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Monopolist Secrecy Demands Are Overwhelming-and May Be Illegal

One anti-monopoly group contends that withholding basic financial
information violates federal securities laws.

A common demand that recurs across challenges to corporate power, from
union strikes

to antitrust cases, is forcing companies to "open the books" and unspool
their webs of financial secrets for the public to see. In the

**U.S. v. Google** trial, the government's efforts to pull back the
curtain on key company documents critical to its case have been
especially difficult. Google's legal defense team has obstructed at
every turn, objecting to the unsealing of documents and pushing for
closed-court sessions, which choke off public access entirely. At the
outset of the trial, Google was even in hot water for tampering with
evidence by deliberately turning off its chat history, which drew a
sanction from a California court but not yet from the D.C. district
court.

Curtailed public access to the trial has become a defining story

in its own right for the first three weeks of the trial. Several
attorneys involved in the case and outside legal observers have called
the
level of secrecy "unprecedented."

Google and Apple in particular are routinely protesting against
documents related to their multibillion-dollar default agreements
entering the public record. In exchange for default status on Apple
devices, among others, Google shares a portion of its revenue. The
government argues that this power of default, core to Google's entire
operation, entails exclusionary contracts that block rival search
engines from competing.

These objections to disclosing documents may be violating securities
law, according to a new letter

sent to the Securities and Exchange Commission this week by the American
Economic Liberties Project. The supposed confidential nature of the
contracts might also even fail to meet legal precedent.

THE GOVERNMENT HAS FOCUSED ON THE INNER WORKINGS of Google's default
contracts in its cross-examination and extracted revealing testimony
from Google's chief economist Hal Varian, Apple executives, and also
harmed parties such as Microsoft.

We now know based on these testimonies that these agreements are worth
billions of dollars each year. Equity research firm Sanford Bernstein
estimated

it could be around $18 billion to $19 billion, which is not exactly
chump change, as Google has suggested in trial.

However, the exact value, and the defined terms for revenue-sharing, are
still shrouded in mystery, at least in terms of what's been released
in open court. The figures matter for determining the scale of these
exclusionary contracts and could potentially undermine Google's
defense that default status is not essential to its success. Product
quality is the only reason Google dominates the market, its legal team
has argued.

Google, Apple, Samsung, and other parties have claimed the details of
their default agreements are confidential and sensitive business
matters. They insist releasing them could lead to competitive harm,
which is ironic because that's exactly what Google is being sued for.

Both Judge Amit Mehta and the Department of Justice have mostly accepted
Google and Apple's confidentiality rationale, and allowed for
extensive closed-door sessions to discuss these matters. This week,
though, there's been somewhat of an effort to keep more testimony in
open court, which is suspected to be in response to media scrutiny
around the lack of public access.

The companies' confidentiality defense runs up against the fact that
both are publicly traded firms. The specifics of the default agreements
would be material knowledge to shareholders and investors, since the
information could be "market moving," as Apple indicated in a petition
filed to the court this week. Material facts must be disclosed, per U.S.
securities law.

In response to that petition, the American Economic Liberties Project
submitted a letter on Tuesday to the Securities and Exchange Commission
requesting an investigation into whether Apple violated anti-fraud and
securities law. The letter argues that the sealed documents are
essential since the termination of the agreements could bring
significant losses to Apple and its shareholders.

"The SEC has rules in place on disclosing material information for
investors for a reason and they need to look into this," said Krista
Brown, senior policy analyst at the American Economic Liberties Project,
in a statement.

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There's also an open question as to whether Google and Apple's
confidentiality claims even meet the legal precedent.

Megan Gray is an independent lawyer dealing in internet law who used to
work for DuckDuckGo. She's been tracking Google's objections
throughout the trial, and argues that the case for sealing default
agreements has not yet fully met the standard legal threshold commonly
held to in court. At least, it should not be taken as a given that
documents must be sealed just because Google and Apple say so. That's
because holding information as confidential does not always mean it will
verifiably be harmful to the company if it's revealed.

"You can't just say competitive harm, you have to actually justify
that through certain metrics like pricing or business deals put at risk,
which neither party has been urged to do out in the public," said Gray.

Gray explains that certain of Apple's objections relate to default
agreements from over four years ago. It's hard to see how that would
impact their current market position.

While Judge Mehta initially took heat from anti-monopoly groups for
limiting public access
,
there's growing frustration outside the courtroom this week with how
deferential the Department of Justice has been to Google's
obstruction. While the DOJ understandably doesn't want to cross Judge
Mehta, they've allowed numerous Google and Apple objections to go
unchallenged.

The DOJ, for example, stopped posting public exhibits on its website,
even though it's a common practice. Prosecutors even took down
existing evidence because Google cried foul in court. Judge Mehta
sternly cautioned the DOJ to inform him if they planned to post the
exhibits moving forward but did not demand the DOJ take down the
exhibits that they'd already posted. The exhibits are now mostly back
on the website
.

In another exchange at the end of the day on Wednesday, DOJ attorney
David Dahlquist asked Judge Mehta to correct in the record that they had
not unilaterally entered closed-court proceedings with Apple executive
Eddy Cue earlier that day. Mehta appeared exasperated and responded that
the government should object to a closed-court session if they oppose
it.

This incident points to the DOJ's perceived timidity in pushing back
against closed-court proceedings.

"The DOJ trial team cares about beating Google, not public access to the
trial," said Matt Stoller, director of research at the American Economic
Liberties Project, whose organization pushed for a public audio line to
the trial, which Judge Mehta denied.

"Losing the trial isn't even the worst outcome for the antitrust
movement, it's if the public just completely tunes out," Gray
explained.

DESPITE GOOGLE AND APPLE'S PERSISTENT OBJECTIONS, testimonies this
week have brought numerous details to light about the harms that default
agreements bring on rival search engines.

Google's core defense is that there was fierce competition for default
agreements and it won the arms race with a better product. That argument
was eroded this week by the testimony of Mikhail Parakhin, the head of
Microsoft's advertising and web services. Parakhin says the
negotiations Microsoft pursued with Apple were never really competitive.
Apple merely used Microsoft as a bargaining chip to get a better
revenue-sharing agreement out of Google.

Similarly, Alex Austin, the CEO of Branch Metrics, a search tool for
finding apps on mobile devices, testified how default agreements impeded
the development of their product. In negotiations, the major carriers
and telecom utilities all cited their contracts with Google as the
reason why they could not allow Branch's discovery on their devices in
its full capacity. The carriers imposed restrictions on Branch's
product that undercut its reach to users so that it would not interfere
with Google Search and threaten their billion-dollar money pot.

Plus, the few public portions of Apple executive Eddy Cue's testimony
all but confirmed that Apple would have invested in its own search
engine if it didn't have Google as its default and if the
revenue-sharing terms weren't so lucrative.

The DOJ characterizes Google's default agreements as a form of
exclusive contract that harms competition. The evidence presented also
points to one potential policy solution, whether the government wins or
loses the case. An article published

shortly before the 2020 election by Sandeep Vaheesan, the legal director
at the Open Markets Institute, singled out these types of restrictive
contracts as a scourge that the FTC should target with its powers.

By using the same rulemaking authorities it used to propose a ban on
noncompete agreements, the FTC could ban default agreements as an unfair
method of competition. It would strike at the heart of Google and
Apple's duopoly and also set fair terms for firms to compete moving
forward to produce the best product, rather than just paying off other
tech firms to achieve dominance.

~ LUKE GOLDSTEIN, WRITING FELLOW

Follow Luke Goldstein on Twitter

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