Situation
This case study profiles the internet search engine Google, LLC. Headquartered in Mountain View, California, Google owns the largest market share of search engines on the internet. According to investigators at the U.S. Department of Justice (DOJ), Google reached this status using illegal and anti-competitive methods.
The U.S. Department of Justice and 11 states’ attorney generals sued Google for violations of the Sherman Act. Specifically, prosecutors allege Google intentionally created a monopoly in the internet search engine industry. Prosecutors allege Google used anti-competitive business practices to frustrate other search engines from being used. Google also allegedly forged ties with cell phone manufacturers to use its search engine exclusively. While Google denies the allegations, we see the strength of the government’s evidence in this case study.
All the information in this case study comes from the DOJ press release, one DOJ complaint against Google, and two news articles.
State of the Industry
Journalists and educators have compared the current state of the internet to an ever-growing library with billions of books. However, no central filing system exists. When users enter their search terms into a search engine, web crawlers discover publicly available web pages with relevant results. The United States government believes the leaders at Google created a monopoly using anti-competitive business practices to skyrocket their business to become the leading search engine. According to Oxford Dictionary, Google and internet searching are synonymous. Oxford University recently included the name of the company as a verb in its online dictionary.
Background and Analysis
According to the DOJ, Google violated the antitrust laws outlined in the Sherman Act. Congress passed the Sherman Act in 1890. Generally, the Sherman Act outlaws every restraint on trade in the United States, including maintaining monopolies using anti-competitive business practices. The federal government uses laws like those in the Sherman Act to break up and prevent monopolies. The DOJ filed a civil lawsuit against Google in federal court in October 2020.
A Monopoly exists when a company and its products have near-total or total control of a particular industry. Monopolies restrict trade for goods and services, causing price increases by reducing competition. The U.S. government believes market conditions should dictate prices of goods and services and not companies with monopolistic ideals.
Federal prosecutors believe Google used anti-competitive business practices to create a search engine monopoly. Prosecutors specifically allege Google broke the law by secretly teaming with other technology companies, like Facebook and Apple, to deny competitors equal search engine space on the internet. These arrangements amounted to anti-competitive business practices. The government contends Google obtained its monopoly over internet search engines when it:
- Entered into exclusive agreements to forbid pre-installation of competing search engines on electronic devices having access to the internet;
- Entered into long-term agreements with Apple that required Google as the exclusive internet search engine on Apple’s Safari web browser; and
- Using profits from its anti-competitive and monopolistic behaviors to purchase additional preferential treatment from other technology companies.
Google created this situation to drive internet users to its search engine, which used advertising as its primary revenue source. By controlling the search engine marketplace, Google illegally increased its’ revenues. Google’s advertising clients increased their visibility and purchased more advertising from Google. Prosecutors believe Google used these crimes to create a continuous cycle of monopolized power.
Anti-competitive business practices illegally restrain competition in an industry. Anti-competitive business practices reduce competition within the markets, so monopolies can generate extraordinary profits and deter competition.
The DOJ also believes Google entered several illegal Tying Arrangements. A Tying Arrangement occurs when someone agrees to buy one product, and the seller requires the purchase of another unrelated product. Google allegedly entered tying arrangements to force the installation of its search engine on mobile devices. Google also required cell phone manufacturers to make its search engine undeletable, despite consumer preference. The Sherman Act prohibits tying arrangements specifically because they are an anti-competitive business practice that restrains free trade.
According to federal prosecutors, the harmful effects created by Google’s anti-competitive and monopolistic practices had a trickle-down effect on smaller competitors. Prosecutors indicated Google repressed search engines like Yahoo!, Bing, and DuckDuckGo. According to the Complaint against Google, these other search engines suffered financially at the hands of Google. These repressive behaviors restricted trade, creating Google’s illegal monopoly, and illegally increased Google’s profits.
Google denied the allegations in the Complaint. Prosecutors will eventually have an opportunity to interrogate executives at Google about these allegations. Unless Google pleads guilty, the case will go to trial. If a court finds Google violated the Sherman Act, damages awarded could exceed hundreds of millions of dollars. Criminal penalties for violations of the Sherman Act are $100 million for corporations and $1 million for individuals.
Alternatively, Google can plead guilty and mitigate any unnecessary exposure to the total penalties it currently faces. Google and prosecutors could agree to a Deferred Prosecution Agreement where Google pays fines and agrees to a prohibition on the types of conduct discussed in the Complaint against it.
Recommendations
Even the largest companies in the world are subject to regulation, investigation, and prosecution. We recommend companies use legal methods to compete in their industry. Illegally restricting trade through anti-competitive business practices will lead to federal investigations. Businesses that train their employees to follow proper, legal marketing and sales tactics have fewer run-ins with the law. Creating a written internal compliance program is one way to accomplish this. Company leadership should also instill ethical business practices by creating a business that emphasizes compliance with the law. Furthermore, management should exhibit law-abiding behavior to reinforce the compliance program.
In addition to a written compliance program, companies should strive to train their employees in compliance with the law. Even if a company has the best compliance program ever written, it is useless if the employees never see it. Companies should place proper employee training on compliance with the law at the top of their priorities list.
Sources
- https://www.justice.gov/opa/pr/justice-department-sues-monopolist-google-violating-antitrust-laws
- https://www.justice.gov/opa/press-release/file/1328941/download
- https://www.cnbc.com/2020/10/20/doj-antitrust-lawsuit-against-google.html
- https://www.washingtonpost.com/business/2020/12/18/google-facebook-antitrust-lawsuit/