’s “anticompetitive surcharge” theory fails to state a cogent theory of anticompetitive harm. Instead, it is premised on a misunderstanding of Federal Circuit law pertaining to the calculation of patent damages, it incorrectly conflates antitrust liability and patent law liability, and it improperly considers “anticompetitive harms to OEMs” that fall outside the relevant antitrust markets.

In short: because they have a government granted patent monopoly, it's okay for them to abuse that in anticompetitive ways, and we won't consider it anticompetitive. Or, another way of reading this: patent laws inherently create anticompetitive situations, and we're fine with it. And, tragically, that may be a correct reading of the law, as crazy as it is.

I guess this isn't that surprising. This has been the issue we've had with patents for ages -- that they are a monopoly. And that's why we were excited about the original ruling: finally recognizing that patent monopolies could be as abusive as any monopoly. But, here, the court is basically saying "abusing your patent monopoly is fine by us."

And, really, what this should mean is that we need to fix our patent laws, which are dangerous and harm competition. But... that seems unlikely.

Again, this kind of ruling almost certainly means phone prices will remain much higher than they would be in a competitive market for chips (which is why it's slightly frustrating that I've seen some supposedly "free market" supporters cheering on this ruling). But it might also mean that any antitrust fight against big tech just became significantly more difficult as well. As the court says:

Anticompetitive behavior is illegal under federal antitrust law. Hypercompetitive behavior is not.

Good luck figuring out which one is which.

Filed Under: 9th circuit, abuse, antitrust, competition, customers, devices, monopoly, patents, phones
Companies: qualcomm