U.S. Google Monopoly Case Could Hit Supreme Court AmEx Hurdle

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As the Justice Department prepares to file a landmark antitrust lawsuit against Alphabet Inc.’s Google, a 2018 Supreme Court decision in favor of American Express Co. could complicate matters.

Attorney General William Barr is expected as soon as September to sue the search and online advertising giant, alleging it engages in anticompetitive conduct, according to people familiar with the matter. Numerous states, which are also investigating Google, could join the lawsuit or file their own later, two of the people said, asking not to be named discussing a confidential matter.

When the enforcers move, antitrust experts say they’ll likely have to contend with the American Express decision, in which the high court said that the credit-card giant, like many other companies, operates in a so-called two-sided market. Conduct that may harm one side could benefit the other, the justices said, and government lawyers must prove harm to both sides. The decision has already caused the U.S. to suffer at least two losses in major antitrust cases.

On the surface, the search giant and the credit-card issuer have little in common. But they both interact with customers in two distinct markets. American Express serves consumers who use the card to pay for purchases and retailers who accept the card in lieu of cash. Likewise, Google’s display advertising business engages with advertisers on one side and publishers on the other, while its search unit serves advertisers and web users.

U.S. Google Monopoly Case Could Hit Supreme Court AmEx Hurdle

Federal and state enforcers need to be prepared for Google to invoke the AmEx ruling in its defense, antitrust experts say. The company has argued that competition has helped lower the cost of online ads in recent years, and highlighted the money it makes for publishers. Successfully raising that legal precedent would put a higher burden on government lawyers to prove that Google’s behavior is anticompetitive.

“People are going to have to try to guess when a court is going to say, ‘Oh no, your market is actually two-sided,’ and they will have to have the backup market definition ready to go,” said Chris Sagers, a professor at the Cleveland State University law school. “If they don’t, case dismissed.”

State and federal enforcers in recent weeks have demanded additional information on Google’s ad business and accelerated a dive into the company’s flagship search business, Bloomberg has reported.

Google’s lucrative search ad business sells advertising space to brands around the results it provides to consumers. It also plays a key intermediary role connecting buyers and sellers of digital display ads across the web, and as a seller of display ad space for its YouTube video unit. Investigators have looked into all three, Bloomberg has reported.

Antitrust experts said that one reason for the delay in the Google lawsuit, which was expected in July, could be that government lawyers needed more time to construct the case to meet the standards in the AmEx ruling.

“That’s a complex, lengthy complaint to draft, and that takes time,” said Spencer Weber Waller, director of the Institute for Consumer Antitrust Studies at Loyola University Chicago. The government would probably have to create a “a belt-and-suspenders approach” that says why it would win under two kinds of market definitions, he said.

The Justice Department declined to comment. A Google representative didn’t respond to a request for comment.

The Supreme Court in 2018 held that there are two sides in each credit-card transaction -- the merchant and the cardholder. AmEx charged merchants higher fees to process the transactions, while barring them from steering retail customers to cards with lower fees. The justices ruled that the ban may have harmed merchants but that enforcers needed to establish whether consumers also were harmed, and referred to the robust rewards programs funded by the fees as an offsetting benefit.

Some antitrust scholars are optimistic that the Justice Department can produce the evidence it needs for its case because of Google’s dominant position in online advertising.

“It doesn’t matter if the digital advertising market is two-sided within the Supreme Court’s definition, or three or four or five,” said an antitrust roadmap funded by the Omidyar Network as part of a larger effort to boost enforcement in the technology sector. The company “has harmed competition among publishers, publisher ad servers, exchanges, demand side servers, and advertisers, all to the ultimate detriment of consumers.” One of the authors is Yale University’s Fiona Scott Morton, a former Justice Department official who has urged a case against Google, while advising Amazon.com Inc. and Apple Inc., which are also under antitrust scrutiny.

Other antitrust experts have said that Google might struggle to persuade a court that its search-advertising business should be seen as the kind of two-sided market the justices described in AmEx.

The reason is that the Supreme Court’s majority opinion said that enforcers need not look on both sides of some two-sided markets, including newspapers. Unlike AmEx, where the value of the cards increases the more that both merchants and customers use them, the justices reasoned that the two sides of a newspaper market are more independent, with readers caring little about how many advertisers take out space.

Many experts said they saw a likely hurdle for Google, where users also seek information without much regard for the variety of advertisers competing for their attention. If a court viewed the company’s search operation like a newspaper, that would make the Justice Department’s case simpler.

“What’s Google but a newspaper in some deep sense?” said Harry First, co-director of the Competition, Innovation, and Information Law Program at New York University. “It’s the same thing dressed up in digits.”

Even the Justice Department’s antitrust chief, who is now recused from the case, said last April he didn’t see the ruling touching on Google’s search business.

Yet the AmEx case has already handed federal enforcers some defeats. This month, the Federal Trade Commission lost a case against Qualcomm Inc. in a ruling that quoted extensively from the AmEx precedent. When the Justice Department challenged the merger of travel technology companies Sabre Corp. and Farelogix Inc., a court approved the combination, finding that the companies don’t compete because one was a two-sided market while the other is single-sided. The deal was abandoned soon after, however, because of U.K. government concerns.

After those losses, government lawyers “might be a little more cautious and thinking more about how the AmEx decision may affect a case against Google,” said Bloomberg Intelligence antitrust analyst Jennifer Rie.

“It’s definitely a speed bump,” she said. “It may be more.”

©2020 Bloomberg L.P.

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