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The government's last word (for now)
Day 27-28: The States examined economics expert Jonathan Baker before Google re-started its defense with Google executive Prabhakar Raghavan
Last week, the DOJ concluded its presentation of evidence by putting MIT economist Michael Whinston on the stand to walk the court through the economic theories driving the DOJ’s claims against Google.
This morning, the States finished their case-in-chief with testimony from another well-regarded economics scholar, Jonathan Baker.
In addition to his law degree from Harvard and his PhD in economics from Stanford, Baker carries some unique antitrust credentials. Baker co-authored an antitrust law casebook and has served in senior economic advisor roles for multiple federal agencies including as Special Assistant to the Deputy Assistant Attorney General for Economics in the DOJ Antitrust Division.
Although Baker was called by the States and didn’t face any questioning from DOJ lawyers, much of his analysis and testimony was applicable to the DOJ’s claims as well (which have also been joined by a number of states). Baker boiled his analysis down into three high-level opinions, which he shared during the beginning of his testimony yesterday:
Google exercises substantial market power in each of three markets: general search services in the US, general search text advertising in the US, and general search advertising in the US.
Google’s exclusive defaults and its Search Ads 360-related conduct collectively reduced the incentive and ability of all of Google’s actual or potential rivals to compete with it in each of those markets.
Both of these types of conduct harmed competition by preventing rivals from eroding Google’s substantial market power in each of the three defined markets.1
After Baker shared this summary of his analysis, the States’ direct examination walked Baker through a slide deck he prepared that explained his methodologies and the evidence he relied on to reach his conclusions.
This evidence included a graph measuring the “Share of Google, Bing, and Yahoo! U.S. Mobile and Desktop General Search Queries Eligible for Payments under Google Distribution Agreements.” The graph showed that the percentage of queries eligible for payments under Google default agreements increased from 32% in 2014 to 51% in 2021.
With respect to the States’ claim about Google’s delayed implementation of auction-time bidding for Microsoft Ads on SA360, Baker responded to a claim by one of Google’s experts that Google would have no incentive to refrain from supporting Microsoft Ad features on SA360 because a firm necessarily has an incentive to sell more of a complementary product. He explained that SA360 has counteracting incentives because it is not just an SEM tool like Skai that caters to advertisements on other platforms.
Unlike Skai, Google is also an ad seller, which makes additional profits on Google Ads placed through SA360. Another slide in Baker’s presentation showed that Google’s profits were substantially higher for the Google Ads it sold through SA360 as compared to the Microsoft Ads that were purchased through SA360.
Baker testified that this SA360-related conduct does not just harm Microsoft. It harms all advertisers because greater competition in the advertising markets would tend to reduce prices for advertisements.
Towards the end of the States’ direct examination, Baker shared testimony that may bear on what an eventual remedy would have to be if Google is found liable. He said competition wouldn’t be restored even if Google stopped all of the conduct that he thought was exclusionary. “[J]ust stopping the conduct wouldn’t remove the disadvantage that accumulated from the past conduct…It’s sort of like if you’re boiling water in a kettle and turn off the heat. The water stays hot for a while.”
After the States concluded their questioning, Baker faced multiple lines of attack from Google on cross-examination. One of these lines focused on the fact that Google competed against bids from rivals like Microsoft to win its default search engine deals. In one pointed set of questions, Google’s lead lawyer John Schmidtlein asked Baker what Google should have done in 2016 when Apple’s search engine default was up for renewal. And what should Google have done in 2017 when Mozilla came to Google because it had lost money from setting Yahoo as its default?
The States may have gotten the last clean lick in during re-direct examination with the help of Judge Mehta, though. While the States were presenting Baker with a heavily redacted exhibit, Judge Mehta interrupted to ask why the market shares in the exhibit needed to be redacted. Over Google’s objection, he allowed the attorney for the States to read the market shares from the exhibit into the record.
I couldn’t write the numbers down quickly enough, but according to another reporter, SA360’s market share increased from roughly 40% in 2016 to roughly 76% in 2020. Every other competitor in the market experienced declines in their market share.
Google (re-)starts its defense
Technically, Google started its defense last week when it called Google VP of Search Pandu Nayak out of order due to scheduling issues. Now, though, the ball is fully back in Google’s court as both the DOJ and States have rested.
To re-start its defense, Google called Dr. Prabhakar Raghavan to the stand. Raghavan is an SVP at Google who leads multiple core products including search, maps, shopping, and ads. In a 2021 interview, a reporter for Wired suggested that he was basically the “CEO of Google.”
Raghavan resisted the unofficial title in that interview, but during his time on the stand today, the breadth of his responsibilities at Google was clear. His testimony touched on a number of key issues in the case including various innovations Google has pursued and Google’s perceived competition with other platforms in both search and advertising.
And although Raghavan only joined Google in 2012 after stints with IMB and Yahoo, his relationship with Google dates much further back. He drew laughs when he described his interactions with Google co-founders Sergey Brin and Larry Page while they were PhD students at Stanford and he was teaching in Stanford’s computer science department. Raghavan testified that when he heard about the web search technology Brin and Page were working on, “I told them they’d never make money with this thing.”
The testimony Raghavan provided is consistent with what we had heard from several other Google employees called by the plaintiffs. According to Raghavan, Google’s competition is not just with general search engines like Bing and DuckDuckGo — it faces increasing competition from both vertical providers like Amazon and Expedia, as well as social media companies like TikTok and Instagram.
After Google’s lawyers displayed a 1998 Fortune Magazine article titled “How Yahoo! Won the Search Wars,” Raghavan described his fear of Google becoming the “next roadkill” if it failed to adequately invest in innovation. He followed this up by saying that as young users looked for new ways to acquire information, some have started referring to Google as “Grandpa Google.”
On cross-examination, the DOJ sought to undercut the picture Raghavan painted of a highly competitive landscape in both search and advertising. Raghavan was asked about “Project Charlotte,” an internal study Google performed in 2019 to evaluate the impact of Amazon’s growth on Google’s search ad revenue. The study’s findings suggested that the rise of Amazon Prime was actually good for Google.
According to an executive summary for an internal presentation on the study to executives, “engagement on large online retailers and querying on G.com are positively correlated…including higher query volume in ‘shopping’ verticals (including those verticals that large online retailers are known to very strong in like Computers and Consumer Electronics).”
Judge Mehta intervened again when Google’s counsel objected on confidentiality grounds to a question DOJ asked Raghavan about the rough amount of ad revenue Google received from Amazon. Mehta said the rough number shouldn’t be confidential – Raghavan then testified that the number was in the “billions of dollars.”
A short while later, Judge Mehta pushed Google to articulate a reason that unsealing a redacted portion of an exhibit would cause it competitive harm. When Google’s lawyer said he had just received notice of the exhibit during lunch and hadn’t yet had time to review it, Judge Mehta sharply pointed out that someone on his team had already reviewed it since it was designated as confidential. The lawyer stood down and Judge Mehta allowed an unredacted version of the exhibit to be displayed: a graph showing that Google’s server latency has been increasing over time.
The DOJ will continue its cross-examination of Raghavan tomorrow, but we have already seen how it will continue to try to build its case through cross-examination even though Google is calling the witnesses now. That should also be on display next week as Judge Mehta made public at the end of court today that Alphabet CEO Sundar Pichai would be testifying on Monday. Among other topics, Pichai will almost certainly be pressed by the DOJ about his instructions to turn the history off in his chats with other Google executives.
Looking ahead, DOJ and the States may also receive a few days to put on a rebuttal case after Google completes its defense. Google’s defense is expected to continue for three weeks.
I didn’t have the time to finish writing down Professor Baker’s third opinion verbatim, but this should be an accurate representation of it. I will try to update the exact wording if/when Baker’s slide deck is made publicly available.