Front Burner - Google on trial: U.S. takes on tech giant

Episode Date: September 12, 2023

On Tuesday, a judge in the U.S. will begin hearing arguments in what’s been called the first monopoly trial of the modern Internet era. At the heart of the case is whether Google used its search engine dominance to illegally throttle competition – an accusation Google denies, claiming “competition is just one click away.” Leah Nylen is an antitrust and investigations reporter with Bloomberg News, and today, she explains what the U.S. government is alleging, how Google is responding, and what this case could mean for the future of the Internet. Looking for a transcript of the show? They’re available here daily: https://www.cbc.ca/radio/frontburner/transcripts

In the Dragon's Den, a simple pitch can lead to a life-changing connection. Watch new episodes of Dragon's Den free on CBC Gem. Brought to you in part by National Angel Capital Organization, empowering Canada's entrepreneurs through angel investment and industry connections. This is a CBC Podcast. Hi, I'm Tamara Kendacker. Quote, do we have a clear plan on what we want Apple to do to undermine the sun? Close quotes. Did you send this email, Mr. Gates, on or about August 8th, 1997?

I don't remember sending it. 25 years ago, Bill Gates took the stand in one of the biggest monopoly cases in U.S. history. The antitrust lawsuit against Microsoft, filed by the Department of Justice, argued the software company illegally created a monopoly for its web browser, Internet Explorer. The judge sided with the government, ruling the company would have to split in two. But Gates maintained that Microsoft did nothing wrong and that tech is a beast of its own, different from other industries. Despite this ruling, we believe the courts will ultimately find that all of Microsoft's actions have been completely legal and good for consumers. We don't think this decision matches

the reality of the high technology industry, the intense competition, the rapid innovation, and lots of consumer benefits. The ruling was partially overturned, and later there was a settlement. But the case helped open up the market and paved the way for the rise of some of today's tech giants, like Apple and Google. Now, Google is the target of a lawsuit of its own, one that could be even bigger than Microsoft's. The trial starts today and is scheduled to last 10 weeks. And at the heart of the issue is whether Google has achieved its search engine dominance fair and square, or whether it's stacked the deck to block any potential competitors. Leah Nyland is an antitrust and investigations reporter with Bloomberg News.

She's here with me to talk about what the U.S. government is alleging, how Google is responding, and what this case could mean for the future of the internet and the tools we've come to depend on for, well, almost everything. Hi, Leah. Thanks for being here. Thanks for having me. Hi, Leah. Thanks for being here. Thanks for having me. So let's start by setting the stakes a bit. This has been called the federal government's first monopoly trial of the modern Internet era, the antitrust case of the century. Just how big of a deal is this case?

It's a pretty big deal. Google has been under antitrust scrutiny now for more than a decade. It has paid more than $10 billion in fines in Europe. But this is the first case that could lead to a breakup of the company. And so the company is taking it very seriously. It has a lot of its top executives and people in town to watch the trial and its own CEO is probably going to take the stand later in the case. Right. Okay. And I want to talk about some of the drama that we can expect to see during the trial. But before we get to that, just how big is Google in 2023? Yeah. So Google, as everyone probably knows, is the most commonly used search engine. The Justice Department says it controls about 90% of the

market for online search and a very similar size for search advertising. These are like the text ads that you see at the top of a search page, but also all of those like images and videos you see all across the web. The company also, you know, owns the largest video sharing platform with YouTube. It owns the most widely used mapping service with Google Maps. It owns tons of products that people use every day, like Gmail, Google Docs, and Android, which is the smartphone operating system on all Android phones. So this trial, I understand, is the culmination of separate complaints by the Justice Department and dozens of states. They've all been consolidated into a single case. And what is Google being accused of here? Yeah, so there are two cases, but they're both pretty similar. So the government alleges that Google has sought to maintain its monopoly of research by entering into contracts with lots of different people,

Apple, various people who make browsers like Mozilla, and also the people who sell or make phones like Samsung, like Verizon, like AT&T. And what happens with those contracts is they agreed to make Google the default search engine, meaning the one that you automatically use whenever you open up a browser or your phone. And in exchange, Google is giving them a cut of the advertising dollars that it makes from those searches. The Justice Department alleges that that means that Google has sort of locked up all of the entryways that Arrival could use to grow as large as Google does so that people like Microsoft's Bing and DuckDuckGo haven't been able to achieve the scale in part because they can't get the data because Google is blocking the way. So Google is essentially being accused of engaging in practices to maintain their monopoly. What do you expect the government's main arguments are going to be?

Yeah, so the government is planning to argue that Google has, you know, has a monopoly that is almost not up for debate. As I mentioned, you know, it has more than 90% of the market for online search. But they're arguing that it has taken actions in order to maintain that monopoly, which is against the law. And so they're going to point to a lot of these contracts, they're going to have the people who entered into these contracts come and testify about why they did it, the sort of money that Google has been paying to sort of maintain its status as the dominant search engine. There's probably going to be some really interesting evidence with Apple. As I mentioned before, Google and Apple have this agreement that makes Google the dominant

search engine because it is the default in Safari. Now, when this agreement was entered into in 2005, practically no one used Safari. It was only available on Macs and not that many people use Macs. But over the past 18 years, you know, a lot more people use Safari now because it's the default on the iPad. It's the default on the iPhone and a lot more people just use Macs in general. So because of that relationship, Google is now the default on so many places. And most people don't even know how to change that. So even if you had wanted to use a different search engine, most people don't know how to go through the phone to change that. Okay, so the government is going to take the position that, among other things, Google's agreements gave it an unfair advantage and allowed it to protect its monopoly.

And what is Google likely to say in its defense? Yeah, so Google argues that people use its products because they like to. They don't have to. They have this sort of catchphrase that they love to trot out, which is competition is just a click away. If you don't want to use Google, you can go up to the top of a search bar and go to Bing or go to DuckDuckGo and search from there. The other thing they argue is like, you know, they're making a lot of money from the search advertising. And so they're sharing it with all of these people, with Apple, with the smartphone manufacturers. And in turn, that helps make products cheaper because they're getting money from somewhere else. So they don't have to charge the consumers who are buying the end product like the final.

Right. So in terms of precedent, judges have generally ruled against companies and antitrust cases only when they're hurting consumers. And that, from what I understand, usually has to do with companies being able to charge whatever they want because they have a monopoly. But in Google's case, their product is free. So what's the government's legal team going to have to show to win this case? Yeah, that's a really good point. That's part of the reason why this case hasn't been brought before now, because under the law, a lot of the time, the way that they would show harm is showing that the prices would increase, but Google's product is free. So what the government is going to argue is that you may not have been paying with your money, but Google's product is free. So what the government is going to argue is that you

may not have been paying with your money, but you've been paying with your data. So Google sort of scrapes up a lot of information about you when you're using its search engine, you know, like where you are, and the sort of things that you're looking at. And that helps it sell more advertising. That's why it's the fourth largest company in the world. And so the government plans to argue that Google's monopoly has degraded the privacy options for people online, and that it has also impacted innovation. One of the really interesting things they said a little bit earlier in the case is, you know, we now have these really interesting things like chat GPT and chatbots that can answer questions that you type in. You know, maybe if Google had kept improving its product instead of sort of resting on the

laurels of its like great search engine, we might have seen innovations like chat GPT and those forms of search several years ago instead of just emerging now. So am I right to say that for the government, this isn't necessarily a slam dunk case? No, I mean, any trust cases in and of themselves are pretty hard. The law is old. You know, it was created in the 1800s. And over time, courts have made it more and more difficult to win, which is why these cases are pretty rare. So we mentioned the Microsoft antitrust case in the introduction. And I wonder if you see any ripple effects or impacts from that case now, 25 years later. Yeah. A lot of people compare this to the

Microsoft case from 25 years ago. In the Microsoft case, the company was accused of pre-installing its browser, Internet Explorer, on computers. And it was a massive success. In just over a year, Microsoft gained 10% market share. This, of course, sent other companies' revenues plummeting. And then creating technical barriers so that other people, like consumers or other computer makers, couldn't really install its rival, which was Netscape Navigator, on the computer. The Netscape Navigator, software which makes it easy for people to connect the global computer network called the Internet. And Google says that this case is different. You know, it does have some barriers

to the other companies in the form of these contracts, but they're not technical barriers. You know, you can still click and go to the other one. Another thing about the Microsoft case that people say is really interesting. If you think about it, you know, 25 years ago this month is when Google started as a company. And 25 years ago, next month is when the Microsoft case started in federal court. And a lot of people sort of tie those two events together. You know, the fact that the government was investigating Microsoft and then brought this trial sort of opened the door to lots of new innovations in the form of Google and Amazon and all of these other great things that we have on the internet today. There have been previous cases that the Justice Department brought against monopolies,

for example, the AT&T monopoly back in the day that led to the breakup of Ma Bell. And when that happened is when we started getting more interesting things in cellular technology, like the introduction of voicemail and the introduction of cell phones. So there's a lot of people who believe that maybe, you know, with this case, the government is really trying to open up the technological innovation for the next generation of the internet. I'll see you next time. entrepreneurs through angel investment and industry connections. household income. That's not a typo, 50%. That's because money is confusing. In my new book and podcast, Money for Couples, I help you and your partner create a financial vision together. To listen to this podcast, just search for Money for Couples. This case is just getting underway,

but there's already been quite a bit of maneuvering on both sides. The Justice Department's head of antitrust, Jonathan Kanter, has been recused from the case after Google accused him of bias because of his previous work for Microsoft. On the other side, the government has accused Google of destroying employees' instant messages. What was that all about? Yeah, so Jonathan Kanter, who is the head of antitrust for the Justice Department, was a longtime Google critic. He represented a lot of companies that have complained about Google over the years, namely Microsoft, Yelp and News Corp, which is the parent company of The Wall Street Journal. So Google argued when he was appointed that he had a bias against the company and shouldn't be allowed to sort of oversee the case. And so the Justice Department took him off for a while.

And the case has been being overseen by his deputies. Google, however, on the other side, the Justice Department alleges that Google has been destroying chats. So if you use Gmail, you may be familiar with this. But inside the company, they have their own G chat system. And so they often instructed employees that if they were having sensitive conversations, they should do it over this chat. And these chats would be automatically deleted after 24 hours. So the Justice Department alleges that, you know, if Google hadn't been deleting all these chats, we might have more

evidence of the anti-competitive conduct that they're alleging in this case. What does Google say in response to that? Or how do they explain why they allowed these messages to be deleted? They had instructed people to turn the archiving system on. So if they were doing anything that related to this case, they would have an archive of those chats. They don't necessarily dispute that some of them may have been deleted. They just say that it doesn't matter all that much. But the judge has agreed to allow evidence of this into the trial. And there is going to be some discussion about this and

what sorts of chats may have existed and no longer do because they were deleted. Based on what's already happened before the trial, it seems like the trial itself could also end up being pretty dramatic. There have already been 150 people deposed. And I understand some big name executives from other tech companies are expected to be called in as witnesses. Three Apple executives tried and failed to get out of testifying. Whose testimony are you looking forward to hearing? Yeah. So the Apple executive who I'm most looking forward to hearing from is

Eddie Q. He is Apple's dealmaker. He is a person who is in charge of making contracts with other companies. So back when Apple was creating the iPad, he created all of the contracts between Apple's and the publishers. And back then, the Justice Department sued, alleging that he was actually engaging in price fixing. So this is sort of going to be a second time that he's on stage defending the integrity of his contracts. Sundar Pichai, the Google CEO, is expected to testify. And that will be interesting because he's a longtime person at Google. And he has been involved in a lot of the decisions over time about how Google monetizes things. And then there should be some interesting people from a couple of the other companies, DuckDuckGo's executive, Gabe Weinberg, expected to testify,

and the executives from another search engine that was created by some Google alums. And it went out of business earlier this year because they just found that they couldn't keep making a consumer facing search engine work when it was subscription. Okay. So what would happen if the judge ruled against Google and found that it broke the law? Yeah. So this part of the trial is just focused on Google's alleged liability. So whether or not it broke the law, if the judge finds that Google did break the law, there's going to be an entire second proceeding on the remedy. So how to resolve the fact that Google has harmed competition. So that proceeding, the Justice Department hasn't yet said what it plans to ask for. But there are a couple

possibilities floating out there. One is that it could ask for a breakup. So that would mean they would force Google to sell off certain parts of its business. So they could ask that it be forced to sell, for example, Chrome, the browser, they could ask for them to be required to sell off Android, the smartphone operating system. Or they could seek some kind of other type of remedy, similar to what happened in the Microsoft case. So in the Microsoft case, there was oversight of the company for the next 10 years, and they were required to make certain changes to their system to ensure that other companies could essentially make products for PCs that worked with Windows. PCs that worked with Windows. So one possibility that people have mentioned is sort of requiring Google to share some of the data that it has gotten from having this position on as the default in so many places. The Justice Department had a filing on Friday that said that Google gets 16 times the amount of data every day that Bing does just because it's so much larger. And the fact

that it has all of that data is what has allowed it to improve its product and be really good. If it was forced to share some of the underlying data, other search engines could really improve their results and become greater competitors. Yeah, maybe talk a little bit more about that. What could these proceedings mean for other tech companies? Yeah, there are very obvious things that it can mean for Google's immediate competitors, like Microsoft Bing or DuckDuckGo or some of the newer search engines that have entered just in the past couple of years.

There's one called like u.com. If Google was forced to share the data there, they could really like grow and expand. And there could suddenly be a lot more places for you to search online. Like maybe if you're looking for specific information, like historical research or something, you would go to one search engine. Whereas if you're looking for fashion or modern things, you'd go to a different, like we might all of a sudden have lots of different opportunities for search. The other thing that it could impact is, Google pays billions of dollars to a lot of these companies for its default position.

No one knows exactly how much Google pays Apple, but there are estimates that it could be as much as $20 billion a year. So if Google is no longer allowed to pay Apple that $20 billion, that could significantly impact Apple's bottom line. So here in Canada, the government has introduced legislation that requires tech giants to pay

news organizations for their news content. And in response, Meta has already started blocking news for Canadian users. And Google has said that it's going to do the same thing, although they haven't started doing that yet. And this is just one example of where we're seeing tech giants really flex their power. How could breaking up Google avert that kind of thing? So the Justice Department and some other people who are supporters of this case argue that the only reason that companies like Meta and Google are able to do that is because they are so dominant. They have so much power that a decision by them really impacts like millions or billions of people. And so if we were to create more

competition in these areas, if there were multiple search engines, if there were multiple social networks, even if one of them decided that they were going to cut off news, you could just go to the others and get the same thing. So that's sort of the underlying idea behind a lot of these antitrust cases against the tech giants is we need to introduce much more competition into these markets so that if one of them makes a decision that you don't like, you have the option to go somewhere else. Right. And what are some of the big criticisms of big tech that you think wouldn't be addressed by Google losing this antitrust case? Yeah. So there's been a lot of criticism about content moderation

by Google. You know, what links you see, what videos they take down on YouTube, that sort of thing. This case probably isn't going to have very much impact on that. YouTube is probably actually not going to come up that much because this mostly focuses on search and advertising, though YouTube ads may come up a little bit. So that's more of the idea that, you know, if there are more options, they won't have as much control. But the actual underlying stuff about content moderation probably won't come up very much here. And is this case the only avenue right now for taming big tech's power or other other trials coming up that you're watching?

So this is one of five cases that are pending against Google that have been brought by either state attorneys general or the Justice Department. There's another pending case against Facebook that seeks to break it up and enforce it to sell off WhatsApp and Instagram. And the antitrust agencies here in the U.S. also have pending investigations into Amazon.com and Apple. So this is just one of a number of cases that are pending, and the outcome could have an impact on some of those ones in the pipeline. All right, Leah, thank you so much for doing this. I appreciate it.

Yeah, thank you so much for doing this. I appreciate it. Yeah, thank you so much. All right, that's all for today. I'm Tamara Kandaker. Thank you so much for listening, and I will talk to you tomorrow. For more CBC Podcasts, go to cbc.ca slash podcasts.