Big Tech Meets Its Pecora Commission: Why Google's Toughest Opponent Is Now Congress
(BIG issue 9-16-2019)
|Sep 16, 2019||27|
Welcome to BIG, a newsletter about the politics of monopoly. If you’d like to sign up, you can do so here. Or just read on…
I’m back from travel. Today, I’m going to write about the increasing legal heat on Google, which is now being probed by a coalition of 50 state attorneys general and a Congressional subcommittee. I’ll delve into these investigations, and show where they might be headed.
(SPOILER ALERT: These are the biggest threats Google has ever faced.)
First, some housekeeping. I have a book coming out in mid-October called Goliath: The 100-Year War Between Monopoly Power and Democracy. It’s a social history of the 20th century, but told through the lens of banks and corporations. If you like this newsletter, you’ll really like the book.
Second, I’m going to be doing more public speaking this fall, and I’ll be letting you know where. I just gave a talk in Tel Aviv at an event put on by The Marker about big tech politics in the U.S. While there, I learned about the tremendous anti-monopoly movement in Israel. More on that eventually. Here’s me wearing a suit and gesturing with certitude, which as we all know is the key to being an expert.
The Coming Google Break-Up
I’ve been writing a lot about Google, because Google is probably the most important company in the world today. It is of course big and profitable, with roughly $120B+ of revenue and a market capitalization floating around $850 billion. The corporation knows what we think because we tell it, by searching for things, trillions of times a year. It has perhaps unprecedented power over the free press itself, monopolizing online ad revenue and dominating traffic to publishers. In some ways, it operates as the government of the internet, structuring technical and formatting norms of how we learn about the world around us. The company also has macro-economic impacts. It is a pace-setter for the rest of the economy; AT&T bought Time Warner in part as a defensive move against Google.
Google has also changed our politics. It is a significant player in political campaigns, being criticized by Presidential candidates like Tulsi Gabbard for censorship. It is a global player. For example, the company’s YouTube subsidiary unwittingly helped power a fascist movement in Brazil. In addition to its reshaping of the communications landscape, Google’s political operation has structured the debate over corporate power in D.C. and all over the world.
But the wheel has turned. In 2017, the company threatened a D.C. think tank (where I was located at the time), helping to spark the broad anti-monopoly backlash. The Europeans and the Russians have both found Google guilty of antitrust violations. Australia is likely to do something significant to the corporation’s power over publishers. There are investigations all over the world, and institutional changes to cope with its power. For example, the EU has combined competition enforcement portfolio with the tech regulatory portfolio, in part to deal with Google.
And now, finally, it looks the corporation is going to face real heat in the U.S., its home market. I suspect that we are in the first stage of what will be the eventual break-up of the company.
Now, at first blush, the idea Google is really in trouble would seem unlikely. They have faced controversy before, and nothing seems to affect any big corporation these days, let alone the most powerful corporation in the world. And at a Federal level, Trump’s DOJ antitrust chief isn’t credible, and neither is the Federal Trade Commission. The Feds are the ones with most of the money, resources, and experience. With the main enforcers in the U.S. out of the game, what possible argument do I have that Google is in trouble?
This is where federalism comes in, both checks and balances at the national government level and state-level governance that can backfill when the Feds fall down on the job. There are two main legal attacks on Google in the U.S., and I suspect both of these are very serious. The first is that 50 state attorneys general jointly launching a multi-state investigation of the company. The second is coming from Congress.
First, I’ll discuss the state AGs. Every state, as well as political localities like Puerto Rico and D.C., has a chief law enforcement official with antitrust jurisdiction. Most of them don’t have a lot of lawyers, money, or expertise, though the big states (Texas, NYC, Illinois, Florida, California) do. Joining together means they can combine resources; the Microsoft case started as such a multi-state investigation. The case is led by Ken Paxton of Texas, a strong anti-monopolist and right-wing Republican.
I went to last week’s press conference where these officials announced their inquiry, and I was struck by the seriousness and resolve of the officials. They made the announcement in front of the Supreme Court, a nod-so-subtle nod to how far they are willing to take the case.
Attorney generals call each other ‘general’ as their title. At first this was kind of funny, but then I realized it adds a gravitas to their own conception of their role, a belief they are commanding troops in a battle. Each had something unique to say, but they all basically focused on Google’s power over advertising markets and its control over the flow of communications. While the majority of the attorneys general at the press conference were Republican, Democrat and Washington, D.C. attorney general Karl Racine played a prominent and important role in the press conference. Lots of reporters were interested, which never hurts in terms of encouraging elected officials to focus. These officials have the will, they have the coalition, and they have subpoena power. I’m not happy about this dynamic if I’m Google.
That said, the state AG investigation is in its initial phase. Google lawyers should be afraid of the states, but they should be much more worried than they are about the Congressional investigation.
Most antitrust insiders don’t recognize the importance of Congress as it comes to anti-monopoly rules. Antitrust insiders tend to look to courts and economic experts for guidance on antitrust, because what are legal and illegal business practices change over time as economists instruct judges how to think and judges comply. But Congress has historically had a very big role as well, though one it has not filled for the last few decades. Congress has made significant revisions to the general antitrust statutes four times over the last hundred and thirty years (1890, 1913, 1936, 1950), in three of those cases to override conservative court decisions weakening Congressional intent. And these general antitrust laws are only one small part of the anti-monopoly tradition in America.
Congress has done significant investigations of corporate activity, and passed many sector-specific rules involving a mix of public regulation and antitrust. The Federal Communications Commission, the Atomic Energy Act, Packers and Stockyards, tariff laws, FERC, the Bank Holding Company Act, Glass-Steagall even the Panama Canal Act - all had anti-monopoly elements.
Most of these laws were preceded by very significant investigations of large concentrations of corporate or financial power. There were the Pujo hearings in the 1910s, which helped lead to the Federal Reserve, the income tax, and the Clayton Act. The Pecora hearings in the 1930s led to Glass-Steagall, the Public Utility Holding Act, and the Securities Act. But even when the DOJ acts against big companies, antitrust isn’t just the purview of the Antitrust Division and the courts. The Senate held a very significant hearing on Microsoft before the antitrust suit, which built political capital for bringing the case.
In the 1950s, Congressman Emanuel Celler ran a special subcommittee on monopoly power, which conducted Pecora-like investigations into a host of different industries, from steel to concert halls. Today, the Chair of this subcommittee is Rhode Island Congressman David Cicilline, and the full Judiciary Committee is run by Jerry Nadler. These men are quite familiar with the legacy of their committee. They are Democrats, but their Republican counterparts, Doug Collins and James Sensenbrenner, are also deeply skeptical of big tech’s concentration of power. The four of them have joined together in an investigation of big tech.
Most people have very little faith in Congress. Silicon Valley laughed when Zuckerberg appeared before Congress, because he was totally unscathed despite years of scandals. But investigations are not about embarrassing powerful people in high-profile moments any more than saying “Your husband will be ok” is the most important part of a surgery. To the extent these moments happen, they are the consequence of enormous amounts of painstaking detailed work to understand market structures and power. An investigation is largely about finding out how things work when powerful actors don’t want you to know. With the Zuck hearings, Congress hadn’t done the work to understand the problem of Facebook.
But this time, Congress has done its homework. Over the past six months, the House Antitrust Subcommittee has been holding a series of hearings on big tech. Its investigators have been combing through public and private documents provided by competitors. Last week, the committee sent out its first document requests, one each to Amazon, Facebook, Apple, and Google. I haven’t read the letters about Amazon/FB/Apple yet, but the Google letter is deadly serious.
This document request is what I would call a “not fucking around” letter. It includes two pages purely on definitions just to preempt any stupid legalistic condescending games that are the first line of defense of any big corporation against Congressional investigators (who they almost always assume are clueless). Rep. Cicilline and co. made sure Google lawyers had clear definitions of “and,” “any,” “company,” “employee,” “document,” and “each.” They provided three and a half pages of instructions for Google if the company chooses to withhold information.
Now, this letter is not a subpoena, meaning Google can choose to respond however it wishes. But since the letter is signed by both Republicans and Democrats, and Pelosi has endorsed the investigation, if Google acts in bad faith a subpoena may not be far behind.
So what does Congress want to know? In a word, a lot.
(1) Anatomy of Google
The first thing they ask for is an organizational chart. Who works for whom at Google? How is the corporation actually structured? I don’t have an answer to this question, and the people I’ve spoken to at Google don’t either. The Information and Business Insider often write stories on who is powerful at the company, but the structure seems opaque.
The Antitrust sub-committee has also asked for information about each major product line and/or subsidiary of Google. They want to have a description of each product line, how Google sees competition in each area, the top ten customers by revenue for each product line, and the profit and loss statements broken out. This would be a big deal, because Google is a black box to investors. No one, for instance, knows how much YouTube earns versus Google search, and no one can tell what product lines might be cross-subsidizing each other. Here are the product lines listed in the letter.
Ads Data Hub
Display & Video 360
Google Ad Manager
Google Ad Manager Ad Exchange
Google My Business
(2) Legal history of Google
The subcommittee has asked for information on every legal challenge involving anti-competitive behavior, mergers, or antitrust law. They are seeking every document from all investigations, a list of antitrust cases already filed against the company and their current status, and memos and lobbying material submitted to government agencies relevant to mergers or potential antitrust law violations.
(3) Emails of Google Executives
The subcommittee asked for emails from the top executives at Google, including Larry Page, Sergey Brin, Ruth Porat, David Drummond, Eric Schmidt, Sundar Pichai, Susan Wojcicki, Philipp Schindler, Prabhaker Raghavan, Thomas Kurian, Hiroshi Lockheimer, Rishi Chandra, Keith Enright, and Kent Walker. Specifically the subcommittee sought emails relating to:
Mergers or possible mergers (Doubleclick, Ad Mob, YouTube, Android, Vevo)
Whether Google changes its ranking of search results of competitive products
Policy related to barring competitors from buying ad inventory on YouTube
Policy blocking rival video from providers from showing up in Google search
Policy related to Google search syndication and adblocking
Policy relating to Chrome and its inter-operability with rival products
How publishers are ranked in Google search if they use or don’t use Google’s Accelerated Mobile Pages standard
Exclusive dealing restrictions around the use of Google Maps
The decision to combine DoubleClick and Google profiles
Whether Android users can choose non-Google defaults for search, browsers, maps, or music players
Google’s restrictions on phone makers who use Google’s Android operating system
Coercive data sharing terms imposed on business partners
How Google analytics works on non-Google browsers
Goals for search traffic, including metrics for directing traffic to Google properties versus non-Google properties
Calculations on on how advertiser’s spending is debited
You get the picture. This is a serious investigation and a serious document request.
(4) Questions about the Google business model
But wait! There’s more! On Friday, the subcommittee also sent 180 additional questions to Google as part of its last hearing on big tech where Google’s Director of Economic Policy Adam Cohen spoke. Congress often puts in ‘questions for the record' after the oral part of hearings, which are written follow-ups that end up going in the hearing transcript. This lets both questioners and witnesses have more extensive written discussions of legal and policy matters.
These questions for the record are, again, the kind you submit when you are not fucking around. You can read them here. The subcommittee asked about nearly every major area of business and every anti-competitive practice I’ve heard of, from adblocking to interoperability to AMP. They point to the problem of Google search where the company sends traffic to its own properties. This is a naked form of self-dealing that Rand Fishkin at Sparktoro has publicly discussed. The subcommittee asked about the problem of Gmail using tabs in ways to downgrading commercial and political email in favor of their own ads. They also try to get the holy grail of information about adtech, asking out of $100 spent by an advertiser, how much gets debited at every step of the adtech supply chain? My jaw is on the floor as I go through these. It’s virtually everything I’d ever want to know, and then some.
What happens now?
What does all of this mean? While the state AGs have launched an investigation, Congress is already in the middle of an investigation. And there’s no reason these institutions can’t share information, which is often how it works. For example in the 1970s Senator Phil Hart’s committee investigators turned over information to DOJ attorneys about AT&T, which ended up being used in the antitrust suit that broke up the company.
I’m not sure how Google will respond to the subcommittee. I’m honestly not sure how they can respond, given that the subcommittee is going to get a lot of information from Google’s competitors. They could try to overwhelm the subcommittee with paper, or they could fight any and all requests, which is what I suspect they will do. Regardless, in twelve months, there will likely be no one who understands Google as well as the investigators working for the U.S. House Antitrust Subcommittee. The subcommittee will conduct hearings and write reports, and the likely result will be twofold.
First, there will be a broad antitrust suit against Google led by the states and supported by information uncovered by the subcommittee, international investigators/enforcers, and the AGs themselves. This suit could cover dozens of different areas, so big is Google and so conflicted are its various lines of business. Second, there will be a report calling for new legislation or regulations to split up and regulate information utilities like Google, fleshing out the details of what Elizabeth Warren has been proposing. Such changes should probably be done through statute, though if necessary they can also be done through existing regulatory authority at the Federal Trade Commission.
More fundamentally, these two actions are turning points in American political economy, a shift away from the forty year old revolution of law and economics that centralized power and money in the hands of a few. And that is something Congress can be proud of.
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