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Antitrust experts split on whether US probe of Google could lead to divestitures

Amid reports that federal and state regulators are moving toward filing antitrust lawsuits against Alphabet Inc.'s Google LLC later this year, antitrust experts are split over whether regulators are likely to pursue major structural changes to Google's advertising business.

The U.S. Justice Department is preparing to file an antitrust suit against Google as early as this summer, with state attorneys general possibly following up with a similar case by the fall, The Wall Street Journal recently reported. Regulatory action has been expected since September 2019, when 50 state attorneys general announced an investigation into potentially monopolistic behavior by Google in the online advertising marketplace. At the same time, Alphabet disclosed in a regulatory filing that it had received a civil investigative demand from the DOJ requesting information and documents related to previous antitrust investigations.

"It looks to me like the state AGs are loaded for bear and want to come out with the guns blazing," said Robert Atkinson, president of the Information Technology & Innovation Foundation, a nonpartisan group that focuses on the intersection of innovation and public policy.

Thus far, the investigations do not appear to have had a material impact on Alphabet's stock price performance. But forced divestitures would be a very different matter.

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Fiona Scott Morton, an economics professor at Yale University, said in an interview that because of Google's dominance in the online advertising market and ecosystem, it is plausible that antitrust enforcers could determine that Google cannot have its hand in all sides of its advertising exchange.

Google is the dominant player at every layer between advertisers and websites, with its tools used both by publishers looking to sell ad inventory and by advertisers looking to buy. It also operates the exchange where many of these transactions take place and sells its own search and video advertising inventory.

Scott Morton said the "simplest thing" for regulators would be to say that, like a financial market, "If you own the exchange, you can't work for either side. Or, if you work for a publisher, you have a fiduciary responsibility to the publisher to fill their spots with the highest-priced, highest-revenue content. Not to favor your own content or favor your own advertisers."

Scott Morton, who previously was deputy assistant attorney general for economics at the Justice Department's Antitrust Division, co-authored a paper released on May 17 that lays out a roadmap for a possible U.S. digital advertising monopolization case against Google.

The paper was inspired by an interim report from the United Kingdom's Competition and Markets Authority, which is carrying out a market study of online platforms and the digital advertising market. Though focused on the U.K., Scott Morton said the CMA report's findings were relevant for the U.S. because Google, by and large, has a global business model.

While Scott Morton's paper itself does not evaluate remedies, she said divestitures seem like a plausible response for antitrust regulators.

"When you realize that Google is working for both the publisher, the advertiser, and the exchange, you can sort of see that that doesn't make a ton of sense for market participants," she said.

Sen. Elizabeth Warren of Massachusetts, as part of her bid for the Democratic presidential nomination, released a plan calling for the unwinding of previously approved "illegal and anti-competitive tech mergers." Among other deals, Warren specifically called out Google's purchase of the internet advertising services company DoubleClick Inc.

However, Douglas Melamed, a law professor at Stanford University who specializes in antitrust law, said given the alleged wrongful conduct that he has heard about related to Google's advertising business, he does not see an antitrust case leading to any major structural changes, including divestitures.

Specifically, Melamed, who previously worked at the DOJ as acting assistant attorney general in charge of the Antitrust Division, said he doubts that antitrust regulators would require the undoing of the DoubleClick acquisition that "conceivably played a role in this."

"I think it's going to be very hard to show that the acquisitions [by Google] were unlawful," he said. "And if the acquisitions were not unlawful, then it's very hard to undo them."

Instead, he believes remedies are more likely to be less severe, such as conduct restrictions to address particular behavior in the space and prohibit it in the future.

Another reason Melamed believes a big structural remedy is unlikely is that divestitures can be disruptive to a market.

"You really have to approach them with great care and ask … 'How much loss of efficiency that benefits the public are we creating and what benefits would we be creating by this remedy?'" said Melamed.

The investigations at the state and federal level come at a time of increased collaboration and reliance on Google amid the COVID-19 pandemic. Three states have reportedly publicly committed to using Apple Inc. and Google's contact tracing technology in state applications attempting to stop the spread of the virus.

President Donald Trump has also touted Google's work on making testing information available.

However, Melamed said the cooperation and reliance are unlikely to make a difference on the antitrust front.

Antitrust enforcement is like giving a speeding ticket where enforcement should be determined based on whether a company violated the law or not, he said.

"Did they engage in some commercial conduct that was illegal?" he mused. "That decision should be made without regard to whether they're cooperating [with] COVID or not."

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