In recent weeks, there have been several transformative developments that not only will profoundly impact antitrust and competition law but also shape the ability of so-called “Big Tech” to continue to dominate their particular spaces.
For some analysts, the number of antitrust lawsuits filed against Big Tech harkens back to the robber barons of the Gilded Age, in which lawsuits targeted industrialists like John D. Rockefeller, Andrew Carnegie, J.P. Morgan and Henry Ford for their willingness to employ any ethically questionable method possible to eliminate competition and develop a monopoly in their industry. These anticompetitive strategies mostly impacted employees, who were often the victims of long hours, unsafe working conditions and poor pay. In return, the robber barons gained a degree of wealth that even surpasses the affluence amassed by today’s tech billionaires. This, in part, led to the adoption of the Sherman Antitrust Act.
Like the trust-busting cases of the past, recent investigations have focused on whether antitrust can help solve the paradox of market dominance and elucidate the role of antitrust enforcers to create a more equal playing field. Given the tech industry focus of recent antitrust enforcement actions, and those anticipated, in many ways it feels like a new era of tech-focused trust busting. We provide a short overview of those developments below.
USA v. Google
Perhaps the most reported on development is the recent ruling that Google is a monopolist in search. D.C. District Court Judge Amit P. Mehta’s opinion stands out for its clarity and approachability. It’s almost as if he wrote the opinion for a broader audience including entrepreneurs and industry professionals:
The general search engine has revolutionized how we live. Information that once took hours or days to acquire can now be found in an instant on the internet with the help of a general search engine. General search engines use powerful algorithms to create what seems like magic. Enter a search query, and the general search engine will retrieve, rank, and display the websites that provide the exact information the user seeks at that very moment. And it all happens in the blink of an eye …. For more than 15 years, one general search engine has stood above the rest: Google. (Opinion, 1).
Judge Mehta’s opinion starts with the origins of search and then proceeds to describe the paradox of Google’s dominance. In particular, the crux of the government’s case is Google’s distribution agreements. These agreements require certain technology manufacturers, web browsers and wireless providers to preload Google search on their platforms. In return, they are rewarded handsomely with a “revenue share.” In the case of Apple, the court cites evidence that in 2022 alone, Google paid Apple $20 billion in connection with its revenue share.
From the evidence, the court finds that Google has foreclosed competition in search, writing:
After having carefully considered and weighed the witness testimony and evidence, the court reaches the following conclusion: Google is a monopolist, and it has acted as one to maintain its monopoly. It has violated Section 2 of the Sherman Act. Specifically, the court holds that (1) there are relevant product markets for general search services and general search text ads; (2) Google has monopoly power in those markets; (3) Google’s distribution agreements are exclusive and have anticompetitive effects; and (4) Google has not offered valid procompetitive justifications for those agreements. Importantly, the court also finds that Google has exercised its monopoly power by charging supra-competitive prices for general search text ads. That conduct has allowed Google to earn monopoly profits. (Opinion, 4).
There are number of key takeaways from this relatively straightforward monopolist case.
- Companies and their general counsel should reconsider any exclusivity term or provision in its general service contracts with its vendors and affiliates. In particular, the Google case reiterated prior case law holding that while exclusive provisions are not a per se violation of the antitrust rules, if the exclusive term forecloses competition and harms consumers, it can be the basis for antitrust liability. In comparison, if an exclusive provision solves a collective action problem, where a product or service may not come to market but for an initial period of exclusivity, thereby benefiting consumers by meeting an unmet product or service need, it may not be an antitrust violation. Here, the court found that even if Google develops and offers a superior search engine product to its competitors, and even if Google allows consumers to download alternative search engines, this alone does not outweigh the negative benefit the exclusivity provision entails.
- Companies and their general counsels should also carefully consider the implications of a revenue-sharing agreement and determine whether such an arrangement could draw attention or allegations of unfair competition. In the case of Google, while the court did not impose liability on the third parties like Apple, Mozilla, cell service carriers, etc., who had revenue-sharing agreements with Google, it did not foreclose the possibility that antitrust enforcers or private litigants could make such claims in the future. In particular, the government based its case against Google as a Section 2 monopolist case, but the allegations could have—in theory—supported a Section 1 claim for a conspiracy to restrain trade.
- Lastly, companies and their general counsel should carefully take a holistic view of their impact on competition and their ability to foreclose other market participants. In a series of technical arguments, Google challenged the foreclosure argument resting on the fact that consumers are free to go around the default search and download other search engines. Google argued that the court should consider the “but-for” impact of Google’s various agreements and from that conclude that even without those agreements, rival search engines could not compete because they offer inferior products. The court disagreed, taking a larger view of Google’s impact on the market, and finding that the government proved Google’s exclusive distribution agreements foreclosed 50% of the general search services market by query volume. (Opinion, 223). In other words, it is not that the government, or in theory competitors, would have to prove that they could have competed but for Google’s exclusionary agreements, rather, they needed to establish that those agreements played a part in their inability to compete.
On a final point, we note that although Google argued there were procompetitive benefits to its dominance in search—including a superior product to consumers and compensation that is passed on to third parties like Apple, which ultimately results in lower consumer product costs—the court found that evidence insufficient to flip the burden of proof.
X Complaint
In perhaps the inverse of the Google case, on Aug. 6, 2024, the X Corp. (formerly known as “Twitter”) brought its own antitrust complaint against an initiative of the World Federation of Advertisers called the Global Alliance for Responsible Media (“GARM”) and certain defendant marketers, including Mars and CVS Health, for boycotting advertising on X. See X, Corp.v. World Federation of Advertisers, Case No. 24-cv-00114-O (N. D. Tex. Aug. 6, 2024). X’s theory is primarily based on an allegation that GARM’s “brand safety” standards are designed to specifically exclude X in violation of antitrust laws. In many regards, this case is a flex of X’s power and in the end only reinforces its dominance.
By forcing digital media and social media platforms to adopt and adhere to the Brand Safety Standards, X alleges GARM goes much further than setting “voluntary standards.” (Complaint, 16). In part, X alleges that the co-conspirators communicated the basis for a boycott of X’s platform through a WFA-GARM Benchmark Survey, which collected information from its members about how many would be willing to boycott X. (Id. at 32). X alleges that the defendants then systematically entered into a conspiracy to deprive X of critical advertising revenue on the basis of sham “brand safety” standards, in turn violating the Sherman Act Section 1.
The key factual question in the X litigation will therefore be whether GARM’s standards were a pretext to exclude X or if there was a legitimate concern that X was creating a platform that was unsafe for advertisers. There is a long history of antitrust enforcement actions brought against associations for adopting standards as a pretext to exclude competitors. The key case is perhaps Allied Tube & Conduit Corp. v. Indian Head, Inc., 486 U.S. 492 (1988), in which a steel conduit manufacturer successfully persuaded the National Fire Protection Association to ban plastic conduit as a way to harm its competitors.
Since this case is early in the proceedings, it was somewhat surprising to learn that GARM had already admitted defeat, notifying the public that it would be dissolving. This does not necessarily mean the end to the litigation, as the defendants are jointly and severally liable. We will continue to closely follow this case.
RealPage, Inc.
On July 12, 2024, Politico reported that the U.S. Department of Justice (DOJ) is finalizing a complaint against RealPage, Inc. (“RealPage”) alleging its rent-monitoring software has been used to fix prices among apartment leasing companies. RealPage is no stranger to this theory of potential liability as it has been embroiled in several years of antitrust litigation in a multidistrict proceeding in the Middle District of Tennessee.
The most notable aspect of the potential DOJ case will be whether it alleges a per se or rule of reason case against RealPage and whether it names other codefendants in the lawsuit or instead bases its theory on unnamed co-conspirators. Indeed, in the Tennessee multidistrict litigation, the DOJ filed a Statement of Interest in which it argued that RealPage’s conduct was “per se unlawful price fixing.” And while the court in that consolidated litigation did not find the per se standard appropriate, its determination was based on the plaintiffs’ allegations. In any potential litigation from the DOJ, the DOJ would have the opportunity to allege the facts it believes supports the application of the standard. Again, we will continue to closely monitor this case and will report on any updates.
The DOJ’s theory will regardless continue to be transferable to other industries that rely on data aggregators or algorithms to make pricing recommendations for services or wages. Indeed, we have written previously about the risk faced by industries that have used algorithms or other data aggregators to provide pricing or service recommendations. In the age of so-called “surveillance software” and artificial intelligence technology, there are dozens of service providers in each industry that now provide pricing recommendations and services using complex inputs and outputs that blur the straightforward lines of a hub-and-spoke conspiracy. In many ways, these service providers would argue they serve a procompetitive function for consumers by driving down prices and allowing consumers better pricing transparency. Whether the DOJ and other antitrust enforcers agree will remain to be seen.
This document is intended to provide you with general information regarding antitrust litigation involving the tech industry. The contents of this document are not intended to provide specific legal advice. If you have any questions about the contents of this document or if you need legal advice as to an issue, please contact the attorneys listed or your regular Brownstein Hyatt Farber Schreck, LLP attorney. This communication may be considered advertising in some jurisdictions. The information in this article is accurate as of the publication date. Because the law in this area is changing rapidly, and insights are not automatically updated, continued accuracy cannot be guaranteed.