Today, I’m speaking with Jonathan Kanter, the US Department of Justice’s associate attorney general for antitrust. Jonathan is back on the program for the second time, and the podcast is in a bit of an emergency.

In a landmark ruling in the Department of Justice’s lawsuit against Google, a federal court ruled on Monday that Google Search and the text ads it displays are monopolies, and that Google has engaged in anticompetitive behavior to maintain those monopolies.

Penalties for all of this have not yet been determined by the court; that decision is expected to be made during the remedies phase, which begins next month. Google has already made arrangements to file an appeal already.
With the potential to completely upend the tech industry, it’s the largest antitrust victory against a tech company since the Microsoft case in the late 1990s and early 2000s. For instance. The arrangement whereby Google paid Apple $20 billion annually to be the installed search engine on Macs and iPhones will now be scrutinized.
I so wanted to hear Jonathan’s thoughts on the decision and its implications for the law, which seems to be returning to a more sensible and practical interpretation of antitrust rather than the very technical and economic one that has been in use since the 1980s. Above all, I was curious about the treatments he would pursue to try to bring back competition in search. I was interested in finding out what Jonathan has learnt from previous attempts and any fresh ideas he may have, given the European Union has been attempting to accomplish that for a very long time.
Just so you know, Jonathan is an excellent lawyer who also excels at avoiding answering questions. Throughout our talk, you will hear him state multiple times that he won’t be addressing any of them. However, a lot of information regarding his antitrust strategy is contained here. This strategy was just significantly proven and will be used to guide significant legal actions against Apple, Google’s advertising division, and other parties.

Before we get started, let me just say that we will be discussing brown shoes. That’s Brown Shoe v. United States, a 1962 decision from the Supreme Court that established a useful standard for determining what constitutes a market in an antitrust action. After we get there, it will all make sense.Okay, Assistant Attorney General Jonathan Kanter. Here we go.
Jonathan Kanter, you work for the US Department of Justice as an assistant attorney general for antitrust. Returning to Decoder, welcome back.

 

It is a pleasure to rejoin you.

There are many topics to discuss today. The government has won a significant antitrust case against Google, which is why you are here. Tell us about the situation.

We filed a lawsuit claiming that Google controlled several markets within the search industry, and we were successful in that case this past week when a federal judge in Washington, DC, issued a lengthy ruling.
That opinion is more than 280 pages. Sarah Jeong, one of my coworkers, stated to me yesterday after I called it “readable,” “I think you have a very different definition of’readable’ than other people.”

The general consensus on this lawsuit and the ruling is that Google’s payments to Apple to be the default search engine on iOS are the only factors at play. Are those payments currently prohibited?

Here, I want to exercise extreme caution. The lawsuit over this is still pending.
I may discuss the case in general now that we are entering the remedy phase. And since you’ve read all 280+ pages, I’d venture to guess that you’ll see the case is about much more than that. The case concerns the components that go into establishing and sustaining a monopoly, including the necessary scale for crawling and indexing, data from queries and click streams, distribution to obtain the queries required to generate the required scale, and, of course, the advertising revenue required to sustain that capital-intensive business. The court’s discussion of all of it is extensive.However, as you just indicated, distribution is at the core of it all. purchasing distribution for searches that are inaccessible to others.

In this instance, Google’s restrictions on distribution access were the crux of the matter. Thus, in return for receiving money, there were conditions that we said were exclusionary, and the court agreed, thereby restricting third parties’ ability to collaborate with Google’s competitors.
Being the default is a requirement for some of those terms. A few of the requirements concern Apple specifically and have to do with how well Apple can produce its own search offerings. The agreement with Apple, according to the court, restricted Siri’s or Spotlight’s potential in certain situations. Are items like that normally prohibited? Is that exclusive to this instance?

Every antitrust case is extremely fact-specific, and everything needs to be considered in the context of a monopolization case. To begin with, what is the size of the company? How strong is the business? What components and aspects come together to form a powerful, long-lasting company? Then, has the business participated in exclusionary
Here, we have a case where a business that has a sizable amount of monopoly power is enforcing contractual clauses that restrict other people’s ability to innovate freely, particularly when such innovation could pose a competitive threat to the dominant firm. That is a classic example of an antitrust concern.

I want to return to the subject of competition, revisit Apple, and discuss innovation in general, but first, a few antitrust fundamentals.
This choice that you made made sense in many ways. Specifically, it appears that every tech antitrust lawsuit has encountered opposition and dissent when defining the market for the product. In my mind, Facebook is essentially trying to disprove the notion that there is a market for social networking and that Facebook is a part of it. However, the definition of the market is right here. The court determined that there is a market for general search and that Google has dominant strength in that market, which it has exploited in anticompetitive ways. Additionally, the market for text ads in search exists. Did you come away from that decision with everything you were hoping for?
We are ecstatic that the ruling was rendered in our favor.

Did that section fulfill all of your expectations?

Yes, we succeeded in getting the enforcement of the law that we desired.

Hear me out: there are several markets. Our goal was to ensure that we could clearly state that Google possesses and uses some degree of power. The word “market definition,” albeit highly technical in antitrust circles, is essentially a tool. It’s a method to assist figure out if a corporation has strength in any particular field of trade. So how would you measure its power? You see, how big or strong is it in comparison to other products on the market? Is there competition in the market? How many

It is necessary to inquire, “How many other competitors of what?” Usually, when we define a market, we ask ourselves, “What is the competitive set? Who are the various competitors who could pose a danger to a company that is purportedly in possession of monopoly power? So we define a market in order to do that. “What are the general boundaries of the competitive set?” is what we ask. The question is: Did the company take any legal steps to acquire or preserve its monopoly power once we have defined the market and determined that it has a sufficient market share or monopoly power in that market?

But then again, a great deal of tech antitrust up to this point has included vehement debates about definitions of markets. Even in this instance, you maintained that there was a market for general search, whereas Google maintained that its market consisted of responding to all online searches and that its target market is open text boxes. The court found that there is a market for broad search engines, ruling in your favor. Do you believe that the definition of these markets and the methods for presenting them are beginning to become more apparent?
Indeed.

That appears to be the issue at hand.

Indeed. Because of the issues I just posed, market definition ultimately becomes a factor in every antitrust lawsuit. These questions are: How big is the company? – whether it’s ones and zeros or bricks and mortar — comes up, asking who they compete with. It is merely a basic inquiry in nearly all antitrust cases, and in any case involving civil antitrust.
One of the issues with antitrust that we have been debating is how to apply it to the tech industry. In a world where there may be multiple sides to a market, how would we implement it? Where might you have a platform where services are offered for free to one segment of the market and are paid for differently? Where are the feedback and network effects prominent? Where a new, disruptive force in the market might create competition instead of a good or service that is identical to the one that is said to have monopolistic power?
To describe an issue to a court and determine whether or not it is a problem, we need to be aware of all those dynamics. We’ve gotten much better at it, I believe. I believe that our knowledge of how to define markets and prosecute antitrust lawsuits has greatly improved. We’ve been able to do that, in part, by employing technologists and technical specialists, making sure we get how the products function, and keeping an eye on how consumers behave in the real world within the IT sector.
On the first day of the trial, we presented a behavioral scientist to describe how customers respond to defaults and default settings. To the best of my knowledge, this was the first time the government had ever done this. How frequently users might or might not change the phone’s or browser’s default settings. Why seemingly little details or tiny points of friction within software can have a significant impact on an individual’s behavior. These are the kinds of information that we are now including as routine procedure in our antitrust investigations and, in this instance, in our lawsuits.
Alright, let’s solve it. Let’s examine your files. Let’s find out what the customers think. See how they act in the wild, please. Let’s begin with the facts and proceed in reverse order. Additionally, I believe that antitrust worked very hard for a very long time to develop some really helpful mathematical tools to aid in the understanding and evaluation of these kinds of questions, surveys, and regression analyses. And while that’s helpful, it doesn’t provide much information. The first question you must ask is, “Well, how does this stuff really work?” What are the indications in practice?Both the market definitions for text ads on the search results page and for general search engines were won by you.

Important rulings were also made by the court that went against you. In fact, it discovered that there is no market for generic search advertising, indicating that Google does not have monopoly power in this area. An appeal in this case is almost a given. Are you planning to mention that in the appeal?Too soon to say.
I won’t comment on the appeal other than to say, for us, it was really important to make sure that we were putting forward two general categories of harm. One is the way in which users interact with the search engine from the perspective of the user and the way in which advertisers buy advertising that appears in a search engine. And I’m gratified that we were successful in defining markets and proving harm on both fronts.
It’s all but certain that Google is going to appeal. It sounds like you are going to appeal as well if they do?
That is not necessarily what I would infer from this exchange. What I would say is that I’m not making any judgments—positive or negative, able to confirm or refute. I’m merely observing the content of the opinion.

Generally speaking, the Federal Trade Commission, the Department of Justice, and Lina Khan have all pursued some more recent ideas of antitrust. Throughout this conversation, you have already been cautious a few times when you have said, “This is the heart of antitrust.” We’re returning to its previous state, but it has strayed from the idea of “Hey, just look at practical indicia.” “Let’s look at the realities of the market” is no longer the focus. You’ve had to study some of the more recent legal theories. You’ve had to make some decisions in situations that mightI’m going to review the cases that we have filed and won, is that right? Of course, there is the Google case, which was decided this week and is arguably the most important antitrust case ever. We’re quite happy with our outcome here.

We filed a lawsuit against JetBlue over its proposed acquisition of Spirit Airlines, and the court accepted our hypothesis that budget-conscious travelers would suffer the most. It adopted a pragmatic stance and stated that these airlines target consumers who are concerned with cost and who want to ensure that they can afford air travel, be it a student returning home for break to visit her family or a family of four attempting to make ends meet.But what we have found is when we present courts with facts that are solid, when we prevent courts with legal theories that, as you indicate, go back to the heartland cases of antitrust law, and we do a good, solid job presenting our cases to a court in telling a coherent story that holds up on the facts and the law, that not only do we win, but we win decisively.Here, the court stated, “Well, they’re free, but this one is clearly a monopoly,” in reference to general search engines. Additionally, Google has undoubtedly engaged in anticompetitive behavior to keep its monopoly. In the general search area, pricing was not given any consideration. The pricing aspect of advertising was examined because prices are present there, but you were able to go over the obstacle of “you have to find a price that goes up.”

Do you believe that’s the start of a trend? Will you be able to pursue this throughout the IT sector with greater vigor?
I’m going to get real nerdy with you. What we’re really talking about here is dating back to the ’80s and Robert Bork, the introduction of the consumer welfare standard in antitrust that said you have to have prices that go up. And then you have this big problem where a lot of tech companies have free products, and it’s hard to measure the prices, and we’ve been stuck there.Thus, these problems are not very recent. Technology is merely presenting them to the world in different flavors. However, I believe that we must begin with the question, “Well, what is it that we care about?” We are interested in competitiveness. What’s the issue? Well, monopolization—or the unlawful upkeep of a monopoly—is the issue. And that’s exactly what we’re attempting to do—create gaps and chances for others to compete. And I believe that by returning to those fundamental ideas, we may discover our true north and successfully implement the law.That’s the major legal setting, then: the law is evolving, and you’re pursuing significant cases inside the evolving legal framework. That’s how you end up with Google in the antitrust lawsuits surrounding Mount Rushmore, I believe.

Let us discuss this case and its current developments. Google is discussing whether or not to appeal, even though I know you’re not. Google will file an appeal. They’ve declared they will file an appeal. Google President of Global Affairs Kent Walker sent us the following statement: “This decision concludes we should not be allowed to make Google’s search engine easily available, even though it recognizes that Google offers the best search engine.” Our goal will always be to create goods that are useful and simple for consumers to use.We respect the court’s decision-making process. We anticipate appearing before the court and seeking its assistance on the next steps. The court has scheduled a status conference for September, and this is a publicly announced event.

In general, when a court rules in an antitrust lawsuit, it may also impose remedies. The decision to divide culpability and remedies is made by this court as well as numerous others.

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