How Microsoft’s Legal Legacy Shapes the Antitrust Case Against Google
Antitrust trials are full of long stretches of detailed, often tedious testimony punctuated by telling moments. In the two-month Google antitrust trial that is nearing its conclusion, one of those moments came in a brief exchange in October.
While cross-examining a witness for the Justice Department, John Schmidtlein, Google’s lead trial lawyer, tried to describe how this suit differed from the landmark antitrust case brought against Microsoft in the 1990s. The barriers to competition in search today, Mr. Schmidtlein said, are less daunting than Microsoft’s stranglehold on personal computer software.
The judge cut him off. “Let’s move on,” said Judge Amit P. Mehta, who wrote in an opinion earlier in the year that he would use the Microsoft case as a guiding framework. “I think I can figure out what the Microsoft case was about.”
The antitrust fight against Microsoft in the 1990s has loomed over the government’s showdown with Google. The Justice Department and a group of states say the search giant is running the Microsoft monopoly playbook, just in a different tech market, while Google argues that it is hardly as powerful as Microsoft was back in the day.
The Microsoft antitrust case is also the lone example of the government’s embarking on — and winning — a sweeping suit against a tech giant for illegally protecting its monopoly. Microsoft combined old-style practices, like bullying industry partners to stifle competition, with newer ideas in economics.
One of those new ideas included the dynamics of digital markets, which reinforce the power of a dominant company. In tech markets, there can be a powerful “network effect” as a product or service becomes more valuable as more people use it, attracting still more users and investment. Once on a digital platform, users tend not to switch. These concepts of digital platform economics are crucial to the Google case.
While the eventual ruling by Judge Mehta, who was appointed by President Barack Obama, will hinge largely on his assessment of the facts and evidence presented in the trial, his decision must also be built on the precedents established by previous cases.
“Microsoft is his legal road map,” said Andrew I. Gavel, an antitrust expert and law professor at Howard University.
Testimony in the trial, which began in September, is expected to end by Thanksgiving. A ruling by the judge — a bench trial, without a jury — will come next year.
The government’s argument focuses on the power of data and the notion that the search business is an accelerating flywheel, which becomes an insurmountable barrier to rivals. More users generate more data to train Google’s search algorithms, improving the quality of its search, attracting more users and advertisers.
Data does matter, Google’s lawyers have said, but it has diminishing returns. Microsoft’s Bing, for example, has plenty of data, but Google is the runaway leader in search, it says, because of its greater investment in smart people to create better software. Its defense has largely been a parade of company engineers and executives testifying to the time, work and money that go into improving its search engine.
In another echo of the Microsoft antitrust fight, contracts that Google signed with other tech companies to protect its business have emerged as a key part of the trial. In both cases, the government said the contracts were illegal.
Microsoft’s contracts were deals with personal computer makers and internet services to not offer browsing software from Netscape, the early leader. Microsoft feared that the browser — a layer of software on top of Microsoft’s operating system — could undermine the powerful hold its Windows software had on the tech industry.
The Microsoft contracts were take-it-or-leave-it deals. PC makers worried that Microsoft might refuse to give them access to its Windows desktop software or charge them more for it. Windows dominated the PC market and served as the gateway to the internet before smartphones.
Google’s contracts are different. They involve big payments to Apple, Samsung, Mozilla and others to make Google the featured search engine on their devices and browsers. Google paid $26.3 billion for such pay-for-default deals in 2021, the company disclosed in testimony. The government argues that Google paid so much to illegally exclude competitors and potential rivals, effectively buying much of the search market and hoarding still more data.
“So Google did it with carrots instead of sticks,” said Harry First, an antitrust expert at the New York University School of Law. At one point in the trial, Judge Mehta called the default payment deals the “heart of the case.”
Google argues that it competes fairly for the default deals, that its payments to device makers can lower costs to consumers, that it makes it easy for users to switch search engines — and that its grip on the market pales in comparison with Microsoft’s chokehold in the PC era.
Antitrust experts add that Microsoft’s campaign was mainly intended to stifle a potential rival, and that it had little pro-competitive justification for its acts.
“The conduct was harsher in Microsoft; it’s more subtle with Google,” said Herbert Hovenkamp, a professor at the University of Pennsylvania’s Carey Law School.
If the government and states prevail in the Google case, the question becomes: What will Judge Mehta determine is the appropriate remedy?
The remedy phase comes after a judge decides there has been a violation, and then determines what action should be taken to try to restore competition. That could involve another round of court hearings, with testimony from both sides.
Banning the pay-for-default deals would be an obvious step, and that would mirror the outcome in the Microsoft case. In the end, Microsoft was prohibited from making exclusive deals that thwarted competition and was ordered to disclose more technical information to potential rivals.
There are already calls for stronger sanctions to encourage competition this time. Tim Wu, a professor of law at Columbia University and former technology policy official in the Biden administration, calls for ordering Google to spin off its Chrome browser, a major distribution channel for its search engine, in addition to outlawing Google’s payment deals.
Yet Judge Mehta would necessarily be guided by legal precedent — and by Microsoft most of all.
“The government has crafted this case to look as much like Microsoft as they could,” said Mr. First of New York University. “To push the boundary in the remedy phase would be a real challenge.”
