Antitrust enforcement seems simple, looking back.
The Northern Securities Co. was a holding company (or “trust”) that tried to monopolize the railroads from Chicago to the Pacific Northwest. President Theodore Roosevelt sent his Justice Department after the combination using the Sherman Antitrust Act. The government’s victory before the Supreme Court in 1904 made the reputation of “the Trust Buster.”
Or consider Standard Oil. This landmark case, decided in 1911 against the richest person and largest corporation in America, found that John D. Rockefeller’s giant was a monopoly and ordered it broken up into 34 separate and competing companies.
Likewise, in the 10-year case that broke up the Bell System in 1984, American Telephone and Telegraph was sliced into seven Regional Bell Operating Companies (RBOCs). Western Electric, Ma Bell’s pioneering engineering and manufacturing arm, was severed and splintered, gone by 1995.
Now comes the Justice Department’s case against Google, relying on the 1890 Sherman law and its 1914 and 1936 successors that strengthened antitrust enforcement.
How can regulation and jurisprudence going back into the late 19th century comprehend the digital age? The closest comparison is the 1998 antitrust case against Microsoft, whose effects are still debated. The company avoided being broken up. Today it’s bigger and more profitable than ever — and is the most admired of Big Tech’s five giants.
Yet each of those earlier antitrust cases affected huge, leading-edge companies of their day, and not one of the fights was easy.
For example, Rockefeller’s lawyers argued that Standard Oil merely “sought out favorable business agreements that any other business had the ability to do and never did so with the intention of driving others out of the market.”
Unintended consequences came from the AT&T breakup. Most Americans were very satisfied, circa 1980, with their soup-to-nuts telecommunications system in the hands of one company. At first at least, the RBOCs were a confusing inconvenience.
Western Electric phones and other products were top quality — and made in America, something no longer true. Bell Labs, for decades the nation’s premier tech incubator (developing the transistor and laser, among other technologies), was spun off and never regained its former preeminence.
And as with many of the Standard Oil spinoffs, many of Ma Bell’s children got back together. This is most notable with today’s AT&T, the renamed and expanded RBOC Southwestern Bell, the largest telecommunications company in the world.
Antitrust was never simple.
It’s interesting that the Google case is being brought by conservative Attorney General William Barr’s Justice Department. Republican administrations have been reluctant to use the Sherman Act, guided by the antitrust philosophy of judge and legal scholar Robert Bork (1927-2012).
Though known mostly for his failure to win Senate confirmation to the Supreme Court during the Reagan years, Bork’s most significant contribution to the legal field was in antitrust law.
He began a revolution in antitrust with a 1963 Fortune article that argued enforcement was turning into socialism that was crippling the free-enterprise system. Bork brought economics into play, particularly the laissez-faire Chicago School.
This was something the framers of the Sherman Act didn’t use. To generalize, they looked suspiciously on large conglomerates and wanted to protect small business. By Bork’s reasoning, only consumer welfare mattered (a concept that also didn’t inform the Sherman Act).
Bork believed in the primacy of efficient markets. Hence, mergers that led to highly consolidated industries were natural and favored consumers. Before the 1980s, for example, today’s cartel of big airlines or the huge market power (monopsony) of Amazon or Walmart would have attracted antitrust enforcers. Not so much after Bork’s theories took hold.
But Barr apparently sees Google crossing the line. It helps that President Donald Trump has long accused Google of bias against him and conservative viewpoints in general.
“Google is the gateway to the internet and a search advertising behemoth,” U.S. Deputy Attorney General Jeff Rosen told reporters. “It has maintained its monopoly power through exclusionary practices that are harmful to competition.”
Chief among its alleged sins: stifling competition by using billions in advertising dollars to ensure it is the default search engine on browsers. The Bork test is apparently passed by the alleged harm to consumers of limiting search options and privacy protections.
The depth of Google’s reach is partly illustrated by my column, which makes use of Google’s search engine, Google Maps, Google Earth and sometimes Google Docs.
All this, plus Gmail and numerous other applications, is free to the consumer. No wonder Google said, “Today’s lawsuit by the Department of Justice is deeply flawed. People use Google because they choose to — not because they’re forced to or because they can’t find alternatives.”
Kara Swisher, one of the leading tech pundits, wrote in her New York Times column that the Justice Department’s action is too little, too late.
“The challenges plaguing the tech industry are so complex that it is impossible to take action against one without understanding the entire ecosystem, which hinges on many monster companies, with many big problems, each of which requires a different remedy.”
For example, giving the Federal Trade Commission (FTC) greater power to police Apple’s App Store could ensure more fairness. Separating Amazon’s retail products that compete with third-party sellers from the store itself and hardening walls separating Amazon’s businesses could create more competition. Breaking up Facebook to weaken one company’s hold over so much of social media.
As for Google, many of the allegations in the new suit were brought up by the FTC’s staff in 2013. But the commissioners voted unanimously to stop the investigation.
Contrary to Robert Bork, the market is often inefficient and worse. We find that in every antitrust case that has merit.
That’s one reason why we need effective regulation: to protect us from market failure.
You can look the definition up on, er, Microsoft Bing.