(Ed. Note: The “Innovation Fact of the Week” appears as a regular feature in each edition of ITIF’s weekly email newsletter. Sign up today.)
Two weeks before the presidential elections, U.S. Attorney General William Barr, together with 11 Republican state attorneys general, filed a sweeping antitrust suit against Google, which it dubiously cast as a monopolistic “the gatekeeper of the Internet” in what appeared to be a case of envy and resentment rather than legal merit.
It was telling that President Trump publicly complained for months that the European Commission fined Google three times for a total of nearly $10 billion. Trump’s complaints appeared to have been not so much about the fines themselves as about the fact that they were owed to Europe instead of to the United States. As if to balance the scales, the Trump administration’s Justice Department lodged a complaint against Google based on the very same facts that had already been decided by the European Commission and are currently under appeal before the Court of Justice of the European Union.
The election backdrop was also telling. In a political weaponization of antitrust laws, the administration and its state AG allies decided to go to battle against Google over an issue the president thought was an obstacle to his re-election: the alleged collusion between big tech companies and the Democrats against himself. As unfounded as these accusations were, they nevertheless served as the foundation upon which the lawsuit was filed. The document was rife with unsubstantiated slogans and ungrounded claims, and this populist rhetorical demagoguery weakened any sort of legal and economic soundness associated with the suit.
Even viewed without all this context, the complaint was riddled with impreciseness, gaps, and misunderstandings about the business models involved—shortcomings that also suffuse a recent 450-page report issued by the House Judiciary Subcommittee on Antitrust, which adopted many of the strident antitrust ideas of Sens. Elizabeth Warren (D-MA) and Bernie Sanders (I-VT). The common theme in all of it is wariness of the “big” part of “big tech,” even though natural economies of scale and network effects lead to big firms and broad benefits for consumers, not harms. But beyond the shakiness of the legal and economic arguments, this lawsuit was significant because it will represent at least three hollow victories should the government eventually prevail.
First, it would constitute a loss for both Apple and Google—and more broadly, for the market principles that frame their contractual relationships. The lawsuit discusses at length the billions of dollars Apple paid to use Google as the default search engine in its Safari web browser. The suit portrays Apple, a company with its hundreds of billions of dollars in market capitalization, as having been “forced” to accept these transactions. The legal reality is quite different: Antitrust law recognizes the notion of a buyer’s power, and in the present case it will be easy for Google to demonstrate that Apple’s position of power in the smartphone market gives it plenty of opportunity to develop its own alternative search engine. But despite having the necessary resources, Apple has chosen to take the less costly option of using Google’s service and receiving a share of the search advertising revenue. Offering customers a way to make money instead of spending capital to develop an alternative would appear to be a far cry from monopolizing one’s market power.
Furthermore, it is questionable that Apple, historically holding dear consumers’ privacy, discarded the only American search engine that differentiates itself on that score—namely, DuckDuckGo—in favor of Google, which has publicly explained its business model as being grounded in providing free services in exchange for advertising revenues that are based on using personal data to target ads. Why has Apple chosen such a strategy to rely on Google? According to Apple CEO Tim Cook, Google is the best search engine on the market. Consequently, fining Google is tantamount to favoring Apple with an artificial push from a regulator that would be intervening in a highly competitive and innovative market.
Also, fining Google and its business model of licensing the Android operating system, which comes free of charge subject to advertising revenues, is tantamount to hampering consumers’ purchasing power while favoring a business model based on a closed digital ecosystem. This discretionary choice not only lessens competition among business models, but also harms consumers without any sort of guarantee that the quality of services will ever improve. Consequently, in attempting to foster competition, we might stifle competition and innovation altogether.
Those issues will take years to litigate, but in the final throws of the election campaign, the case shined a spotlight on a common enemy for anti-establishment populists: Silicon Valley and the liberal values it represents. Indeed, it was a gambit that could yet appeal well beyond partisan divides by also fulfilling the hopes of many anti-monopoly Democrats. The lawsuit leaves open the tantalizing possibility of breaking up Google and the other big tech players—including Facebook, Amazon, and Apple—which some Republicans may want, but what most on the progressive left definitely dream of!
All of this comes with global consequences, though, because the Trump administration’s case against Google was a clear victory for a quiet player looming offstage: China. It might come as a surprise to many Americans, but there are actually two leading search engines in the world: Google and the Chinese Baidu. And whereas Baidu has already evidenced some superior efficiencies over Google with respect to artificial intelligence and its ability to process large amounts of data, the U.S. case against Google creates the possibility that Baidu could soon enjoy an even greater competitive advantage: Its main rival could be fined, reined in, or broken up, and thus weakened in the ongoing race for innovation in big data processing. This is a potential windfall for Baidu, coming just as it expects to be listed on Nasdaq and to enter European and American markets thanks to its critical mass and ever-improving scalability.
It is thus highly plausible that the temporary political satisfaction of venting fear and loathing against Google this campaign season will produce a long-term loss for consumers, innovation, and U.S. competitiveness.