The unsettled legal question looming over the trial

Day 32: Google's defense has pointed to competitive benefits in the browser and smart phone markets — but it's unclear how much these benefits matter.

Testimony from Mozilla CEO Mitchell Baker highlighted an open legal question in the case. (Photo Illustration by Alexander Hassenstein/Getty Images)

One of the biggest legal questions looming over this trial is whether or not Google can justify its allegedly anti-competitive behavior in the general search and search advertising market with pro-competitive benefits in outside markets.

Two recent Supreme Court cases dealt with related issues, but neither provided an answer to this question. Most recently in NCAA v. Alston (2021), the Supreme Court declined to express a view on the argument “that a court should not ‘trade off’ sacrificing a legally cognizable interest in competition in one market to better promote competition in a different one.”

A few years earlier in Ohio v. American Express Co. (2018), the Supreme Court held that courts must weigh the competitive effects in both sides of a two-sided market — but that decision may have little bearing on this case. For one, the outside markets at issue in this trial — namely, the markets for internet browsers and smartphones — do not represent the “other side” of the relevant search markets alleged by DOJ and the States. Second, the Amex opinion distinguished between two-sided transaction platform markets like the credit-card market that facilitate a single, simultaneous transaction between participants and other platforms like newspapers that are “arguably” two-sided “because the value of an advertisement increases as more people read the newspaper.” Since the two-sided relationship between users and advertisers on Google search resembles that of a newspaper much more than it does a credit-card network, it’s likely that Google search wouldn’t be subject to any Amex-style analysis at all.

The outside markets question already came up in this case before the trial started when DOJ moved to preclude Google from “introducing at trial evidence that its exclusionary conduct results in benefits in markets other than those alleged in their complaints to have been harmed by Google’s monopolistic practices.” Google opposed that motion on several grounds both procedural and substantive. Ultimately, Judge Mehta denied the DOJ’s motion without any written explanation; that means that Google can present evidence of outside market benefits — but it’s still unclear if Judge Mehta will give any weight to these purported benefits when he decides whether or not Google’s conduct illegally harmed competition.

We shouldn’t expect Judge Mehta to weigh in on the substantive legal issue until he issues his final ruling, but now the question is coming to the fore again. Much of the testimony we heard during Google’s defense today — and some of it from Alphabet CEO Sundar Pichai on Monday — directly credited Google’s default deals with promoting competition in outside markets.

Briefly returning to Pichai’s testimony first, he touted the incentives that Google’s revenue share agreements provide to Android phone manufacturers to update their security upgrades to stay competitive with Apple.

Fast-forwarding to today, we heard testimony from two different witnesses — through video presentations of their depositions — about how the revenue shares their companies receive from Google have fostered competition in their own non-search markets.

The first one of these witnesses we heard from was Eric Christensen, the executive director of software product management and partner management at Motorola. Christensen described the mobile device manufacturing market as “extremely competitive”; he added that it was difficult to offer products at different price points that would still be profitable.

The next witness, Mozilla CEO Mitchell Baker, came out even stronger in defense of the default deals Mozilla and Google have made for the Firefox browser. Baker testified that the “bulk” of Mozilla’s revenue comes from search revenue and the “bulk” of Mozilla’s search revenue comes from Google. She added that Mozilla’s search revenue has funded the development of Mozilla products other than its Firefox browser. She didn’t go as far as to say this, but it seems quite possible that losing the “hundreds of millions of dollars” that Mozilla receives from Google annually would pose an existential threat to the open-source developer of Firebox.

Baker’s testimony highlighted the emphasis that Mozilla places on user choice — and argued that Google’s default status with Firefox didn’t undermine Mozilla’s focus on the user experience. “We’re very big on choice,” she testified. “[W]e try to make it easy for people to pick a different search engine if they want it. We reject exclusivity.”

Baker contrasted this approach to that of Microsoft — and she said that having Microsoft as the “only possible partner” would be a “death spiral.” She explained: “When Microsoft has a power of market, it is not a good partner….It overrides users in order to make it harder for people to use Firefox, and switch away from Bing.”

Some of Baker’s testimony focused on the actual search market too, though. While she defended the value and importance of Google’s revenue share payments to Firefox, she pointed to Bing as evidence that a “head-on challenge” to Google would be unlikely. She also testified that “competition in the search market would help us.”

Overall, the upshot of Christensen and Baker’s testimony is that, at least in the eyes of the direct beneficiaries, Google’s revenue share payments do enhance competition in markets outside of search.

For the reasons described above, though, it’s not clear that these purported benefits matter beyond the extent to which Google can show they also promote competition in the alleged search and search advertising markets. Judge Mehta will get the first crack at answering this legal question, but it seems plausible that this issue could eventually make its way to the Supreme Court on appeal.

Other notes from today

This morning before playing the video depositions of Christensen and Baker, Google called VP of Search Elizabeth Reid to the stand. Reid has worked at Google her entire career since 2003 and harped on a couple of the major themes that we’ve heard throughout the trial from Google: Google competes with all kinds of online platforms to serve the “information needs” of users and Google has aggressively innovated over the years.

Interestingly, during one portion of the direct examination, Google’s lawyer pointed Reid to a slide deck that was presented to Alphabet’s board. The slide was meant to illustrate Google’s increasing competition from TikTok, but it also made a clear reference to the purchase funnel concept that has been a source of repeated debate throughout the trial. Before this week, Google has consistently argued that the purchase funnel is an outdated over-simplification of consumer behavior.

But this was actually the second time this week that we saw Google employees make internal references to the purchase funnel. On Monday, Pichai was asked about his reference to the “funnel” during a 2020 earnings call — and his answer not only confirmed he was referring to the purchase funnel but also explained the basics of the concept.

I’ll be curious to see how this issue unfolds over the next few days of trial. Will Google stick to its guns that the purchase funnel is obsolete, or will it change course now that the argument has been undermined in court by its own employees? DOJ and the States have played it pretty cool, but for now, it seems like they might have won this mini-dispute.

Tomorrow, Google will call Dr. Mark Israel as its economic expert. His testimony is expected to continue until Friday. As I wrote a couple of weeks ago, this won’t be Judge Mehta’s first time hearing testimony from Dr. Israel.

Lastly, I want to mention that next week will be the last week I report on the trial as I have another pre-existing professional commitment starting soon. I won’t be able to make it quite to the finish line, but it’s been a good run. I’ll have some more to say on this next week, as well as the plan for continued coverage for the last week or two of the trial.