United States v. Google/Conclusions of Law/Section 2A

by United States District Court for the District of Columbia

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A. Principles of Market Definition

The court starts with market definition.^[1] “[T]he relevant market is defined as the area of effective competition. Typically this is the ‘arena within which significant substitution in consumption or production occurs.’” Ohio v. Am. Express Co., 585 U.S. 529, 543 (2018) (quoting Areeda & Hovenkamp, Fundamentals of Antitrust Law § 5.02 (4th ed. 2017)) (internal quotation marks omitted). A relevant market must include all products that are “reasonably interchangeable by consumers for the same purposes,” Microsoft, 253 F.3d. at 52 (internal quotation marks omitted), “even though the products themselves are not entirely the same,” FTC v. Sysco Corp., 113 F. Supp. 3d 1, 25 (D.D.C. 2015). Courts should combine different products or services in a single market when “that combination reflects commercial realities.” Grinnell, 384 U.S. at 572.

Whether goods are reasonable substitutes depends on two factors: functional interchangeability and cross-elasticity of demand. Sysco, 113 F. Supp. 3d at 25–26. Functionally interchangeable products are those that consumers view as substitutes for each other. See id. The products comprising the relevant market need not be entirely the same. So long as “consumers can substitute the use of one for the other, then the products in question will be deemed ‘functionally interchangeable.’” FTC v. Arch Coal, Inc., 329 F. Supp. 2d 109, 119 (D.D.C. 2004); see also du Pont, 351 U.S. at 393 (“Determination of the competitive market for commodities depends on how different from one another are the offered commodities in character or use, how far buyers will go to substitute one commodity for another.”).

Cross-elasticity of demand turns on consumers’ sensitivity to an increase in price. See Rothery Storage & Van Co. v. Atlas Van Lines, Inc., 792 F.2d 210, 218 (D.C. Cir. 1986); du Pont, 351 U.S. at 400 (“An element for consideration as to cross-elasticity of demand between products is the responsiveness of the sales of one product to price changes of the other.”). That is, “[i]f an increase in the price for product A causes a substantial number of customers to switch to product B, the products compete in the same market.” Sysco 113 F. Supp. 3d at 25. “The higher these cross-elasticities, the more likely it is that similar products . . . are to be counted in the relevant market.” Rothery Storage, 792 F.2d at 218.

Courts generally consider two categories of evidence when defining the relevant product market: the “practical indicia” identified by the Supreme Court in Brown Shoe Company v. United States, 370 U.S. 294 (1962), and quantitative evidence from expert economists. The Brown Shoe “practical indicia” include: (1) industry or public recognition, (2) the product’s peculiar characteristics and uses, (3) unique production facilities, (4) distinct customers, (5) distinct prices, (6) sensitivity to price changes, and (7) specialized vendors. Id. at 325. According to the D.C. Circuit, “[t]hese indicia seem to be evidentiary proxies for direct proof of substitutability.” Rothery Storage, 792 F.2d at 218. And while “[t]he Brown Shoe practical indicia may indeed be ‘old school’” antitrust law, they bind the court. Sysco, 113 F. Supp. 3d at 27 n.2.^[2]

Quantitative evidence of market definition typically comes in the form of an expert economist conducting a “hypothetical monopolist test.” Id. at 33 (internal quotation marks omitted). “This test asks whether a hypothetical monopolist who has control over a set of substitutable products could profitably raise prices on those products. If so, the products may comprise the relevant product market.” Id. None of Plaintiffs’ economics experts performed a quantitative hypothetical monopolist test. That is entirely understandable for the proposed general search services market because search is a zero-priced good to the end user. The absence of a price is a feature of the user-side market. See Epic Games, Inc. v. Apple, Inc., 67 F.4th 946, 978 (9th Cir. 2023) (observing that “there may be markets where companies offer a product to one side of the market for free but profit in other ways, such as by collecting consumer data or generating ad revenue”).

Pricing, however, is central to the advertiser-side markets. Yet none of Plaintiffs’ experts performed a hypothetical monopolist test. The court found this surprising, but its absence is not fatal. There is no legal requirement that a plaintiff supply quantitative proof to define a relevant market. See McWane, Inc. v. FTC, 783 F.3d 814, 829–30 (11th Cir. 2015). Authorities cited by Google do not establish otherwise. See GTB at 21. For instance, Google accurately quotes an Eleventh Circuit decision, stating that “the broader economic significance of a submarket must be supported by demonstrable empirical evidence.” Jacobs v. Tempur-Pedic Int’l, Inc., 626 F.3d 1327, 1338 (11th Cir. 2010) (quoting U.S. Anchor Mfg., Inc. v. Rule Indus., Inc., 7 F.3d 986, 998 (11th Cir. 1993)) (internal quotation marks omitted). But the Circuit’s later decision in McWane made clear that this is not a hard-and-fast rule. There, the expert’s opinion “did not involve an econometric analysis, such as a cross-elasticity of demand study.” 783 F.3d at 829. Still, the expert’s reliance on qualitative economic evidence was sufficient to define the market, because “there appears to be no support in the caselaw for [the] claim that such a technical analysis is always required.” Id.

Plaintiffs did offer proof of what they say are “real-world” hypothetical monopolist inquiries conducted by Google, as the company routinely measured the effects of price increases on advertiser demand. The court will discuss what Google calls “intentional pricing” as part of the proposed advertiser-side markets, infra Section VI.B.

1. While this legal standard is identified as part of the court’s discussion of the general search services market, it also applies to the advertiser-side markets discussed in Part III.
2. Although some jurists have questioned the continued reliance on Brown Shoe to define markets, see FTC v. Whole Foods Market., Inc., 548 F.3d 1028, 1058–59 (D.C. Cir. 2008) (Kavanaugh, J., dissenting), Google has not urged the court to abandon consideration of them, see GTB at 6–23; Google’s Proposed Conclusions of Law, ECF No. 909 [hereinafter GCL], at 1–13; Google’s Resp. Proposed Conclusions of Law, ECF No. 911 [hereinafter GRCL], at 3–7.