Earlier this year, a federal district court ruled that Google violated American antitrust law. In the wake of the ruling, many have speculated whether the federal government may or should seek the breakup of Google into its component parts, up to and including forced divestment of Google’s Chrome browser and Android mobile operating system.
America’s antitrust enforcers—the Department of Justice and Federal Trade Commission—have numerous tools available to them to dispense with anticompetitive conduct. Broadly speaking, they can be divided between structural remedies—the breaking up of a company or the forced divestment of certain component parts—and behavioral remedies, which constrain the future conduct of companies.
Before considering which remedy or remedies are appropriate in Google’s case, it’s first important to consider what exactly the court deemed to be the illegal conduct at issue.
To that end—Judge Mehta of the D.C. District Court specifically ruled that Google violated Section 2 of the Sherman Act in the markets for “general search” and “general search text advertising.” Interestingly, Judge Mehta appeared to recognize that Google may have obtained its market position through innovation and superior services. Nevertheless, Mehta found that Google’s exclusive contracts with equipment manufacturers and service providers placing Google as the default search engine were anticompetitive and designed to unlawfully maintain the company’s leading share of the search market.
This perhaps begs an obvious question. If these specific contracts are what are at issue, why not just prohibit Google from entering into them in the future?
That would be a simple, and quite likely effective, remedy. But the DOJ and numerous state attorneys general recently revealed that they are considering asking Judge Mehta for remedies that go further, although exactly how much further is unclear. Many news organizations and analysts have speculated that the DOJ may seek to break up Google into its component parts.
Breaking up Google would be far easier said than done. Google is one of the largest and most successful corporations in the world. It has grown primarily not by acquisitions that could hypothetically be separated, but instead by internal organic growth. Like most businesses, the corporate structure of Google does not lend itself to simple dismemberment into two or more viable businesses.
Additionally, the track record of DOJ efforts to break up large technology companies in antitrust cases suggests caution. In the 1960s and ’70s, the DOJ sought to break up IBM, then the world’s largest computer manufacturing company as well as the world’s largest computer services company. Indeed, it was one of the world’s largest corporations, period. Ultimately, the DOJ never succeeded in its antitrust case against IBM, and thus court remedies were never imposed.
Today, there remains a company named IBM, but it is not the antitrust boogeyman of a half century ago. It no longer manufactures computers. It provides computer services, but they are entirely different from those of its prior corporate entity. IBM changed not as a result of losses in antitrust cases, but as a result of market competition from the likes of Apple, Microsoft, and “Wintel” OEMs like Compaq.
Similarly, in the 1970s and ’80s, the DOJ sought to break up AT&T. At the time, the company was one of the largest corporations in the world and a leading technology innovator. After the DOJ won some initial court battles, AT&T reluctantly entered a consent decree with the DOJ in 1983, breaking up the company into several smaller entities. This was the last time DOJ antitrust litigation resulted in the break-up of such a large company.
The long-term effects of AT&T’s breakup are not exactly a testament to the effectiveness of such actions, however. AT&T’s breakup indeed facilitated the competitive opportunities of MCI and other companies to provide long-distance telephone services, a critical and profitable market in the 1980s. But by the 2000s, the market for such long-distance services disappeared—not by antitrust action, but by competition from new technologies. Indeed, entry into such telephone service was not facilitated by AT&T’s breakup, but instead by deregulatory legislation: the Telecommunications Act of 1996. Meanwhile, the innovative technologies of Bell Labs were spun off into a new company, Lucent, which failed and was subsequently acquired by Nokia.
Of course, the AT&T brand had substantial value, and today there exists a company called AT&T. But the AT&T that exists today did not directly emerge from the DOJ’s consent decree. Instead, it is the product of one of the smaller companies—the so-called “Baby Bells”—that were spun off as part of the breakup that subsequently reassembled themselves and reattached the AT&T brand name.
Again in 2000, the DOJ and several states sought to break up Microsoft for alleged violations of antitrust law, specifically in relation to Microsoft’s forced bundling of Internet Explorer with its Windows operating system. Although a federal district court ruled in the DOJ’s favor, an appeals court did not. Microsoft eventually settled the case without breaking up the company, but reputational harm remained. Microsoft remains a large and successful company today, but Microsoft's desktop browser ambitions, and indeed desktop computing itself, have been overtaken by competition. Moreover, many, including Bill Gates himself, argue that had it not been for the distraction of the DOJ’s antitrust case, Microsoft might today be a viable third competitor in the mobile operating system market.
The bottom line? When considering the future fate of Google, the DOJ would be wise to observe its own history. Technology markets, both new and old, can find themselves sullied with illegal conduct, including anticompetitive contracts. It is far easier, and far more proper, to isolate and prohibit such conduct, rather than try to dismantle the corporate structures that supposedly precipitate it.
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