Google’s foes on both coasts consider what it takes to crack a monopolist

In the wake of last week’s landmark federal court decision that deemed Google an illegal monopoly, Google’s foes are stepping up efforts to craft a legal case for something unthinkable until recently: the internet giant’s breakup.

If Judge Amit Mehta rules that way in Washington in the months ahead, it would be the first time federal antitrust law has been used to dismantle a company in a generation. And the consequences of such an action would be complex: Scholars are still arguing more than four decades later over how much the breakup of AT&T fueled or diminished American innovation.

Meanwhile on Wednesday, a federal judge in San Francisco signaled that he would “tear the barriers down” that have given Google a near-lock on Android app downloads and digital purchases.

“The world as it exists today is the product of monopolistic conduct. That world is changing,” James Donato, a federal judge in the U.S. District Court for the Northern District of California, said in a separate case challenging the Alphabet unit’s power.

In Washington, Mehta, a district judge in the U.S. District Court for the District of Columbia, ruled last week that Google’s search business operates as an illegal monopoly, the first such victory for the Justice Department since 2000. Since then, both legal teams have scrambled to prepare their cases for the second half of the trial, which will determine what penalties - called “remedies” - will be imposed on Google. A hearing is set for early September.

Phil Weiser, the Colorado attorney general who has been leading a group of states that joined the Justice Department lawsuit against Google, said in an interview on Wednesday that his team is looking into breaking up Google as it studies its options alongside the Justice Department, including a potential ban on the company paying phone makers to pre-install Google search.

“Divestiture remedies, other conduct remedies, as well as an end to the illegal contracts are all on the table,” Weiser said. “Our position is it’s simply not enough to end the illegal conduct. There needs to be additional steps that restore competition and enable rivals to be able to compete effectively after they’ve been squelched through illegal conduct by Google.”

Weiser said his goal is to come up with a united stance between the state attorneys general and the Justice Department on the remedies they will seek from the court, though he said the states will have the option to put forward a different request than the Justice Department.

Two people familiar with the matter, speaking on the condition of anonymity, told The Washington Post that the Justice Department is considering all options, including requesting the divestiture of Google’s Chrome browser and Android smartphone operating system, in line with earlier reports by Bloomberg News and the New York Times.

The Justice Department has not publicly tipped its hand on what remedies it will seek from Mehta.

“The Justice Department is evaluating the court’s decision and will assess the appropriate next steps consistent with the court’s direction and the applicable legal framework for antitrust remedies,” it said in a statement. “No decisions have been made at this time.”

Google declined to comment. The company’s stock fell 2.4 percent on Wednesday.

Tim Wu, an antitrust scholar sometimes called the architect of the Biden administration’s antitrust policies, said he has been in touch informally with Justice Department lawyers and believes they are interested in a solution in which Google would have to sell off part of the company.

“They don’t want to have a wimpy remedy,” Wu said. “I think they’ve learned their lesson from about 10 years of kind of ‘stop doing that’ remedies, the wimpy era of remedies. … I think their instinct is that structural remedies - that means divestments - are usually better.”

Wu proposed that the court require Google to divest Chrome and Android in a New York Times opinion piece on Tuesday. He said his rationale was that Chrome and Android - which currently are preloaded with Google search as the default - would no longer have such a strong incentive to favor Google search, allowing space for rival search engines to have a fighting chance.

Wu also suggested the court order Google to grant other companies open access to its artificial-intelligence technologies and training data, in an effort to prevent Google’s search monopoly from carrying forward into newer technologies.

Weiser, the Colorado attorney general, said that there is precedent for requiring companies to share resources to resolve their monopoly issues and that this is an avenue his team is studying.

“The idea of mandated access to resources, sharing requirements, those are absolutely the sorts of measures that will be looked at and that, ultimately, we could potentially put before the judge,” he said.

A hearing in Donato’s San Francisco courtroom on Wednesday showed that courts are willing to consider significant changes to undo Google’s illegal monopoly behavior.

A jury last year found that Google broke competition laws in how it ran its Google Play app store. Donato at the Wednesday hearing continued to hash over details of what could be broad changes in how people find apps for Android phones and pay for digital goods inside apps.

Under some of the proposed changes, Android apps might be able to be listed not only in Google’s official app store but also in many alternative app stores, which Android phone users could also download from Google Play. The goal, Donato said in court, is to “grow a garden of competitive app stores” to undo Google’s monopoly.

Bill Baer, who was the Justice Department’s antitrust chief in the Obama administration, said the European Union’s recent experience might tip the court toward considering stronger measures such as a divestment in the Washington case. The E.U. required new smartphones to include a “choice screen” for users to pick their preferred search engine, but users have become so accustomed to the ubiquity of Google that the choice had limited effect in boosting popularity of smaller contenders.

“Judge Mehta is a thoughtful guy,” Baer said. “He’s not going to rush into anything. But if the test of an effective remedy is stimulating competition in a market that is now dominated by a monopolist, I think he likely will be open to some significant relief, more than you might get in a merger review where they allow it to go through with some behavioral changes.”

Phil Verveer, the attorney who drafted the lawsuit that led to the breakup of AT&T, said pursuing a divestment of parts of Google would require considerations of how the new company maintains independence, and who would be a suitable buyer.

“For the Android operating system, if you wanted to have it spun off, what would be the economics in terms of making it … independent and viable? And if you wanted to require it to be divested in terms of a sale to someone else, what kind of someone else would be appropriate?” he said. “These are really difficult questions from the standpoint of trying to construct a truly effective remedy.”

There are scarce precedents to look to. The last time a court ordered a company’s breakup under federal antitrust law, it was Microsoft in 2000. The case was eventually settled with Microsoft staying intact. The last time a major tech company was broken up under Section 2 of the Sherman Antitrust Act was AT&T in 1982.

Gary Reback, a Silicon Valley antitrust lawyer who spearheaded efforts that led to the Microsoft trial, said simply being the subject of an antitrust case seemed to have had more of an effect on reining in Microsoft’s behavior in 2000 than Google’s today - an argument, he suggested, for more substantive remedies.

“For many years, we had a saying in Silicon Valley that the trial is the remedy,” he said. “But [with Google] that’s not what happened. They’ve lost the trial, but it doesn’t seem like that has retarded their aggressive conduct in any respect.”

As for the legacy of the earlier AT&T case, opinions are mixed. Wu and some others say the dismantlement of the lumbering monopoly unleashed a new era of competition in communications technology of all stripes that led to no less than the internet boom. Others point to the withering away of AT&T’s storied R&D unit Bell Labs - which invented the transistor, the laser and the photovoltaic cell - and the United States eventually having no major player at all in the telecommunications gear industry, which AT&T’s manufacturing arm had dominated.

“There were clearly trade-offs, but I don’t think it’s close,” said Wu. “The track record is pretty clear as to the benefits from the AT&T breakup.”

Verveer said that he and other Justice Department attorneys had worried “a lot” about the impact on Bell Labs’ innovation as they pursued the case against AT&T, but that the unit’s research was ultimately being funded by AT&T’s illegal monopoly.

“No one would deny that it was a national treasure,” he said. “But it was a national treasure not being paid for out of general revenue, but was being paid for by what effectively were excessive charges for telephone service.”

Verveer said he believed Bell Labs’ innovative value wasn’t lost as the company faded, and was absorbed into other parts of the U.S. economy. Not everyone has come to that conclusion.

Rob Atkinson, founder of the Information Technology and Innovation Foundation, argues that there’s a direct line from the AT&T breakup to the United States being surpassed in the telecommunications sector by overseas rivals such as China’s Huawei Technologies, even as he acknowledged mismanagement at the AT&T unit Western Electric, later renamed Lucent.

“I don’t think Huawei would have gained global market share as they did if Lucent, or Western Electric at the time, had been allowed to keep going,” he said. “That was a self-inflicted wound.”

Google has made a similar argument before Mehta, saying that its moonshot R&D projects depend on having the deep pockets that come with its success in search. Others say that’s now beside the point: The court has already deemed Google an illegal monopoly, requiring the imposition of remedies sufficient to restore competition.

“Analysts and others are beginning to realize that it really needs to be a significant remedy in order to make the search market competitive again,” Baer said.