Google and the Sherman Act or: How I Learned to Stop Worrying and Love Civil Procedure

Overview

Google’s market dominance has attracted the attention of the press, competitors, and now the federal government. Recent articles, cases, and hearings seem to point toward an inevitable collision between the industry giant and the Sherman Act, the federal statute governing antitrust issues. Complaints from competitors have thus far yielded little, but what happens if the government decides to turn its discussion into litigation? Recent history might provide some clues as to what lies ahead.

A Tale of Two Venues

Two recent courtroom victories for Google highlight the importance of proper pleading, especially when leveling antitrust accusations against one of the most recognized brands on the web. In the first case, TradeComet v. Google, the Second Circuit affirmed the Southern District of New York’s grant of Google’s motion for summary judgment based on a forum selection clause in Google’s contract with the operator of a business-to-business search engine. Citing Rules 12(b)(1) and 12(b)(3) of the Federal Rules of Civil Procedure, Google argued that a clause in the contract specifying that all lawsuits between the parties must be brought in Santa Clara County called for dismissal of the case. After considering the option of transferring the case to California, the Southern District of New York granted Google’s motion and dismissed the case.

The Court of Appeals held that the trial court was not required to convert a Rule 12(b) motion to dismiss into a § 1404(a) motion to transfer, and upheld dismissal of the complaint. This meant that Google was never forced to address the merits of the case itself, which alleged that Google AdWords violated the Sherman Act through its monopolistic business practices. In this instance, poor venue choice by the plaintiff and solid lawyering by Google further validated a forum selection clause aimed at avoiding a proliferation of suits in multiple fora.

The second case, Google v. MyTriggers, saw Google venture outside of its home court in California to sue a client for nonpayment, only to be waylaid by antitrust counterclaims. Google, the plaintiff in this case, originally filed its complaint in Franklin County, Ohio, in an attempt to collect outstanding advertising fees from myTriggers, an Ohio-based “vertical search” site that had a line of credit for its use of Google’s AdWords platform. MyTriggers responded by ambushing Google with four counterclaims, the first of which was that they had violated Ohio’s antitrust statute, the Valentine Act. By citing the Valentine Act rather than the more familiar Sherman Act, myTriggers was able to maintain the case in an Ohio court. Trying the case in a state court reduced the risk of transfer from Ohio, and saddled Google with a trial in the court it chose based on original jurisdiction over a simple collections case. This put the normally venue-conscious Google in the awkward position of defending itself on the merits of the case away from its home court in Santa Clara County.

As in the TradeComet case, Google relied on Rule 12(b), meticulously dissecting myTriggers’s counterclaims to show that they lacked merit. First, Google argued that the antitrust claims were vague and unspecific, and persuaded the court that the Valentine Act was intended to eliminate trusts – as in groups of entities working to control the market – and did not, therefore, apply to a corporation acting unilaterally. Next, it persuaded the court that the counterclaims of breach of contract, estoppel, and rescission were equally without merit. The court responded by granting Google’s motion to dismiss in its entirety. Google once again avoided a potentially disastrous trial in an unfriendly locale by making sure the case was never argued before a jury.

A Government Job

Though both cases contained complaints of antitrust violations against Google, neither made much of a splash before it was dismissed. But the fact that the cases were dismissed did little to quiet the murmurs of monopoly that hound Google tirelessly. It seemed appropriate, then, that the dismissal of both cases coincided neatly with the Federal Trade Commission’s (“FTC”) recently launched formal investigation of Google. This is not, of course, Google’s first brush with the FTC, but it does mark a much broader line of questioning from the government agency with regard to search and advertising business practices. Past inquiries have focused on specific acquisitions, but this investigation seems to be based on an amalgamation of complaints from various competitors.

As if the attention of the FTC were not enough to satisfy Google’s critics, the Senate Judiciary Subcommittee on Antitrust, Competition Policy & Consumer Rights recently called on CEO Eric Schmidt to defend his company’s business practices. In two appearances this year, he testified that Google does not “stack the deck” with regard to its search algorithms and pointed to very healthy competition on a number of fronts to downplay antitrust concerns. It remains unclear how the FTC and Congress plan to proceed with these inquiries, but recent precedent could certainly provide clues.

Deja Vu All Over Again

On May 8, 1998, a the U.S. Department of Justice (“DOJ”) and 20 states filed suit against Microsoft, alleging abuse of monopoly power based on its integration of the Internet Explorer browser into its Windows operating system. After a lengthy trial (which included alleged code of conduct violations by the presiding judge), Microsoft settled with the DOJ. The settlement included provisions for sharing of Microsoft’s application programming interfaces with third parties and strict oversight procedures to make sure Microsoft was not abusing its market power. Missing from the settlement, however, was any effort to address the issue that prompted the original suit – bundling the browser with the operating system.

The parallels between Microsoft and Google are apparent – both are industry heavyweights who came under scrutiny for swallowing their competition through acquisition – but the differences are just as obvious. Microsoft was often portrayed as an evil empire of sorts; Google’s informal slogan is, “Don’t be evil.” During the Microsoft trial, CEO Bill Gates came across as a combative, obfuscating, aloof techie with little regard for those who stood in his way; Google CEO Eric Schmidt has generally been accommodating, cooperative, and diplomatic during his interactions with the government. And while Microsoft’s bundling scheme was a classic bit of market-bullying, Google’s search service presents a bit of a conundrum for those who point to it as monopolistic. It is, after all, free.

Enforcement of antitrust laws is based on the social policy of maintaining an efficient free market and preventing artificially high pricing due to total control of supply. Since Google’s search services are freely available to anyone with access to a web browser, there is no price to fix. Without competitive harm to consumers by way of inflated prices, it might be difficult to build a solid case for antitrust regulation. How does one protect consumers if they are not at risk of monetary harm?

The answer to that question may lie in Google’s search algorithm. If the government could prove that Google’s algorithm is influenced by a desire to quash competition (by excluding certain sites) or to generate revenue unethically (by ranking business partners higher based on backroom deals), it could have a strong case. Furthermore, Google’s utter dominance in online advertising – as well as its expansion-by-acquisition into areas like video and localized offerings – makes the lack of revenue from searching seem like a footnote.

Implications

Will more competitors (like TradeComet and myTriggers) continue to nip at the outer edges of Google’s monopolistic image? Most likely, yes – particularly as enmity from companies like Yelp, Expedia, and Nextag evolves. Even Microsoft has met with federal antitrust investigators and filed a complaint against Google in Europe, perhaps setting the stage for future actions in the U.S. As Brad Smith, Microsoft’s General Counsel, noted recently, “We appreciate the irony.”

Cite as: Damion Jurrens, Google and the Sherman Act or: How I Learned to Stop Worrying and Love Civil Procedure, Berkeley Tech. L.J. Bolt (November 29, 2011), http://btlj.org/?p=1552.
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