Nov 17, 2023
On November 8 The Capitol Forum hosted a conference call with President and Founder of Bloom Strategic Counsel, PLLC, Seth Bloom, for a conversation about the historic antitrust trial U.S. v. Google. The full transcript, which has been modified slightly for accuracy, can be found below.
TEDDY DOWNEY: Good morning, everyone. And welcome to our conference call today on the historic antitrust trial, U.S. v Google. I’m Teddy Downey, Executive Editor here at The Capitol Forum and so pleased to be joined by my good friend Seth Bloom, who is President and Founder of Bloom Strategic Counsel. He’s worked for ten years in private practice in the antitrust space. And prior to that, was at the Senate Antitrust Subcommittee for 14 years. And before that, the Antitrust Division at DOJ. So, Seth, thank you so much for doing this today.
SETH BLOOM: Well, thank you so much for the invitation.
TEDDY DOWNEY: And before we get started, just really quickly, to submit questions to the call, type them into the questions pane of the control panel. Or you can email them to email@example.com. I’ll collect questions, and hopefully we can get to them in the second half of Q&A today. So Seth, big trial. You’ve been looking at Google for a long, long time.
SETH BLOOM: Yes, sir.
TEDDY DOWNEY: Let’s start out from the beginning. I want to talk about the strengths and weaknesses of the complaint, but maybe you can give us a little bit of background on how long you’ve been looking at this issue may be a great way to start.
SETH BLOOM: That’s a good way to start. And first of all, I will say that all my views today are my own views and do not represent the views of any client. So, I’ve had, I would say, fifteen years or more experience with Google, going back to the time that I was General Counsel at the Senate Antitrust Subcommittee and we started looking at the issues in the mid2000s when Google started making acquisitions in the ad tech space, like Double Click and Add On. But most specifically, most relevant, to our conversation today — and I have a point of personal privilege too. I heard it said in the last few years by then Representative Cicilline that when he held his high-tech hearings a couple of years ago, it was the first time Congress looked at issues of the Internet and Google’s conduct, among other things. You know, frankly, that wasn’t true.
In 2011, we had the first Congressional hearing on allegations that Google was engaged in anticompetitive conduct, a hearing at which Eric Schmidt, then the Chairman of Google, testified. And we did our own investigation, wrote a letter to the FTC, said they should investigate these allegations. We had started the investigation, as we all know, in early 2013. They closed the investigation. But my experience with these issues has started there continued. I’ve represented companies in the high-tech space. So, yes, I’ve got a lot of background in this. You might say it’s my wheelhouse to talk about it.
TEDDY DOWNEY: Yeah, absolutely. And I want to ask you to tell us a little bit about how the developments, after you are in the Senate, have kind of strengthened your understanding of sort of any kind of anticompetitive conduct or the problems that Google was facing and how that ended up in the complaint.
SETH BLOOM: Sure. It’s interesting to me that a lot of the issues we were talking about then are very much extant today. So, developments since I left the Senate, I mean, people continue to complain about Google’s market power, how difficult it is for a competing search engine to get a foothold into the market. That was true then. It’s true today. I mean, I don’t know if there’s so many new developments, maybe more complaints. And the concern has grown. And we saw the DOJ take over the investigation from the FTC, and that was a major development.
I’ll also say on the political side, which did not exist in 2011 when I worked at the Senate, there’s been now a consensus on both sides of the aisle that Google’s a problem. And some of that from the Republican side. And, you know, this case was brought in the Trump administration at the end of the fall of 2020, the search case. And some of that comes from the suspicion on the Republican side that Google is discriminating against conservative voices and suppressing, an allegation which, of course, Google denies. But that is has caused a lot of bipartisan interest in this or was pushed from Republicans as much from Democrats. Although, I will point out at the time of our hearing, sort of one of the leading voices saying there should be an investigation of Google was Mike Lee, who had just entered the Senate, that one of the first things he did in early 2011 was write a letter to my boss, who was then Senator Kohl, then chairman of the subcommittee. And he said, you ought to conduct an investigation of Google’s anti-competitive practices. Well, actually, we’d already started. But he was very active at the hearing. So, there was a bipartisan sense to it. But it’s even more of a bipartisan sense to it today.
TEDDY DOWNEY: Yeah, I think back as well, to me, not just the bipartisan consensus, but getting all or most of the Democrats on board because you have a lot of California Democrats or kind of big tech advocate types in the Democratic Party. To me, I always go back to this moment when Speaker Pelosi asked Facebook to take one of those fake videos down. And they said, no, that doesn’t violate our policy. That, to me was one of the moments when it was just like they think they’re more powerful than the Speaker of the House. Like the Speaker of the House has to beg them.
SETH BLOOM: That’s a very good point.
TEDDY DOWNEY: And the whole industry really lost a lot of its protection, I think, in Congress at that moment.
SETH BLOOM: That’s true.
TEDDY DOWNEY: But now let’s get into the weeds. Let’s get into the complaint. We got this complaint during the Trump administration. And it’s being brought and litigated in court by a Democratic administration, obviously. But I would love to get your thoughts on what stood out in the complaint. And then we’ll get into the trial.
SETH BLOOM: Sure. So, the complaint, to me, I think, is a strong complaint. And it’s very reminiscent of another case that anybody who follows the antitrust knows this was a Microsoft case of, I guess, 1998 to 2001, which at that point was considered to be the antitrust trial of the century. Well, in this century, I think this is now the antitrust trial of the century. But the similarities, interesting.
So the complaint by the Justice Department at the time said that Microsoft, with a 90 percent market share of personal computing operating systems, was saying to the OEMs, the Original Equipment Manufacturers, in order to get Windows, which you really needed, you had to pre-install the Microsoft software – we didn’t call it apps then — software, notably Internet Explorer, other things too, and not install competing software, notably Netscape Navigator.
So, of course, customers were always free to install it later. But at the startup, when you got your computer. What happened? That essentially destroyed Netscape Navigator and that was ruled to be an act of illegal monopoly maintenance upheld by the D.C. Circuit Court of Appeals, which is very important here. Because obviously, this case is brought in the D.C. Circuit, in federal court in D.C.
So, what do we have here? We have, with respect to the Android side of the case and there’s the Android side and the Apple side. We can talk about both. With respect to the Android side of the case, we have Google saying if you want to get the version of Android that includes the Play Store which we have testimony from, by the way, Satya Nadella of Microsoft saying, without the Play Store, the Android phone is a brick. That’s what he said at trial. But if you want to get that, it has to be pre-installed on the phone — the Google search engine as well as other Google apps — and you can’t install — phone manufacturers — any other competing app, any other search engine. That to me is very reminiscent of the Microsoft case.
So, I think that makes for a very strong case, the Android side of the case. One difference is Microsoft had a 90 percent share of the market. Android has about a 40 percent share in the United States. So, they’re not quite a monopoly on Android like Microsoft has a monopoly on Windows operating system for a PC.
But then, of course, there’s the other side of the case, which is Google make payments of billions of dollars to Apple every year and for the same thing, to have the Google search engine installed as the search engine when you open your iPhone and Apple could not pre-install or have installed any other search engine on the phone.
Now, in both cases, with respect to Android and with respect to the iPhone, the consumer can later download it and change it if he wants to, change the preference if he or she wants, to download a competing search engine. Who really does that? Other than maybe 45 percent of the computer geeks — the .5 percent of consumers. But I would say 99.5 percent don’t do that. But that could have happened in the Microsoft case too.
But getting to Apple, the question there is, are these payments — do they constitute an act of illegal monopoly maintenance? Which is sort of maybe an issue of first impression. There we don’t have precedent, like with the Microsoft case. But these payments are huge payments. At the beginning of the case, the DOJ says more than $10 billion a year. I think The Capitol Forum reported that it’s between $17 and $19 billion a year in one of your reports. It’s a huge amount. And we could talk about this more. Google argues, well, the reason that phone manufacturers, the iPhone, wants to install the search engine is because it’s better. It’s great. Well, if it’s better. Why do you need to pay billions of dollars?
TEDDY DOWNEY: Yeah, I want to stay on this for a second because I think in 2021, it came out at trial that they spent $26 billion a year on revenue.
SETH BLOOM: All shared.
TEDDY DOWNEY: All revenue. But the vast majority of that’s going to be to Apple. And I put myself in the place of this judge and Google and it just seems really hard to — why else are you paying billions of dollars a year for this default if it’s not strategically important and it’s not useful to you to keep out this competition?
SETH BLOOM: Yes, that’s right.
TEDDY DOWNEY: I just want to stay on that for a second. Because what is the response? Especially if they’re like, well, this is the best search engine. Everyone wants it. Everyone goes to it. That would seem to cut against needing to pay billions of dollars.
SETH BLOOM: The response, Sundar Pichai, we’ve got the best. He testified at trial, people want our search engine. It’s the best. I mean, there is no response to, then why are you paying tens of billions of dollars? It’s interesting, Eddy Cue of Apple testified and said, well, we do this because we don’t want consumers confused. They don’t even know what DuckDuckGo is. And we don’t want — so, it’s for the consumer experience. That’s what he said.
TEDDY DOWNEY: Again, why do you need to pay? This $20 billion, what’s it for?
SETH BLOOM: Right.
TEDDY DOWNEY: If it makes sense for them to do it voluntarily, I don’t know why they need $20 million.
SETH BLOOM: But sort of analogous to it — I don’t know if any court has, but this is my theory. Sort of like the reverse of predatory pricing, you know, as to a limit to prevent competitors, pricing things below cost so competitors can compete. Well, this is making payments way above to keep competitors out. I don’t know if any court has ever used it, but I think that’s an analog here. It’s predatory buying, engaged in by monopolies.
And this is the other thing to keep in mind. You know, when you’re a monopolist — and there’s no doubt that Google’s a monopoly. They have a 90 percent market share of searches; on mobile devices, 95 percent. Okay. So, in the search marketplace, in the general search marketplace, clearly a monopolist. When you’re a monopolist, there’s things you can’t do that other competitors can. If you consider this exclusive dealing. well, a nonmonopolist can engage in exclusive dealing where a monopolist can’t, if it’s designed to keep out competition. So I think there’s another area that I think — legal area — where Google’s in trouble.
TEDDY DOWNEY: Yeah, I want to come back to some of these legal arguments. But I also want to get your thoughts on the trial so far, just the highlights, the good moments for DOJ, good moments for Google, what has stood out to you? And then we’ll get back to the legal.
SETH BLOOM: Okay. Well, first of all, I want to say I can’t go to the trial every day. I don’t have the time to read the transcripts. But the best way to keep track of the trial is reading the excellent coverage by The Capitol Forum. There really is nothing like it, daily coverage. And I’ve been doing that.
TEDDY DOWNEY: And I really appreciate that.
SETH BLOOM: I’m not just saying that. I really mean it. You know, what stood out for me. Well, I think that the DOJ’s put on a very good case and they identified misconduct. And I think there’s a couple of things. We had the testimony of Ramaswamy, the founder of Neeva — that’s not the right word either. What’s that search engine, repeating search engine that he founded and then —
TEDDY DOWNEY: Oh, yeah. He used to work at Google were.
SETH BLOOM: Neeva, the founder of Neeva. And he said, basically, I can’t compete with this. And he had a new search engine which customers were going to pay for. So that’s how you get around advertising. But nobody would take it because he couldn’t get any competitive thipple[?] because of these payments. That was some very strong test. We had testimony from DuckDuckGo’s CEO about how difficult it was to compete and get placement on mobile devices. We had the testimony I already mentioned from the CEO of Microsoft who said that they were just — even Microsoft couldn’t compete with this and talked about the competitive consequences of it. And as I said, Android phone without the Play Store is a brick. And so, Google had a carrot, which was the payment of money, and the stick, which was taking away the Play Store if you don’t pre-install the Google search engine. And so that I think was strong testimony, strong economic testimony, of the consequences of this. It’s just been very strong testimony all along.
So, you didn’t ask me this, but from the Google side, what’s the strongest and what their defense is. And, you know, it’s interesting because this, what I heard in 2013, you still hear today. I mean, 2011 when I was at the Senate. Competition is one click away. That’s what Google always said. Well, Google says, and they said at the trial, you know, customers, consumers, can download competing search apps. That didn’t save Microsoft with respect to software in 2000. I don’t think it’s going to save Google here. But that’s one argument they’ve made repeatedly.
Another argument that Google makes is that you can’t just look at the general search market. We compete with a lot of other places for search, like Amazon, Instagram. And we compete with social networks. Now all young people are going to TikTok to do searches. And this, I think — I’m not sure that I buy it, but it’s probably Google’s strongest argument because this is a monopoly maintenance case. So, the government has to show a monopoly. And if the market is bigger than just search engines, well, then it’s not that 90 percent market share, the 95 percent on mobile devices.
So that’s another argument that Google makes. And then Google has and they have testified that why does and we’ve already talked about this why does the iPhone put the Google search app as a default? Why do Android phone manufacturers do it? Because it’s better? And that’s what they want to do. That’s what they want to. But we still have the issue then of why are you paying them billions and billions of dollars? Collectively, $26 billion. Apple, over $10 billion. More than $10 billion. So, it’s a hard argument to make, but that’s another defense. I think those are the strong points of the defense. But I think the strongest one is, is the market, the general search market, is that a separate market? The market in which Google has a 90 percent share.
TEDDY DOWNEY: Yeah. I want to bring in a couple of things here. One is, I think one of the things that keeps coming up again is this transparency and access to the documents in this trial. Originally, the judge was pretty closed to the documents. But as the trial has gone on, we’ve gotten a lot more access to the documents. And comparatively, when the cases are closed, there is a lot less public scrutiny of whether or not the degree to which the corporate executives are clearly either lying or saying something different from what they say internally.
And I think that to me, that’s probably the biggest consequence of allowing more access to these documents. A lot of the emails and a lot of the documents that come out really undermine a lot of these arguments that they’re making, that we don’t need scale. I mean, they literally said, in the documents how they’re laughing at how much they got picked up in the media and how important it really is and how good of a job the PR people did that put people off the scent on that.
And to your point, on the privacy thing and the market definition, internally, they talk a lot about search. On the privacy issue, they talk explicitly about DuckDuckGo. And so, the document’s undermining these sorts of platitudes or assertions by the executives. Whereas, I think in the Microsoft, like Activision case, they just got to say whatever they wanted and you just didn’t know whether or not it was really true. There were some documents that you didn’t have access to at the time. And so, I think that transparency, for me least, has undermined a lot of the Google defenses. And I’m wondering if you feel the same way. Or in terms of access to the documents, the documents that you’ve seen, if that has caused you to see a little bit less credibility in the Google witnesses.
SETH BLOOM: I think you make a good point. Another is when Europeans opened up, they mandated a screen with different choices for consumers. So, you could choose your search engine. All of a sudden, there’s documents about how we need to focus on Europe and do these improvements in Europe to show that, yeah, maybe there is a product quality enhancement if consumers have a choice. I think that’s another set of documents to report. But I agree with you. And it’s interesting how the judge changed his approach after the first several weeks of the trial where he made many more documents available.
So, I think that’s a very good thing. It definitely keeps the company more honest if they know that their documents are going to be revealed. Also, I think he did it because of the great public interest in this case. It probably was untenable to keep so much of it redacted. Even if you read the judge’s summary judgment decision of early August, so much of that discussion is redacted. And I think it’s a problem, especially when you get corporate documents in testimony. Theres really a public interest in knowing what’s going on.
TEDDY DOWNEY: As a journalist, this has been a big fight. You know, we’ve obviously made all the transcripts public. We thought it was really important. Also, so that we can see it in future cases. Because this sets a huge precedent.
SETH BLOOM: Absolutely.
TEDDY DOWNEY: And the same thing is happening in the airlines litigation. We’re getting a lot of documents there. The judge is pretty nononsense as well. I’m not sure if this affected him at all. But I think that’s a big issue to me going forward. We’ll see how that plays out.
One of the other arguments that I thought, bringing it back to get your thoughts on this. Google says scale doesn’t matter. Scale doesn’t matter. But that’s kind of at the heart of this case is scale actually really does. It’s everything. I mean, I think that’s what the Microsoft testimony was about. I think Neeva similarly had said something like getting that foothold, getting scale is super critical to competing. And I want to ask you, I’m going to jump ahead. We’ll come back to some other legal arguments. But let’s assume Google loses.
SETH BLOOM: Yes.
TEDDY DOWNEY: And when you’re talking about remedy, if scale is an issue, the remedy is going to have to be robust. Was Microsoft a good analogy for this? Do we have precedent for where you have to account for the scale being an issue to create the size of a remedy that is commensurate with the years and years of these agreements keeping out competition. And how would you think about a remedy there? Because I think the consensus is now that Google’s probably going to lose, at least on some of the complaint.
SETH BLOOM: Some of it.
TEDDY DOWNEY: But the remedy hasn’t really been, you know, we’re getting ahead of ourselves, obviously. But that’s what we’re here for. So, I would love to get your thoughts.
SETH BLOOM: Yeah. So, that’s a big topic. So, when you get into remedy, one of the interesting things about this case is that the judge bifurcated and did first around liability. If he finds Google liable on violating the antitrust laws, then he has to have a separate trial on remedy. And that trial probably won’t take place until next spring. So that tracks the proceeding.
But as to what it is, is Microsoft a good analogy, here’s one way that Microsoft’s a good analogy is that originally the trial judge in the Microsoft case ordered a breakup of Microsoft. And separating out the operating system from the content that Microsoft had. software that Microsoft had. And that was rejected by the Court of Appeals on appeal. And they said the trial judge had to show that it was necessary for the remedy to remedy the anticompetitive behavior and remanded it to the trial court. Well, before that proceeding happened, the administration changed. It went to Bush. And they reached a settlement on a conduct remedy.
But I think what the precedent of the Microsoft case, as to a breakup, I think it makes it very difficult to imagine that this judge will order a breakup. Which you could think of things that he could do, such as the breakup of Android, removed from the rest of Google. I just don’t think it’s very likely at all. Also, when have we seen a major breakup in antitrust law? I mean, I think in 40 years since AT&T. But that was actually a breakup by consent. So, it’s just courts are uncomfortable with such a radical remedy.
TEDDY DOWNEY: Yeah, we’ll see. I tend to think you’re right. But we’ll see how courts have changed, how appellate courts are going to think about this, how the judge is going to think about it. I don’t disagree with you that they might be hesitant, but it’s just hard to think of a remedy if they win on that scale. The scope of the conduct remedy would have to be so
SETH BLOOM: You know, the Microsoft remedy was very criticized for being insufficient, for being too weak. I mean, well, the scope of the conduct remedy, the easiest one to think about is you have to end these contracts. You can’t demand exclusivity or free installation of the search app, for either the payment of money or to get the version of Android to replace that. That would be the simplest remedy. So, one could see that. I think one could at least see that.
TEDDY DOWNEY: Yeah, there’s just a lot of ways around that. You know, there’s a lot of ways to kind of continue making people —
SETH BLOOM: I’m sure that’s true. I’m sure that’s true.
TEDDY DOWNEY: If you only said, well, you can’t do the contract that way, they’ll come up with another way. As long as you don’t really address the sort of underlying issues.
SETH BLOOM: Yeah, you’re right. I agree with you. I’m going to jump way ahead.
TEDDY DOWNEY: Yeah, feel free.
SETH BLOOM: So, what happens if the judge finds liability in summary after trial, what happens then? Google is not the kind of company that’s going to settle. They fight everything to the end. But they’ll appeal it, I would assume. Appeal it to the D.C. Circuit. I think given the precedent that I talked about before, it’s hard to imagine the D.C. Circuit overturning the decision of liability. So, I would expect it to be upheld. But then what happens? But that’s a year down the road. Now, Google could have some hopes that there could be a change of administration. However, as I said, this was brought in a previous administration.
TEDDY DOWNEY: Yeah, you’re not getting any —
SETH BLOOM: But the next available thing for Google is an appeal to the Supreme Court. The Supreme Court doesn’t have to take appeals. They choose which appeals to take. I think this sort of pathbreaking antitrust case against Google, I think this one that more likely than not, the Supreme Court would take. And then if it happened with the 6 to 3 conservative majority that’s been hostile to antitrust plaintiffs for the last well, even before that, for the last ten or 20 years. But I think Google would have a fair shot.
TEDDY DOWNEY: They’ve been pretty hostile to big tech.
SETH BLOOM: They have been.
TEDDY DOWNEY: I mean, they wanted to mess with Section 230.
SETH BLOOM: That’s true.
TEDDY DOWNEY: But they didn’t feel like they had the option. I think two of the conservatives said that this should be utility.
SETH BLOOM: Yeah, you’re right. Okay, it doesn’t really seem great for Google. I think Google might have some hope just because they don’t think it’s antitrust. But the point it makes is a good one. So, we’ll have to see. So that’s going to take us three years down the line. It took us three years to go to trial. I expect the appellate process, including the Supreme Court, will take another three. I think six years.
TEDDY DOWNEY: Yeah, I actually think I’d be surprised if the court takes it.
SETH BLOOM: Oh, you don’t think they will take it at all.
TEDDY DOWNEY: We’ll see. I guess it will depend on the remedy and what happens with the remedy.
SETH BLOOM: We got way ahead.
TEDDY DOWNEY: We got ahead of ourselves. So, let’s go back to some of the issues at trial. Any other legal, you know, one thing that stands out to me is you get these — I call them big tech cheerleaders. But sort of the Adam Kovacevichs of the world. Why didn’t they bring a Section 1? Why did they say it was collusion between Apple and Google? And we’re talking in the Microsoft precedent is monopoly made it.
SETH BLOOM: Right.
TEDDY DOWNEY: So, it doesn’t strike me as rocket science, you know, why you would do that. Also, the way that all the proving that it was an agreement in a smoke-filled room. These are public agreements. I mean, there is definitely an agreement. So, I’m curious to get your take on that, how you think about the rationale on that.
SETH BLOOM: I think because of the Microsoft case and the D.C. Circuit case was purely a Section 2 case, a monopoly maintenance case, you’re right. It’s not hard to prove the agreement, but it complicates the issues. If you bring under Section 1, it’s already pretty damn complicated. I think they just wanted to simplify the case. And I think they thought they had a pretty clear path to liability. So why bring a Section 1? Why bring another gigantic company in as a defendant? Let’s just take on Google and let’s keep it as simple as we can. That’s why I think they do that.
TEDDY DOWNEY: Yeah, I mean, it always made sense to me. I mean, it’s just kind of like pretending that all these different antitrust claims are as easy to make as the other and don’t complicate things. So, I think that’s a great point. What else stood out to you during the trial that you think we should dive into?
SETH BLOOM: Well, what stood out to me during the trial? I think, as I said, I guess one thing is like Google’s making the same arguments they made 15 years ago or over 13 years ago, 12 years ago. That stood out to me. You know, the importance of the market definition issue. And by the way, just to go out to a little bit of a tangent. This is, by the way, why I think this case, one of the reasons why this case is a much stronger case than the case the FTC has just brought against Amazon. As I see it, the FTC has gerrymandered a market, which online superstore —
TEDDY DOWNEY: Full disclosure for the audience, Seth represents Amazon.
SETH BLOOM: These are my own opinions, but that’s fine. They say 70 percent of the market includes Amazon, eBay, Walmart and Target. Well, who looks at those as just the alternatives to buying products on the web or online? But in this case, look at where consumers do go to do searches. And almost all consumers go to Google. I mean, you could go to DuckDuckGo. You could go to Bing. So, I think this market definition is strong, as I say. But it will come down to is Amazon that market? Is Instagram in that market? Is social media in that market? And the thing of it is — and Google’s made a big point to say that customers, when they search for airlines, they’re going to go to Expedia or one of those vertical search engines. When they search for hotels, they’re going to go to TripAdvisor. So, all these vertical search engines and all of these variety I just named two, but there’s many more — all these variety of products.
But on the other hand, if you want to do a search – yes, if you know what you want to buy. But if you just want to do a general search, like I want to know what the election results were last night in Virginia. I can just put that query into Google and I can’t put that query into Amazon or into TripAdvisor. So, I think there’s a lot of strength to the government’s position that general search is its own market. But that’s going to be a key issue to be decided at this trial.
TEDDY DOWNEY: Yeah, I thought that Google kind of did a savvy thing by hiring the same economists that won in the FTC versus Sysco Foods.
SETH BLOOM: That’s right.
TEDDY DOWNEY: But he had a pretty tough job. I don’t think he was really convincing a ton of people that — and again, the documents didn’t help him to say, look, all these vertical search engines are an obvious alternative.
SETH BLOOM: Right.
TEDDY DOWNEY: So, and again, a market definition, you know. I agree it’s kind of easier to say, look, you can buy things anywhere. People go buy stuff anywhere, retailers. It’s kind of a harder thing to define a market in generally. And search. But you go you know, it’s like, okay, you go to a search. I mean, you have a list of them in the defaults. You’ve got DuckDuckGo, right? You’ve got Google. You’ve got Bing. I mean, it’s like what is in this list? I mean, those are your competitors right there in that specific area. Obviously, you could kind of talk about other kinds of competition. But when you’re talking about search, general search, that’s not obvious.
SETH BLOOM: By the way, one issue we haven’t mentioned is the judge, Judge Mehta. And I always say, you know, there’s so much discretionary authority to the judge. I always say antitrust is an art, not a science. The statute is vague with monopolization. And the precedent is vague too and it’s often conflicting. And we do have the strong Microsoft precedent.
So, it makes a tremendous amount of discretion in this judge. So, we should think a little bit about Judge Mehta. And I think he’s been a good judge of the trial. He’s been listening, asking good questions. From all accounts, he’s a very smart man. He’s been on the bench, I think, since 2014, almost ten years, Obama appointee. But if you read his summary judgment opinion, he dismissed a fair amount of the case. He dismissed the state’s claims that Google is discriminating against vertical search companies by downgrading them and such as Yelp or TripAdvisor, you name it. And he said they hadn’t shown a competitive injury, which I thought on summary judgment, shouldn’t there be evidence at trial of that? He dismissed that. He also dismissed aspects of the government’s case on sort of smaller issues of the DOJ case. So, I don’t think he’s a cakewalk for the government. And that’s something to keep in mind. I think is sort of a tough judge. He’s a critically thinking judge. So, that might be a little bit less in the probability of Google — of the DOJ, rather, prevailing in this case.
TEDDY DOWNEY: Yeah, I would say for people who think they’re really smart, antitrust lets you go down a lot of rabbit holes of a lot of different lines of inquiry and you can kind of miss the forest for the trees a lot of the time. And I think that’s certainly plausible with someone like him. But again, you look back at Sysco U.S. Foods, in the end, a merger is a much harder thing to prove that Section 2 conduct. It’s completely hypothetical.
SETH BLOOM: True, hypothetical in the future.
TEDDY DOWNEY: Everyone gets to say I don’t think it’s that big of a deal. You know, it’s always like I can’t predict the future and I’m going to let it go. I’m just going to be deferential to these businesspeople.
SETH BLOOM: Exactly right.
TEDDY DOWNEY: They’ll figure it out, you know? But in Section 2, it’s backward looking. So, in some respects, he whacked and not the most straightforward market, not the most straightforward case in the world. U.S. Sysco, U.S. Foods. It’s not the easiest case. So, I think that’s a good sign for DOJ. But again, I agree with you. And then on the remedy, he seems pretty cautious.
SETH BLOOM: Yes.
TEDDY DOWNEY: And someone who’s kind of cautious, if you really expect them to deliver a breakup, you’re going to have to really win him over that there’s no other option. And to some degree, again, you look at that Sysco U.S. Foods case, it’s not like he came up with some convoluted, you know, it’s not like this can’t go forward. There’s not like some convoluted remedy or something like that so. So yeah, we’ll see.
I do think the other thing that’s good for DOJ is going from closed to open with the documents. Because I think it makes it a little bit trickier to sort of to believe really by just fully believing what the executives say when there’s like a big public track record that kind of undermines some of some of what they’re arguing.
So, I agree. I mean, we spent a lot of time looking at judges and their backgrounds. Obama judges have had a really mixed record. I would say kind of a probusiness record on a lot of these antitrust cases. Sometimes very aggressively pro deal or pro big business, whatever you want to say, defendant. So, we’ll see. It will be interesting, I think, at least right now. The last thing I would say about Mehta is I just don’t think he’s going to overthink the payments. There’s no overthinking the payments. You know what I mean? Like, it’s not the most complicated thing in the world.
SETH BLOOM: We say in the [inaudible]. You know that phrase the thing speaks for itself.
TEDDY DOWNEY: Yeah, you really have to twist yourself in knots to think that that’s not a problem.
SETH BLOOM: I agree.
TEDDY DOWNEY: Anything else? Oh, let’s see if we have any questions. Again, if you have questions for us, please email us at firstname.lastname@example.org. Do we have any questions? No. So, we kind of got into all of our predictions. That was kind of what I was dealing with. Do you think it’s fair to say that the consensus right now should be that Google is probably going to lose on liability? And then do you think remedy is kind of up in the air as to how comprehensive it’s going to be?
SETH BLOOM: That’s a fair way of putting it. I just will say it’s always hard to make predictions in the antitrust cases. And in my mind, I make a prediction, I’d say I think DOJ is 60 percent likely to win this case on liability. But I know there’s a strong I wouldn’t bet a lot of money on that because I just think it’s hard to predict. This judge is a wild card. And Google’s arguments. But I think the consensus probably is that Google wins on liability.
TEDDY DOWNEY: And what do you think about, I mean, look, one of the things I always talk about is this is the trial of the century. I don’t disagree. However, you’ve got the ad tech case in the U.S., you’ve got the ad tech investigation in Europe where they’re saying, we’re breaking you up. We’re not making any bones about it. You’re just so messed up, we just have to break you up. And you’re going to get something in the U.K., at some point probably, too. Even though Microsoft kind of put the CMA in its place a little bit. But I don’t really expect much out of the CMA anymore.
SETH BLOOM: Right.
TEDDY DOWNEY: What is your feeling of the overall assault, legal assault, on Google from all sides? Are we really is it just unsustainable to try to keep the same gravy train going that they’ve had? I am of the mind that, you know, I think they would do well financially if they got broken up. I don’t think it would be quite as lucrative in the exact same way. You might have a little bit more competitive risk of each of your individual product lines. But it’s still hard to get a foothold in servers. It’s still hard to get a foothold in maps. It’s so hard to get things spun off. You make a lot of money. It’s not like no one would want any of those products as standalone products given how big they are. You would just have different monetary schemes and different incentives on how to compete in those areas. You might pay more. Google might start paying more money for these things, but they might also be better.
So, I just want to get your thoughts on how you see this, both from a legal standpoint and then the market pressure to like, you know what? Enough with all of this litigation, enough with all these lawsuits. Let’s just find another way. We make tons of money. We’ll just do it a little bit differently. We don’t have to own all sides of the ad tech market. We don’t have to have a 95 percent share. We could probably do pretty well with 75 or 80 or whatever. You know, maybe surveil people a little bit less, you know. But I’d love to get your thoughts on all of that.
SETH BLOOM: I think you’re making some very good points there. First of all, on the ad tech case, the one that’s going to trial in federal court in Virginia in March, the only remedy, contrary to what we’ve been talking about with the search case, is to break them up. I think you’ve got to separate out the ad exchange from the buy side and sell side. I can’t think of any other remedy. And Europe may do it anyway. But even here in the United States, you’ve got to find liability, of course. So that could happen.
But what’s the future of Google? They can keep their search engine and they’ll still make a fortune. It’s still going to, you know, all the ads sold on searches, even if they don’t control all sides of the ad tech stack, it’s still going to be a very rich and powerful company. So, it may not be this overwhelming force that it is today, especially on the ad tech side. But yeah, they’re going to be just fine. They’re going to be highly profitable, powerful. Yeah, you talk about search. You talk about maps. You know, people are going to want their apps. So, I don’t think anybody needs to shed any tears for Google. It has a very healthy feature. Even if it loses this case, loses the ad tech case, I think it’s still going to do well.
TEDDY DOWNEY: Yeah, I think about it more as opportunity for all the upstarts that have been hurt. It’s kind of ridiculous, just from a logical standpoint, that all those vertical search companies haven’t been hurt, kind of discriminated against. But whatever you want to say, they’re definitely hurt by Google being this gorilla in the room. So, all those vertical search and we’ll see a lot of, yeah, I think you’ll just see a lot of opportunity in the market if they can’t keep the exact same approach rather than it being so bad for Google.
SETH BLOOM: I would think Google will be chastened, even though it’s not part of the case. Like all their acts of discrimination against vertical search companies, they’re going to think twice before they do it if they’re found liable here. So, it’s going to make life easier for those in search. I do believe that. We saw that with Microsoft, by the way. They tried to change their ways after they lost the case and they became a much more competition friendly company after 2001.
TEDDY DOWNEY: Yeah. I want to bring Microsoft back in for a second. And I want to talk about AI. And then I want to talk quickly about YouTube. So, my issue with AI is that (1) the way you make money on AI is by betting on the cloud? You know, the cloud people are making all the money from AI. Because computer resources are being used so much.
SETH BLOOM: Right.
TEDDY DOWNEY: And you look at, again, some of these agreements where Microsoft’s investing, Amazon’s investing. Google is investing in AI. And they’re like we want you to use us as your cloud provider. And Microsoft even has an exclusive agreement, I think in one of their contracts. You’re going to exclusively use our cloud provider, which again, to your point, you kind of have to be a monopoly for that to be a problem potentially, unless the FTC tries to ban exclusive contracts through FCC ruling. I don’t see that happening right now. But I want to talk about AI because my issue with AI is not just that, okay. This is just a play to like get more cloud spend.
But my other issue is you think it’s kind of bad how manipulative are these like fees and on the Internet, or just the way that you kind of get manipulated on the Internet. That AI is going to exacerbate that, the discriminatory content, that type of thing, not just your competitors, but also your customers, price determination and things like that. Do you think about that’s kind of been out of the wheelhouse discussion on AI as an area that’s kind of talked about. I mean, there’s obviously other issues with copyright infringement and things like that, which I also think are not easily remedied because you can’t say I’m immune by Section 230. It’s probably a very poor Section 230 argument to say they’re not creating anything. What’s your thought on AI, cloud, discrimination, all this stuff in terms of these big tech companies?
SETH BLOOM: Yeah, those are great big questions.
TEDDY DOWNEY: Yeah, it’s topical. We’re talking about the trial. Let’s go a little bit further.
SETH BLOOM: Let’s go a little bit further. And I’d have to [inaudible]. But I will say it does relate to the trial. Because, although I’m a little surprised I haven’t seen Google argue this much. Maybe it’s too speculative. I mean, they can say search engines don’t really matter much because people can get their information from AI and just putting in these queries and getting that is another argument that Google has. It’s sort of like the market really is the general search.
TEDDY DOWNEY: It’s being disrupted. It’s being disrupted by AI.
SETH BLOOM: The thing about that is we’ve seen that so much of the information on AI is inaccurate. Like I’m sure everybody’s seen the lawyer that cited cases for New York and the cases were all wrong. They weren’t real cases. So, I don’t think that argument can win just on this case, given the prevailing state of AI today. It’s not reliable. It’s not really a substitute for a Google search. It’s really not. And so, Microsoft and other companies are trying to seek to create these AI tools, including Google. So, I don’t think it really plays in this trial. Maybe that’s why Google hasn’t asserted it much. Your broader questions, we can leave it for another day. I’d like to think a little bit more about it.
TEDDY DOWNEY: Perfect. And then lastly, I mean, Facebook, Meta, Instagram, have just been taking it on the chin for the insider disclosing all the issues, another insider. If you haven’t, Horowitz at the Wall Street Journal, work on Meta has just been phenomenal. Again, it was an incredible piece this week. As someone with two daughters, I’m hoping to keep them off of social media going as I possibly can.
But YouTube, kind of gets off without as much scrutiny as Instagram and some of these others, but has a lot of the same issues with how the algorithm steers people down bad rabbit holes, sort of misinformation or what have you. I have a lot of stories in my own life, parents having a real issue with kids on YouTube and all of a sudden they’re watching a video of some old man playing with dolls. And it’s like, what happened here?
And I want to get your take on that on the, you know, you’re a person with a good feel of the Senate and the bipartisan nature. The hearing yesterday was really bipartisan, was my takeaway, on the Instagram stuff. We mentioned bipartisan consensus on Google search being a competition problem.
SETH BLOOM: Yes.
TEDDY DOWNEY: Again, in Congress, both administrations, Google’s is knocked out of the woods. We’ve got that huge case against Facebook with the states litigating against Facebook. But do you think YouTube specifically will and the issue around these problematic content algorithms and how it affects kids will — what do you see happening there? And do you agree that is a bipartisan consensus? Or do you think it’s a little bit less?
SETH BLOOM: No, I certainly agree it’s a bipartisan consensus. Any time you get these kids issues, definitely. It is interesting also, as you point out, that YouTube is often the focus of scrutiny like Facebook, Meta, has. And I guess schools have got enough problems, but it should be proportionate. But I would think, especially so you recount, that it would be. I mean, the Children’s Online Privacy Act seems to have some legs. And it’s so hard to get anything out of Congress, but I could see that getting passed.
So, yeah. And then the issue of Section 230, reform of Section 230, that’s a little more thorny. But a children’s privacy bill, I think is probably — the prospects for it are much better than they’ve been at any time. And so, I think that could be a result. But these issues of scrutiny have a lot of resonance on Capitol Hill. They’re the kind of issues that members of both parties can unite on. They like issues like that. So, yeah, this is problematic for Facebook, but it ought to be problematic for YouTube, Google, YouTube as well, Alphabet, yeah.
TEDDY DOWNEY: Yeah. I mean, I think it’s one of the issues that we’re going to be focused on.
SETH BLOOM: You’re right to be focused on it.
TEDDY DOWNEY: Especially at the state level.
SETH BLOOM: At the state level, I was thinking of.
TEDDY DOWNEY: Yeah, because they’ve already been active against Facebook. We haven’t seen the YouTube. I mean, there’s other videogame companies which focus on kids.
SETH BLOOM: Well, TikTok too.
TEDDY DOWNEY: TikTok as well. They’re not the only ones?
SETH BLOOM: Right.
TEDDY DOWNEY: All right. Well, anything else, any parting words of wisdom for our audience here?
SETH BLOOM: I don’t know that I have parting words of wisdom. It’s just the length of this process from when I first started looking at it in the late 2000s, that it’s still extant today is really remarkable. And pay close attention. I don’t think we’ll see a decision until the new year on liability, January, February. It’s going to take some time for the judge to get everything together. Now, it’s always possible the judge could rule from the bench. I find Google liable. I’ll write an opinion later. But that’s unusual. So, he’s going to have to write an opinion. So, stay tuned, I guess is what I would say.
TEDDY DOWNEY: Yeah, and thank you to everyone for joining us today. Seth, thank you so much for joining us.
SETH BLOOM: Thank you. Enjoyed it.
TEDDY DOWNEY: Amazing conversation. And we’ve got another call tomorrow. So, we’ve got three calls this week. So hopefully, everyone can join us again tomorrow. But thank you for joining us. And thanks, Seth, for joining us.
SETH BLOOM: Thank you.