When Bulls Win—And Other Tales of Monopoly
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Big tech has single-handedly kept stock market performance positive for much of this year. According to Blackrock, just seven technology stocks drove 70% of the S&P 500’s gains in the first two quarters.
Against this backdrop of technology’s rally and widespread excitement over the imminent potential promised by advancements in AI, the United States Department of Justice is fighting a landmark case against one of the leaders among those seven heavy hitters. The lawsuit, first filed in October 2020, alleges that Google is abusing its position as a monopolistic entity in the Internet search market by establishing anti-competitive agreements with manufacturers and distributors. These agreements, the DoJ argues, effectively prevent other players from even entering the arena, stifling the innovation and competition that capitalism relies on to stimulate a healthy economy.
Many are calling the case the biggest in tech since the one brought against Microsoft back in the ‘90s. Interestingly, the DoJ’s lawsuit against Google draws explicitly from that very case. It seems the DoJ hopes to replicate that case in several ways—and to apply some lessons learned.
So if the DoJ gets its wish, what could that mean for Google? Let’s first examine what it meant for Microsoft.
US v. Microsoft: The End of an Era
On April 4, 2000, US District Court Judge Thomas Penfield Jackson ruled that Microsoft had violated antitrust laws and kept “an oppressive thumb on the scale of competitive fortune.” This ruling was later overturned and ultimately settled out of court, but the two-year ordeal had already dealt heavy damage to the tech giant.
Before the case, Microsoft enjoyed an overall positive public perception. Bill Gates, their founder, was seen as “a college-dropout genius visionary who had brought computing to the masses.” Personal computing was still a novelty, and Microsoft wasn’t just riding the wave—they were the wave. Then the richest man in the world, Gates was living proof that the American Dream was still achievable in the modern age, an inspiring icon for the toiling masses.
But that heroic ideal began to disintegrate through the course of the case, starting with the hours of Gates’ very publicized deposition. Microsoft’s founder came off as snarky, combative, and pedantic, arguing over semantics and generally being as uncooperative as humanly possible. During the playing of portions of the tapes in the courtroom, Judge Jackson even laughed out loud at the absurdity of the word games played between attorney and accused.
Microsoft flubbed again with a dubious videotape intended to demonstrate the technical necessity of bundling Microsoft’s web browser with its operating systems. Full of inconsistencies, the recording did little more than cast further doubt on the company’s ethics.
Although the April 4 ruling came after the stock markets had closed that day, investors saw the writing on the wall. Settlement talks had collapsed just two days earlier. After two years of declining valuation, Microsoft’s stock lost nearly 14 percent of its value on April 4 alone.
Microsoft was ultimately able to appeal the April 4 ruling and later agreed to a settlement with the DoJ. While the settlement imposed restrictions on their dealings with hardware manufacturers and dealers, Microsoft avoided the corporate breakup originally sanctioned by Judge Jackson.
Even still, the company never returned to its former glory, with valuations continuing to fall through the next ten years. Gates himself blames the ultimate failure of the Windows Mobile operating system on the case, claiming that “instead of using Android today, you would be using Windows Mobile if it hadn’t been for the antitrust case.” Whether or not that’s more than just wishful thinking, it’s undeniable that the lawsuit drastically changed the course of the tech behemoth’s history.
US v. Google: A Time of Reckoning?
Is Google destined for the same fate? The Department of Justice is angling for it. Rebecca Haw Allensworth, a professor specializing in antitrust law at Vanderbilt Law School, explains that “everybody has viewed [the Microsoft case] as a kind of blueprint for how we might enforce the laws against the current tech giants.” The DoJ intends to apply a similar tactic in hopes of a similar outcome.
But the DoJ isn’t the only one taking notes from the Microsoft trial. Google as well as other big tech players testifying in the case have fought to keep as much as possible closed to the public, likely in an effort to curtail a PR backlash like the one Microsoft weathered. Antitrust experts are calling the trial’s high level of secrecy “unprecedented”, but the judge, Amit Mehta, has so far supported this preference primarily for the sake of protecting business secrets.
According to sources on Google’s legal team, drawing distinctions between the Microsoft case and their own will play a key role in their planned defense. Essentially, the argument is that Google’s massive market share is a result, not of anti-competitive dealings as was found to be the case for Microsoft, but of simply having a superior product.
Time will tell if Google’s defense will hold up against the DoJ’s accusations. But winning the trial is ancillary to the ultimate goal: making it through the grueling litigation process, losing neither face nor industry edge. For the Department of Justice, their message to big tech is already clear—which, from their perspective, is a win in itself.
With much of the market still trying to find its footing post-pandemic, big tech’s heroic rally has been a welcome counterpoint for investors. With the US Department of Justice on the offensive, it’s hard to say whether their bull run will last. But bearing in mind that Google owes its tremendous success at least in part to the market conditions created by the Microsoft ruling helps us keep some perspective.
That’s our ever-pressing mandate. Aldous Huxley reminds us, “There are things known and there are things unknown, and in between are the doors of perception.”* With facts in line, perspective is ours to employ. Game on, Google!
* Point taken, peyote notwithstanding 🙂
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