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What you need to know about the Google case
The Department of Justice has filed its long-awaited antitrust lawsuit against Google, “the government’s most significant legal challenge to a tech company’s market power in a generation,” according to The New York Times’s David McCabe, Cecilia Kang and Dai Wakabayashi. It’s big, complicated and could take years to resolve — here’s the state of play:
The lawsuit targets the “cornerstones of Google’s empire,” its search tools. The Justice Department alleges that Google illegally protects a monopoly in search that harms competitors and consumers. Google pays companies like Apple billions of dollars to make its search engine the default option on their devices, shutting out rivals. Google then uses this grip to collect data from users that gives its search-based advertising business an unfair advantage, too.
More competition from other search engines, the Justice Department asserts, would force Google to compete on grounds that would promote better consumer protections in the digital age.
What the Justice Department said: Google “has maintained its monopoly power through exclusionary practices that are harmful to competition,” the deputy U.S. attorney general Jeffrey Rosen said at a news conference. You can read the government’s full case here.
How Google responded: “People use Google because they choose to, not because they’re forced to, or because they can’t find alternatives,” wrote Kent Walker, the company’s chief legal officer, in a lengthy blog post.
What others are thinking: “Some might try to characterize today’s filing as a partisan vendetta by the Trump administration. That is the false narrative Google wants you to hear,” said Luther Lowe, senior vice president of public policy at Yelp. “The case is clear — in fact, it could have gone further,” said Senator Elizabeth Warren. Many other business leaders, policymakers and antitrust experts have weighed in.
The questions that remain
A better question might be, “This again?” The F.T.C. conducted a two-year antitrust investigation into Google under President Barack Obama, which went nowhere. Bill Barr, the attorney general, pushed hard to bring this new case before the election, but even if Democrats take the White House, experts say that it is unlikely to be withdrawn — some staff attorneys at the Justice Department have taken issue with how quickly it was filed, but they still consider the evidence solid. Critics argue that antitrust regulators rely on an outdated legal framework unsuited to deal with tech giants, but as these companies’ power has grown, so too has bipartisan unease.
How long will it take?
“This legal case is going to be loud, confusing and will most likely drag on for years,” writes The Times’s Shira Ovide. And a bipartisan coalition of attorneys general from states including New York, Colorado and Iowa said yesterday that they would conclude their own probe into Google “in the coming weeks.” European antitrust regulators sued Google in 2015 based on similar facts, and settled in 2018. The U.S. Justice Department’s landmark antitrust case against Microsoft was filed in 1998 and settled in 2001.
Is this like the Microsoft case?
Yes, but not exactly. Google is charged with monopolizing search by using restrictive and exclusive deals, like Microsoft’s bundling of software programs with its operating system. Microsoft comes up a lot in the Google case, in fact: “Back then, Google claimed Microsoft’s practices were anticompetitive, and yet, now, Google deploys the same playbook to sustain its own monopolies,” the suit accuses.
Google says that other companies, including Microsoft, control prime mobile and desktop space, so it negotiates for “eye-level shelf space” to place its products like a cereal brand would with supermarkets.
Will Google get broken up?
“Nothing is off the table,” said the associate deputy attorney general Ryan Shores. A trial judge ordered a breakup in the Microsoft case, but an appeals court perceived bias in the decision and the Justice Department eventually settled the case. The E.U. has generally eschewed breakups as a remedy — it settled its antitrust case against Google for abusing its power in the mobile phone market with a fine and behavioral changes that critics say haven’t been effective. A recent House report accused Facebook, Google, Amazon and Apple of various monopoly strategies, but it didn’t call for breakups.
Whatever the outcome, investors don’t seem worried: Shares in Google’s parent, Alphabet, rose yesterday, and are also up in premarket trading today. BCA Research ran the numbers on past antitrust cases and found that companies forced to break up outperformed the market after the judgments:
Could Google just pay to make this go away?
With more than $120 billion in cash and an army of lawyers, it has the power to drag this out for a long time if it wants to. Or it could dip into the funds to settle the case with a fine and some promises to behave differently. State attorneys general fear this sort of anticlimactic ending, which is part of why they’re filing separate suits, giving them leverage to move independently if they think the Justice Department might settle too soon or too leniently.
The legal fight thrusts Sundar Pichai, Alphabet’s low-key C.E.O., into the line of fire
Google is up against laws that thwarted Microsoft — and others since 1890
“It’s Google’s World. We Just Live in It.”
Today’s DealBook newsletter was written by Andrew Ross Sorkin and Lauren Hirsch in New York, Ephrat Livni in Washington, and Michael J. de la Merced and Jason Karaian in London.
HERE’S WHAT’S HAPPENING
The stimulus drama drags on. House Speaker Nancy Pelosi said she hoped to reach an agreement with the White House by the end of the week, and is expected to speak again with Treasury Secretary Steven Mnuchin today. But Senator Mitch McConnell, the majority leader, told colleagues he had advised the Trump administration not to strike a deal before the election. Separately: Why the Fed’s $4 trillion lifeline never materialized.
Revelations about President Trump’s business ties to China. A Trump-owned company controls a previously undisclosed Chinese bank account, according to a Times analysis of the president’s financial records. It highlights his family’s efforts to win business there, even after he took office.
British scientists plan to deliberately infect volunteers with the coronavirus. The testing strategy, known as a human challenge trial, is meant to speed up testing of vaccines. But using it in this context has spurred debate, given that Covid-19 has no cure and few widely used treatments. Also on vaccine development, here’s how the F.D.A. stood up to the White House on the approval timeline.
Leon Black asks Apollo’s board to examine his ties to Jeffrey Epstein. Mr. Black requested the review, which will be conducted by the law firm Dechert, after The Times reported on at least $50 million in payments he made to entities controlled by the financier and sex offender, who died last year. In other news, a federal judge said that the deposition transcripts of the Epstein associate Ghislaine Maxwell should be made public.
Chinese tech giants try to thwart Nvidia’s deal to buy ARM. Companies like Huawei have reportedly urged regulators in Beijing to block the $40 billion acquisition of the chip designer, Bloomberg reports. It’s the latest potential regulatory roadblock for the blockbuster transaction.
The latest on Goldman’s legal headaches
An Asian subsidiary of Goldman Sachs plans to plead guilty to settle a U.S. investigation into the company’s role in a corruption and bribery scandal involving 1MDB, a Malaysian investment fund, The Times’s Matt Goldstein reports.
It would be the first time Goldman had pleaded guilty in a federal investigation. The bank’s parent company would admit mistakes in its dealings with the fund, which has been accused of stealing money for powerful Malaysians, including a former prime minister. But it has avoided having to make a guilty plea at the parent-company level, which could have hurt its ability to work with clients like pension funds. Still, the facts of the case will challenge the firm’s contention that rogue employees participated in the 1MDB schemes without approval.
The firm will pay over $2 billion in penalties to the U.S. authorities, on top of the $2.5 billion that it agreed to settle an investigation by the Malaysian government a few months ago.
Goldman’s legal troubles aren’t over. A federal magistrate judge ruled yesterday that its former C.E.O. Lloyd Blankfein and former president Gary Cohn must testify in a gender-discrimination lawsuit filed by former employees, one of the biggest such cases in Wall Street history. Goldman’s current C.E.O., David Solomon, may also have to testify.
Netflix’s pandemic bump is over
Business is good, just not as good as investors thought. The streaming giant reported 2.2 million new memberships for the third quarter, about one million lower than expected, and said that subscriptions for the fourth quarter would be lower than analysts’ estimates, too. But thanks to its subscription surge earlier in the pandemic, Netflix expects to close the year with a record number of new members, about 34 million, giving it just over 200 million subscribers around the world.
Deal Professor: Waiting for the wave
Steven Davidoff Solomon, a.k.a. the Deal Professor, is a professor at the U.C. Berkeley School of Law and the faculty co-director at the Berkeley Center for Law, Business and the Economy.
The long-predicted tidal wave of coronavirus-driven corporate bankruptcies has yet to arrive.
To be sure, the pandemic has pushed some famous names into Chapter 11, including Chuck E. Cheese, J.C. Penney and Neiman Marcus. S&P Global Market Intelligence says that 527 companies with public debt have filed for bankruptcy so far this year, more — but not that much more — than the 477 that filed over the same period last year. It also notes that the weekly totals have been slowing recently.
While the coronavirus recession has pushed many companies over the edge, many of these were already embattled, from oil and gas drillers like Chesapeake Energy to retailers like Neiman Marcus. And others forced into Chapter 11, including the rental-car company Hertz and the circus operator Cirque du Soleil, were struggling under big debt loads.
There are other factors:
Many parts of the U.S. remain open, keeping economic activity up.
Markets are still awash in liquidity, giving many companies access to sorely needed financing. And interest rates are so low that the risk of taking on too much debt is reduced.
The private sector has adapted remarkably well to the new normal. While many restaurants have been devastated, others are thriving on takeout. And even movie theaters, which are clearly on the brink, are at least beginning to rent out their venues for private screenings.
The pandemic will force more bankruptcy filings, particularly if a vaccine is delayed. And S&P does not track bankruptcies of smaller businesses, which have suffered more, particularly in states with tougher lockdowns.
But let’s be clear: That flood of huge bankruptcies? It’s probably never coming.
THE SPEED READ
The movie theater chain AMC plans to sell stock to raise money, while warning it may still be forced to file for bankruptcy protection. (CNBC)
The French media conglomerate Vivendi plans to stage an I.P.O. for Universal Music Group, the label behind Taylor Swift and Lady Gaga, in 2022. (Reuters)
Blank-check funds run by private equity firms have struggled to attract investor interest. (Axios)
Politics and policy
Federal officials and tech giants are trying to send a message that Russian efforts to interfere in the 2020 elections are no hoax. (NYT)
Elliott Broidy, a former top fund-raiser for President Trump, pleaded guilty to conspiring to violate foreign lobbying laws. (NYT)
All the weak points of American health care are working against the rollout of antibody treatments for Covid-19. (NYT)
At least 2,000 law enforcement agencies have tools to break into encrypted smartphones, a study found. (NYT)
Uber said it might overhaul its business if voters rejected a California ballot initiative that would prevent gig-economy workers from being classified as employees. (WSJ)
Best of the rest
Travis Kalanick, the Uber founder, is now a corporate real-estate mogul. (WSJ)
Tom Friedman asks if the pandemic will transform American education, health care and attitudes toward switching professions. (NYT Opinion)
The pandemic has produced a spike in applications to top business schools. (Bloomberg)
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