Lawyers who went after Microsoft in antitrust case say DOJ will have a difficult time succeeding against Google

Lawyers who prosecuted Microsoft over alleged antitrust violations in the late 1990s saw some familiar tactics in the Justice Department’s complaint against Google filed this week.

But it’s far from a carbon copy of the complaint, according to five lawyers involved in the Microsoft case interviewed by CNBC.

The DOJ cited its landmark antitrust case against Microsoft on page five of its complaint against Google, which was filed Tuesday in the same federal district court that ruled favorably for the government. The suit is not the sprawling indictment of Google’s search and advertising businesses that some had expected.

But its argument does touch on various parts of its businesses, alleging Google cut off competitors from key distribution channels in part through exclusionary contracts, including its lucrative payments to Apple to be the default search engine on the iPhone and other Apple gadgets. As a result, the complaint alleges, Google has harmed competitors, advertisers and consumers who have been denied the additional choices and quality search services that might have existed with more competition.

Google’s top lawyer called the complaint “deeply flawed” in a blog post outlining the company’s initial objections.

“What they’re trying to do is fit the facts of Google into the theory of Microsoft,” said Stephen Houck, who was the lead lawyer for the states during the Microsoft trial. “But the relevant facts I think are very different, almost 180 degrees different in many respects. So I think they’re going to have a very difficult time proving this.”

Houck told CNBC’s David Faber on Tuesday that he’s consulted for Google over the past couple years but that his skepticism of the case’s strength comes from his own perspective.

A representative for the Justice Department did not immediately respond to a request for comment.

Lawyers like Houck who knew the Microsoft case intimately say the DOJ’s new lawsuit against Google diverges in key ways that could make it far from a rinse and repeat of the earlier trial.

There’s no question why the DOJ would seek to call back to the Microsoft case. Though a court of appeals threw out the trial court’s decision to break up Microsoft and the case ended in a settlement, the appeals court also largely upheld key portions of the trial, ruling in a unanimous decision.

“This is about the strongest antitrust precedent you can get short of the Supreme Court,” said Gary Reback, a lawyer who has been credited with helping to convince the DOJ to bring a case against Microsoft. In the years since, he has worked for clients fighting against Google.

The core of the Microsoft lawsuit centered around allegations that the tech giant had illegally maintained its monopoly power by tying its web browser, Internet Explorer, to its Windows operating system. According to the lawsuit, Microsoft would require PC manufacturers using its dominant Windows OS to pre-install its browser and prevent users from removing it, edging out competing browsers like Netscape. The appeals court upheld the ruling that Microsoft had violated antitrust law by maintaining its operating system monopoly through anti-competitive means.

The case against Google similarly focuses on the ways it allegedly tied together parts of its services to maintain its monopoly in search. For example, the complaint alleges Google entered exclusionary contracts with phone manufacturers using a version of its Android operating system that required manufacturers to pre-install certain Google-owned apps.

“It’s clearly sort of out of the Microsoft playbook,” said Doug Melamed, a top official at the department’s antitrust division when it filed suit against Microsoft. “It’s conceptually very similar to the core of the Microsoft case.”

But the DOJ has, in some ways, benefited from the passage of time. Melamed said that several arguments “taken for granted today” were “hotly contested” at the time of the Microsoft trial, like the ability to have a monopoly in a market where consumers don’t pay for the service, or the ripple effects of a digital network.

“In that respect, this is a much easier case than the Microsoft case,” Melamed said.

One major benefit to the government’s case in the Microsoft trial was the messy paper trail executives left behind. Internal emails and a long memo by then-CEO Bill Gates helped the government prove that Microsoft saw web browsers like Netscape as a threat to their dominance in the operating system market. They also helped show the lengths they’d go to maintain that dominance.

Google learned from Microsoft’s stumbles. Google’s CEO and top lawyer told staff Tuesday after the government filed its lawsuit that they should keep their heads down while the case proceeds. The company has established compliance training for employees on how and when to discuss antitrust-related issues, according to a recent New York Times report, limiting receipts that could be subject to discovery.

“They had more inflammatory documents in Microsoft and that made it easier to persuade a fact-finder that they were up to no good,” said Melamed. “Here, they found themselves kind of lamenting that Google had instructed people to be careful what they wrote down.”

Defaults

Another challenge the government will face in proving its case is showing that Google’s contracts guaranteeing its services a default position (like that for its search engine on Apple’s iPhones) are anticompetitive. The case leans on the government’s assertion that Google uses “anticompetitive and exclusionary distribution agreements” to lock up default spots for its search engine on various devices. As Google has pointed out, it’s still fairly easy for users to switch defaults if they want to, making it more complicated to prove the allegedly anticompetitive effect.

“What [Microsoft was] trying to do was foreclose or exclude Netscape Navigator from all distribution mechanisms,” Houck said, adding that Microsoft’s methods were more coercive than Google’s seem to be from the complaint. “And I don’t see really any foreclosure or exclusion here. Being a default is a different thing.”

In 2020, it’s also much easier to download alternative software than it was in the dial-up internet era, Houck said —a point Google itself was quick to make.

“If it’s very easy to change [the default] and few users do, one possible explanation is that they don’t change it because why would they change away from the best search engine?” Melamed said. “The government here is going to have to answer that question. They’re going to have to show maybe that users don’t change any defaults and so the stickiness of default can’t be explained simply by product superiority.”

Who is being harmed?

Also unlike the Microsoft case, several of the lawyers said, the person or entity being harmed by Google’s actions is not as clear. The government was able to paint Netscape as a clear foil to Microsoft at the time and showed how Microsoft’s allegedly exclusionary practices effectively cut it out of the market.

The allegations against Google are not as neat. The DOJ alleges Google harms consumer and advertisers by reducing competition in search and therefore lowering the quality of available services. It’s also harmed competitors themselves by raising costs and closing off distribution channels, according to the complaint. It names search competitors like Microsoft’s Bing and DuckDuckGo.

But Houck still assessed based on the initial complaint against Google, “there’s no real apparent consumer harm.”

‘Forward-looking’

The Google complaint is “more forward-looking” than that against Microsoft, according to Harry First, who led the New York attorney general’s antitrust bureau during part of the Microsoft trial and settlement.

The Google complaint alleges the company is already eyeing the next distribution channel it can lock up. The complaint claims Google is positioning itself to control emerging search distribution channels like smart speakers and connected TVs and watches.

“Microsoft was brought at a time before servers had really been developed. So all the computing effort was really on huge mainframes or PCs,” First said. “So the complaint didn’t really address much of the future in Microsoft. This tries to do that.”

New Supreme Court rulings

Time has not entirely worked in the government’s favor in this case. New Supreme Court rulings could potentially undermine the strength of the Microsoft precedent, First said.

One well-known case, Ohio v. American Express, established that some markets can be defined as two-sided, such as consumers on one side and advertisers on the other in Google’s case. Google could potentially argue that even if one side of its market is slightly disadvantaged (like by higher advertising rates), it’s offset by the benefits to the other side (like free search services).

Another case known as Trinko narrowed the grounds on which a monopoly case could be brought. It said that Verizon’s alleged failure to share its network with AT&T, as required by telecommunications law, did not constitute a valid claim under antitrust law.

“I think they’ll be lucky to be able to defend Microsoft,” First said.

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