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DOJ’s antitrust suit against Google 'is not that radical a case' on paper: Cornell University Professor

George Hay, Cornell University Senior Professor of Law and Professor of Economics, joins Yahoo Finance’s Akiko Fujita to discuss the Justice Department’s recent move to file a long-awaited antitrust suit against Google.

Video Transcript

AKIKO FUJITA: The Department of Justice launching the most aggressive challenge against a major tech company in decades, accusing Google of engaging in anti-competitive behavior to maintain its dominance in search. Take a listen to the US Deputy Attorney General Jeffrey Rosen speaking earlier to reporters.

JEFFREY ROSEN: It has maintained its monopoly power through exclusionary practices that are harmful to competition. If the government does not enforce the antitrust laws to enable competition, we could lose the next wave of innovation. If that happens, Americans may never get to see the next Google.

AKIKO FUJITA: Google responding to that lawsuit filed by the DOJ today, saying in this tweet, "Today's lawsuit by the Department of Justice is deeply flawed. People use Google because they choose to, not because they're forced to or because they can't find alternatives."

Let's bring in our guest for some analysis here. George Hay is a professor of law and professor of economics at Cornell University. And professor, it's great to have you on today. You know, this is something that has long been anticipated, very clearly messaged. You've seen the case here that the Department of Justice has now filed against Google. How strong do you think it is?

GEORGE HAY: Well, on paper, it looks strong because it's the Department of Justice's affirmative case. But you've got to take everything with some caution. This is not like price fixing, which is done in secret on the chance you get away with it. Everything Google does is public. There's not a single thing they do which isn't vetted by their lawyers and economists.

And so the idea of there's a lot of low hanging fruit is probably unrealistic. They pretty clearly think they have an argument that they've done nothing unlawful.

AKIKO FUJITA: One of the issues that the DOJ raises are these exclusive contracts that Google has with some carriers that, essentially, the DOJ argues has locked out competition. I want to read part of this thing, part of this passage here in that lawsuit here, saying, Google pays billions of dollars each year to distributors, including popular device manufacturers like Apple.

Also major US wireless carriers like AT&T, T-Mobile, and Verizon, which is, of course, our parent company, to secure default status for its general search engine and, in many cases, to specifically prohibit Google's counter parties from dealing with Google's competitors. Does that amount to anti-competitive behavior?

GEORGE HAY: Well, it could if there is no explanation, if the facts are exactly as situated. But people pay for access to stores all the time. And so, no question Google wants Apple to use Google as its default search engine. Exactly what Apple's choices are and whether they feel coerced to do this or whether they're paid so much money they have no other choice, that's something which has to be established. And you can't tell that just from reading the complaint.

AKIKO FUJITA: I mean, Google's argument, as you point out, has long been that this was a product that's offered for free. There's no real harm that's done to consumers. I mean, how strong do you think Google's counterargument is on that front, given that it is a product that a lot of users prefer? And to Google's point, at least on paper, it is offered for free.

GEORGE HAY: Yes, but Google advertising is not offered for free. And the argument is that because Google is the default, that gives them a real leg up on search advertising. And people pay for that. So in theory, there are victims here. It's not just consumers. People pay a lot more for advertising because there's not that much competition. That, at least, is the counterargument.

AKIKO FUJITA: What do you think the DOJ is trying to accomplish here? I mean, what are, number one, the tools that the DOJ has to work with, the legal tools to try and rein in Google's business on this issue? And ultimately, what do you think is the end goal, the realistic end goal?

GEORGE HAY: Well, you file a complaint because you think that there is a violation. You obviously have to prove that in court. Once you prove it, what you want the court to do is to do something to prevent the behavior, to eliminate the effects of the behavior, prevent it from recurring. That could be nothing more than an injunction. Stop and get rid of these exclusive contracts. Don't enter them anymore.

The complaint says-- calls out the possibility of some sort of structural reform, breaking up Google in some sense. But structural reform happens almost never in an antitrust case. Normally, courts can say there must be something else I can do. Short of breaking Google up, they'll fix the problem. We see real structural reform maybe once in 50 years.

AKIKO FUJITA: When you look at the legal tools right now, and specifically, looking at the antitrust law on the books, I mean, is it equipped to address these very issues we're talking about?

Today, we're talking about Google, but there are many other cases that are moving forward, whether it's the FTC on Facebook, the DOJ's additional cases on Apple and Facebook and Amazon. Are the laws that are on the books right now equipped to address the competition concerns that are in place right now?

GEORGE HAY: I limit myself to Google at the moment. This case, on paper, is not that radical a case. It's not talking about the data, big data, or use of big data. It's talking about something very much similar to the case against Microsoft.

Same as Microsoft, used exclusive dealing arrangements to make its browser the default browser. The antitrust laws were capable of dealing with that. If the facts are Department of Justice says they are, then I think the antitrust laws are perfectly adequate to deal with the assertions.

AKIKO FUJITA: When you say it's not that radical of a case, I mean, are we likely to see changes forced on Google as a result of this DOJ lawsuit being move forward?

GEORGE HAY: Well, Google believes that they haven't done anything wrong. And [INAUDIBLE] can't just say so. They have to prove this in a court of law. But the theory of the case is not that radical a theory. It looks very much like the old Microsoft case.

AKIKO FUJITA: And in the case of Microsoft, this is a lawsuit that dragged on for years, ultimately didn't end up in any kind of breakup. But you've heard the saying before that the trial was, in fact, the remedy. And that led to the emergence of these tech names we're talking about today, like a Google. How long do you think this is likely to play out? And does that ultimately weaken Google's hand the longer this drags out?

GEORGE HAY: No, I don't think it necessarily weakens Google's hand. Obviously, they worry that they have a trial. Things come out that they prefer not come out. Executives have to testify. Documents get read in public. So trials are not good, and companies will try to avoid trials if they can.

But at the end of the day, Google has to have confidence that they've done nothing wrong, and the burden is on the Department of Justice to prove that they have. So I think they're fully prepared for trial if there is going to be one.

AKIKO FUJITA: George Hay with Cornell University, it's great to have you on today. Thanks so much for your time.

GEORGE HAY: Happy to be here, thanks.