Following the Ninth Circuit’s decision to uphold a series of draconian remedies against Google in the long-running Epic v. Google litigation, Google is now seeking to take its case before the Supreme Court. In a petition filed last week, Google raised a number of important legal questions ripe for the Supreme Court’s consideration—most notably: What should the legal standard be for assessing whether its series of revenue sharing, preinstallation, and distribution agreements were anticompetitive? And did the relief imposed, including a heavy-handed catalog sharing remedy that gives third-party app stores access to Google Play Store’s extensive network of apps, go beyond the scope of proper antitrust relief? These questions are not only critical to resolving Epic v. Google but also implicate similar errors in Judge Mehta’s liability and remedy decisions in the concurrent DOJ v. Google search case.
The first and most important issue Google raises concerns the rule that was applied to determine whether it acted anticompetitively. Specifically, Google’s practices were evaluated under the rule of reason, which, in its standard formulation as set forth by the Supreme Court in cases like NCAA v. Alston, involves a three-step test: first, the plaintiff presents evidence that the conduct resulted in anticompetitive harm; second, the burden shifts to the defendant to provide a procompetitive justification for its practices; and third, the burden goes back to the plaintiff to show that those benefits could have been achieved through alternatives less restrictive of competition. If the plaintiff can meet its burden at step one and, if necessary, step three, the behavior is anticompetitive and illegal. If not, the defendant wins.
As Google explains, that’s not what happened here. Rather, the District Court adopted a test in which anticompetitive harms were balanced directly against procompetitive effects, without assessing whether less restrictive alternatives existed. To be sure, courts may allow plaintiffs to prevail under the rule of reason even if they fail the third step of demonstrating the existence of a less restrictive alternative—provided they can prove that anticompetitive harms outweigh procompetitive gains. But this four-step rule of reason is typically applied where the focus is on contractual tying, such as the Ninth Circuit’s County of Tuolumne decision. And while the practice of Google Play Store requiring the use of Google Play Billing for in-app purchases could fall into that bucket, at its core Epic v. Google concerns intrabrand restrictions on Android.
An analogous mistake with applying the rule of reason can be found in Judge Mehta’s decision in the search case. In holding that Google’s allegedly exclusive default search distribution agreements with third-party browsers, Android OEMs, and wireless carriers were anticompetitive, Judge Mehta laid out the four-step rule of reason described above: first, a plaintiff shows anticompetitive harm; next, a defendant responds by showing procompetitive benefits; and then the burden returns to the plaintiff to show either that there were less restrictive means to achieve those benefits or that they are outweighed by the anticompetitive harms. However, this was the wrong test. Under the U.S. v. Microsoft standard that Judge Mehta applied, there is no room for discounting procompetitive justifications on the grounds that less restrictive alternatives might exist. Indeed, for exclusive dealing generally, a least restrictive alternative analysis is not usually conducted; courts instead simply balance harms against benefits.
In addition to its concerns with the legal standard applied at the liability phase, Google’s Supreme Court petition in Epic v. Google takes major issue with the catalog sharing remedy imposed upon Google. In general, antitrust remedies—which can take the form of prohibitory injunctions preventing a company from engaging in certain behavior, affirmative obligations requiring a company to take proactive measures, and, in exceptional circumstances, breakups or other structural relief—can serve three purposes: terminating the illegal monopolization, undoing the fruits of the violation, and preventing future anticompetitive practices. Within this scheme, the catalog sharing remedy represents an affirmative obligation for Google to undo the fruits of its statutory violation by giving third-party app stores access to Google Play Store’s catalog of apps. This effectively results in Google losing a key network advantage that makes its Play Store more attractive to users: a greater catalog of apps.
But in upholding this remedy as a “‘reasonable method’ of counteracting the Play Store’s dominance and reducing the network effects it enjoys by temporarily lowering barriers to entry,” the Ninth Circuit seems to have erred. Specifically, the “reasonable method” standard set forth by the Supreme Court in Nat’l Soc’y Professional Engineers applies either to, as in that case, prohibitory injunctions to undo the fruits of anticompetitive behavior or, as the Massachusetts v. Microsoft case made clear, affirmative obligations designed to terminate the anticompetitive effects of the illegal monopoly. It should not apply to affirmative obligations intended to deny the fruits of anticompetitive behavior, which, as the latter court explained, require a higher standard mandating that “the fruits of a violation must be identified before they may be denied.” Yet the catalog sharing remedy makes no effort to distinguish between app network effects achieved through anticompetitive versus procompetitive means.
This error is repeated in the relief approved by Judge Mehta in the Google search case. Specifically, while rightly rejecting the DOJ’s radical proposal to force Google to divest Chrome and potentially Android, Judge Mehta similarly imposed a series of data sharing remedies that, as he made clear, “are designed primarily to deny Google a key fruit of its anticompetitive conduct—scale—and to help rivals overcome that deficit.” In particular, Judge Mehta required Google to share certain search index and user-interaction data with competitors to help improve their own search services. However, like the Ninth Circuit, Judge Mehta merely asked whether this relief was a “reasonable method of eliminating the consequences of the illegal conduct,” rather than precisely identifying which data constituted the fruits of Google’s anticompetitive behavior, as opposed to data Google obtained through the normal, procompetitive operation of its search service.
The Supreme Court doesn’t take many cases a year, and major antitrust decisions from the Court, as this one would be, are always quite rare. However, amidst the number of landmark antitrust cases against Big Tech companies that will, whichever way they are decided, have huge implications both for antitrust law and the American economy, the Epic v. Google case presents a unique opportunity for the Supreme Court to head off potential legal confusion by providing necessary guidance in two key areas where Judge Mehta in the Google search case also appears to have erred. Specifically, by clarifying which version of the rule of reason applies to different forms of conduct and what level of scrutiny should govern affirmative obligation remedies intended to divest the fruits of anticompetitive behavior, the Court can lay out a much-needed framework to guide lower courts as they adjudicate these once-in-a-generation antitrust actions against Big Tech.