Google breakup? Judges not best equipped to decide, attorneys say

The U.S. Department of Justice lawsuit against Google marks the first time in more than 20 years the government is seeking to break up a company it accuses of stifling competition. Along with two supplementary complaints filed this week by over 40 states, it would be just the fourth instance of a U.S. court forcing a business entity to split if a judge finds it necessary.

Antitrust experts say there's a reason it's so rare for courts to break up a large enterprise. Judges aren't equipped to make exceedingly complex decisions on dividing a company's services. Such orders require the jurists to predict an industry's future, so they do not further impair competition or hurt consumers.

"It's really difficult for any one entity to know what's best for all consumers," said Bona Law partner Steve Cernak, who was General Motors' lead antitrust attorney until 2012. "It's the unintended consequences we're worried about."

Emboldened by an escalating push among the public and in Washington to reign in big tech, the Justice Department's Oct. 20 complaint mentions "structural relief.

The lawsuit filed Wednesday in federal court in Texas by 10 Republican-led states against the search engine giant similarly seeks to break up parts of its business, as does the complaint filed Thursday in federal court in Washington, D.C. by a bipartisan coalition of 38 states. They demanded Google sell assets "as appropriate" to restore competition.

Such a remedy would be the court's most forceful step into the market since it mandated AT&T relinquish control of the Bell Operating Companies in 1982. U.S. v. Google LLC, 20-cv-03010 (D.C., filed Oct. 20, 2020).

"Breakups are the exception rather than the standard outcome," Santa Clara School of Law professor and High Tech Institute Director Eric Goldman said. "There has to be an extraordinary set of circumstances."

After successfully defending itself in several antitrust lawsuits for nearly a century, AT&T was forced to split into seven separate companies known as the "Baby Bells." The new entities continued to provide regional telephone services, while AT&T retained its long distance operations. U.S. v. American Telephone and Telegraph Company, 74-cv- (D.D.C., filed Nov. 20, 1974).

As part of the ruling, the Justice Department lifted restrictions imposed during a prior antitrust dispute that barred AT&T from packaging its services as a single product to expand its monopoly into other industries, namely computers.

The split proved, in the short term, to be a successful spinoff. The Baby Bells were profitable from their inception since they were already established and because AT&T had already paid for most of their infrastructure. But as the government deregulated the telecommunications industry, the Baby Bells began to merge and buy each other. Most are now again under an even larger AT&T.

Goldman called the breakup of the telecommunications giant a "cautionary tale" of the pitfalls of court-ordered breakups. He said it and similar cases the Justice Department pursued when it was more active in antitrust have reinforced the notion that the market corrects itself.

"In the end, we got to the exact same place," he said. "The market basically undid what the court tried to do."

Echoing similar sentiments, Cernak said, "AT&T is back to where it was when it was a monopoly."

The other major antitrust case where the Justice Department pursued a breakup of an alleged monopolist was against Microsoft in 1998. Like its case against Google, the government accused the company of quashing competition by leveraging its monopoly to strong-arm computer manufacturers to sell products with preinstalled copies of Internet Explorer. The allegedly anticompetitive agreements, in turn, erected barriers of entry for consumers to use other programs such as Java and Netscape. U.S. v. Microsoft Corp., 98-cv-01232 (D.D.C., filed May 18, 1998).

After a ruling that Microsoft separate its Window operating system operations from the rest of its services, a federal appeals court overturned the order and told the two sides to negotiate.

Microsoft came out of the legal battle a single entity with all of its services. It agreed to behavioral remedies that made it easier for competitors to integrate their software with Windows.

Today, Microsoft is no longer the tech giant it once was. Android is now the most popular operating system globally as Windows continues a steady decline in popularity, due to security issues and consumers favoring more user-friendly interfaces.

For the first time, in a 2019 securities filing, Microsoft removed its long-standing reference to Windows as the "cornerstone" of the company. Its server and cloud services business accounted for the largest portion of its revenue by then.

Goldman attributed Microsoft's decline to the "incumbent's curse."

"It was so used to milking the cow it wasn't really concerned about a completely new way of disrupting the industry," he said. "It was just trying to maximize existing lines of business."

Antitrust attorney Mark Riera, a partner at Jeffer Mangels Butler & Mitchell LLP, said Google -- like Microsoft -- might already be suffering from the phenomenon widely used to justify a laissez-faire approach to the market. He pointed to new technologies in areas where Google is not entrenched, such as voice-activated assistance and targeted searches on industry-specific sites like Amazon and Expedia, where the market might choose a new winner.

"Fortunes change really quickly as technology evolves," he said, citing the mobile phone industry as one in which alleged monopolists were routinely overtaken. "At the dawn of time, Motorola was king. Then it was Nokia. And then, Apple came to eclipse them both."

Noting the AT&T and Microsoft cases in which he said the market corrected itself, Goldman emphasized the courts are terrible at predicting technological innovation. He and Cernak advocated for behavioral remedies, such as forcing Google to share its vast search engine database with competitors to reduce barriers to entry.

To further complicate a potential breakup of Google, the judge overseeing the case would also have to find a logical dividing line in the business. Riera said one is not readily apparent with the Alphabet-owned company, unlike with AT&T, where a split by regional services was obvious.

Still, precedent exists to break up Google even if the waters are murky.

Kesselman Brantly Stockinger LLP partner Trevor Stockinger called it a radical, but justified step. He challenged the notion that a company should be allowed to operate as a monopoly and engage in anticompetitive conduct simply because it would be difficult to break up.

"Relying on the market is the best way, but there are externalities," he said. "We can't just let the economy function with no intervention when we see companies gain this kind of market power."

Although it was overturned on appeal, the Microsoft case could serve as a template. Riera said, "The same could be done here."