How Microsoft’s legal legacy shapes the antitrust case against Google

Antitrust trials are full of long stretches of detailed, often boring testimony, punctuated by telling moments. In the two-month antitrust trial against Google that is nearing its end, one of those moments occurred during a brief conversation in October.

While questioning a witness for the Justice Department, John Schmidtlein, Google’s lead attorney, attempted to describe how this lawsuit differed from the landmark antitrust case filed against Microsoft in the 1990s. Today’s barriers to competition in search, Mr. Schmidtlein said, are less intimidating than Microsoft’s stranglehold on personal computer software.

The judge interrupted him. “Let’s move forward,” said Judge Amit P. Mehta, who wrote in an opinion earlier this year that he would use the Microsoft case as a guide. “I think I can figure out what the Microsoft case was about.”

The antitrust battle against Microsoft in the 1990s loomed large because of the confrontation between the government and Google. The Justice Department and a group of states say the search giant is running the Microsoft monopoly playbook, just in a different technology market, while Google claims it is hardly as powerful as Microsoft was at the time.

Microsoft’s antitrust case is also the only example of the government bringing (and winning) a sweeping lawsuit against a tech giant for illegally protecting its monopoly. Microsoft combined old-fashioned practices, such as bullying industry partners to stifle competition, with newer economic ideas.

One of those new ideas concerned the dynamics of digital markets, which strengthen the power of a dominant company. In technology markets, a powerful “network effect” can occur as a product or service becomes more valuable the more people use it, attracting even more users and investment. Once on a digital platform, users are inclined not to switch. These concepts of digital platform economics are crucial to the Google case.

While the final ruling of Judge Mehta, appointed by President Barack Obama, will depend largely on his assessment of the facts and evidence presented at trial, his decision must also be built on the precedents set in previous cases were created.

“Microsoft is his legal roadmap,” 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 judge’s ruling – a trial without a jury – will follow next year.

The government’s argument centers on the power of data and the idea that the search industry is an accelerating flywheel, becoming an insurmountable barrier to rivals. More users generate more data to train Google’s search algorithms, improving search quality and attracting more users and advertisers.

Data does matter, Google’s lawyers say, but revenues are declining. Microsoft’s Bing, for example, has plenty of data, but Google is the runaway leader in search, the company says, because of its greater investments in smart people to make better software. The defense largely consisted of a parade of corporate engineers and executives testifying to the time, work and money put into improving the search engine.

In another echo of Microsoft’s antitrust battle, contracts Google signed with other tech companies to protect its operations have emerged as a key part of the lawsuit. In both cases, the government said the contracts were illegal.

Microsoft’s contracts were agreements with manufacturers of personal computers and Internet services not to offer browser software from Netscape, the early leader. Microsoft feared that the browser – a software layer on top of Microsoft’s operating system – could undermine the powerful influence its Windows software had on the technology industry.

The Microsoft contracts were take-it-or-leave-it deals. PC manufacturers feared that Microsoft would refuse to give them access to 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. This involves large payments to Apple, Samsung, Mozilla and others to make Google the recommended search engine on their devices and browsers. Google paid $26.3 billion for such pay-for-default deals in 2021, the company announced in a testimony. The government argues that Google paid so much to illegally exclude competitors and potential rivals, essentially buying up a large share of the search market and hoarding even more data.

“So Google did it with carrots instead of sticks,” said Harry First, an antitrust expert at New York University School of Law. At one point in the trial, Judge Mehta called the default payment agreements the “heart of the matter.”

Google argues that it competes fairly for standard deals, that its payments to device makers can lower costs for consumers, that it makes it easy for users to switch search engines – and that its grip on the market pales in comparison to Microsoft’s stranglehold on the market. PC era.

Antitrust experts add that Microsoft’s campaign was primarily intended to suppress a potential rival, and there was little pro-competitive justification for its actions.

“The behavior was harsher at Microsoft; at Google it’s more subtle,” says Herbert Hovenkamp, ​​a professor at the University of Pennsylvania Carey Law School.

If the government and states prevail in the Google case, the question becomes: what will Judge Mehta determine as the appropriate remedy?

The remediation phase comes after a judge has decided that a violation has occurred, and then determines what action should be taken to try to restore competition. That could mean a new round of court hearings, with testimony from both sides.

Banning pay-for-default deals would be an obvious step, and that would mirror the outcome in the Microsoft case. Ultimately, Microsoft was banned from making exclusive deals that worked against competition and ordered to reveal more technical information to potential rivals.

This time there are already calls for stricter sanctions to encourage competition. Tim Wu, a law professor at Columbia University and a former technology policy official in the Biden administration, is calling for Google to be ordered to spin off its Chrome browser, a key distribution channel for its search engine, in addition to banning Google’s payment deals.

Still, Judge Mehta would necessarily be guided by legal precedent – ​​and especially by Microsoft.

“The government has designed this case to be as similar to Microsoft as possible,” said Mr. First of New York University. “It would be a real challenge to push the boundaries in the remedy phase.”