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Speaker 1: This is Bloomberg Law with June Grossel from Bloomberg Radio.

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Speaker 2: A federal trial is beginning this week in Amazon's hometown

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Speaker 2: to decide whether the world's largest online retailer tricked its

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Speaker 2: customers into Joining Prime and then made it difficult to

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Speaker 2: cancel the membership. Prime provides subscribers with perks that include

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Speaker 2: faster shipping, video streaming, and discounts at whole Foods for

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Speaker 2: a fee of one hundred and thirty nine dollars annually.

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Speaker 2: It's a key and growing part of Amazon's business, with

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Speaker 2: more than two hundred million members, bringing in more than

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Speaker 2: twelve billion dollars in net revenue in the last quarter,

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Speaker 2: a twelve percent increase from the same period last year.

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Speaker 2: But the Federal Trade Commission says Amazon misled customers into

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Speaker 2: signing up for Prime and then made it very difficult

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Speaker 2: to cancel. Joining me is Matthew Shettenhelm Blue Umberg Intelligence

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Speaker 2: litigation and government analyst. Matt explain why the FTC is

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Speaker 2: suing Amazon.

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Speaker 1: Yeah, so this is a lawsuit, but that the FTC

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Speaker 1: filed two years ago alleging that Amazon Prime cancelation and

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Speaker 1: its subscription process doesn't comply with federal law. There's a

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Speaker 1: twenty ten federal law called the Restoring Online Shoppers Confidence

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Speaker 1: Act that addresses those membership programs that you can kind

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Speaker 1: of sign up for and they can automatically renew, and

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Speaker 1: there are some terms that the federal law requires that

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Speaker 1: the company be very clear about what those terms are,

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Speaker 1: that the customer make informed consent to those terms, and

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Speaker 1: that any ability to cancel that sign up is simple,

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Speaker 1: uses simple mechanisms. And the FTC says that Amazon falls

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Speaker 1: short on all three of those claims, and it's trying

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Speaker 1: to consumer redress and impose civil penalties on the company.

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Speaker 2: Let's start with the FTC's contention that Amazon makes it

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Speaker 2: difficult for consumers to purchase an item without also subscribing

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Speaker 2: to Prime, so it sort of tricks them into subscribing

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Speaker 2: for Prime.

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Speaker 1: Yeah, that's right. This goes back to when Lena Kon

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Speaker 1: was chair of the FTC, and there's a big focus

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Speaker 1: on sort of dark patterns and pushing, nudging consumers to

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Speaker 1: do things that maybe are against their will. And that's

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Speaker 1: the allegation here that as consumers went to maybe buy

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Speaker 1: a product on Amazon, Amazon sort of forced them into

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Speaker 1: this process of also signing up for Prime basically tricked them,

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Speaker 1: is the allegation, and so Amazon says, no, our process

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Speaker 1: was very clear. They tried to move motion to dismiss

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Speaker 1: on this and tried to move for summary judgment, but

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Speaker 1: the judge wouldn't allow it. He said, look, reasonable people

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Speaker 1: could disagree about this. This need to go to a jury.

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Speaker 1: So on that issue and all the others, the jury

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Speaker 1: is about to take that question up.

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Speaker 2: The FTC also claims that getting out of a Prime

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Speaker 2: subscription was too complicated. It required the customer to affirm

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Speaker 2: their desire to cancel membership on three pages, and internally

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Speaker 2: Amazon employees call the process the iliad.

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Speaker 1: Yeah, so the law requires a simple mechanism to cancel

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Speaker 1: these sign ups, and yes, I think it's it's going

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Speaker 1: to be harmful evidence that the FTC will present to

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Speaker 1: the jury that there were some comments made by Amazon

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Speaker 1: employees that describe this process as very difficult, and as

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Speaker 1: you said, even characterizing it as the iliad, I think

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Speaker 1: in a reference to the odyssey and how difficult this

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Speaker 1: can be to get through for consumers. Now, Amazon pushes

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Speaker 1: back on that and says, no, actually, you know, we

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Speaker 1: have data showing that people figure it out, always going

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Speaker 1: to be a couple of exceptions, and these stray comments

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Speaker 1: by employees don't really characterize how the process works. So

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Speaker 1: again here the judge looked at both sides and said,

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Speaker 1: you know what, I can't decide this is a fair

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Speaker 1: question to toss to a jury, and so that's going

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Speaker 1: to be presented to jurors this week and next.

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Speaker 2: I have to say that a lot of companies seem

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Speaker 2: to make it difficult to get out of subscriptions. I mean,

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Speaker 2: sometimes you sign up online, but you have to call

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Speaker 2: in order to get out of the subscription. Does Amazon

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Speaker 2: really stand out from these other companies that seem to

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Speaker 2: do the same thing.

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Speaker 1: Yeah, I mean I think that's a point that Amazon's

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Speaker 1: going to push that. Look, there isn't a lot of

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Speaker 1: clarity about what is a simple cancelation method, and the

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Speaker 1: industry follows pretty similar practices on this sort of thing.

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Speaker 1: This is pretty industry standard, and to me, like one

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Speaker 1: point that Amazon's going to raise, the FTC tried to

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Speaker 1: do a rule mad on this statute to add more

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Speaker 1: clarity to it, and that was over the past couple

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Speaker 1: of years. And when they did that, when they first

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Speaker 1: announced that rulemaking, they said this federal law that requires

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Speaker 1: a simple cancelation process. It isn't very clear. So the industry,

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Speaker 1: I think, is struggling with Okay, what exactly is too much?

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Speaker 1: And Amazon had to make a calculation on that point.

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Speaker 1: It had to look to other industry practices, and Amazon says,

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Speaker 1: look what we have in place. You know, maybe it's

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Speaker 1: not the simplest that you could possibly imagine, but that's

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Speaker 1: not what the law requires. It's pretty simple. You do

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Speaker 1: have to click through a couple things, but that's sufficient

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Speaker 1: to qualify as simple when you consider the industry standard

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Speaker 1: practice in Amazon's view, And did FTC.

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Speaker 2: Give Amazon a chance to correct this before they brought suit.

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Speaker 1: My understanding is that Amazon's already changed its processes in

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Speaker 1: material respects, and so I think at this point the

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Speaker 1: fight is mostly about going after the company for practices

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Speaker 1: in the past that have changed already and potentially seeking

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Speaker 1: what could be significant financial penalties against the company for

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Speaker 1: its past practices. So I don't see it as much

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Speaker 1: about injunctive relief or trying to change Amazon's practices going forward,

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Speaker 1: as much it is trying to penalize Amazon allegedly for

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Speaker 1: not following the law since around twenty fifteen. And going forward.

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Speaker 2: I wondered because I thought, you know, the jurors will

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Speaker 2: probably go online and try to cancel and see what happens.

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Speaker 2: But you're saying, that's not the cancelation process that's there. Now.

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Speaker 1: My understanding is this is focused on a previous version

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Speaker 1: of the cancelation process, and I suspect the judge will

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Speaker 1: discourage the jurors from investigating on their own.

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Speaker 2: I know the judge will, but you know, jurors sometimes

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Speaker 2: he right listen to those things. And the judge has

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Speaker 2: already ruled against Amazon on a few issues pre try well,

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Speaker 2: including limiting the legal defense that Amazon can raise at trial.

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Speaker 1: Yeah, that's right. You know, Amazon has repeatedly had a

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Speaker 1: difficult time with the judge, Judge John Chune. You know,

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Speaker 1: he refused to dismiss the case in May of twenty

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Speaker 1: twenty four when Amazon asked for that. He refused to

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Speaker 1: grant an early appeal of the case in July of

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Speaker 1: this year, and then last week he granted summary judgment

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Speaker 1: in parts to the Federal Trade Commission to sort of

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Speaker 1: narrow a couple of the issues that would go to

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Speaker 1: the jury. He refused to grant summary judgment for Amazon,

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Speaker 1: but He sort of very narrowly said, you know a

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Speaker 1: couple of these issues. Look, there's no way Amazon you're

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Speaker 1: going to win on this point or that point. Still,

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Speaker 1: I think the core of question is going to these jurors,

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Speaker 1: but he did narrow it a little bit. He also

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Speaker 1: said that a couple Amazon officers who worked on these

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Speaker 1: processes could be held personally liable if the jury concludes

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Speaker 1: that Amazon violated the law knowingly.

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Speaker 2: Yeah, and he ruled that the FTC doesn't have to

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Speaker 2: prove every single example of Amazon's sign up and cancellation

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Speaker 2: procedures are deceptive and can focus on a representative sample.

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Speaker 1: Yeah. I think that's right. So sort of narrowed the

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Speaker 1: issues a little bit, narrowed the evidence that will go

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Speaker 1: before the jury. As I said, Amazon's really had a

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Speaker 1: tough time with Judge John June here. And I think

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Speaker 1: the question is if Amazon lets the jury rule on

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Speaker 1: liability on whether Amazon violated the law or not, and

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Speaker 1: whether it did it knowingly, it goes back to the

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Speaker 1: judge then to set the financial penalties. And when Amazon's

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Speaker 1: had such a difficult time with this judge, is that

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Speaker 1: really something that it's going to want to do. That's

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Speaker 1: going to be a real consideration for the company as

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Speaker 1: it thinks about potentially settling this case.

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Speaker 2: Yeah, So in July, the judge admonished Amazon for withholding

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Speaker 2: seventy thousand documents, saying the conduct was tantamount to bad faith.

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Speaker 2: So it doesn't appear that Amazon has earned the judges trust.

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Speaker 1: Right, It's been a tough go throughout this case. And

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Speaker 1: you know, I thought Amazon might have a decent chance

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Speaker 1: at getting some of this case narrowed on its motion

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Speaker 1: to dismiss that a request for early appeal on this

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Speaker 1: stuff might have a small chance. But time after time,

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Speaker 1: this judge has let this case advance, as you said,

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Speaker 1: criticize the company for some of its practices as it's

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Speaker 1: defended this. So I'm not sure that Amazon's going to

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Speaker 1: feel very comfortable letting the judge decide how much it

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Speaker 1: should pay to resolve this.

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Speaker 2: Let's talk about the exposure of the company, because each

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Speaker 2: violation of that Restore Online Shopper's Confidence Act allows for

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Speaker 2: penalties of more than fifty three thousand dollars per violation.

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Speaker 2: So how much money are we talking about it?

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Speaker 3: All?

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Speaker 1: Right? So you get to absurd math really quickly when

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Speaker 1: you deal with numbers like that. If you're talking about

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Speaker 1: tens of million millions of Amazon Prime subscribers, and I

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Speaker 1: think Amazon's expert was talking somewhere in the ballpark of

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Speaker 1: thirty to forty million Amazon users, and you multiply that

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Speaker 1: times fifty thousand, it breaks my calculator. And so the

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Speaker 1: judge ultimately using that number would have to settle on

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Speaker 1: a civil penalty that is meaningful to the company, but

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Speaker 1: not a violation of due process, not so unreasonable. There's

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Speaker 1: also a push from the FTC for consumer redress, not

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Speaker 1: just civil penalties, but the FDC's expert says that when

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Speaker 1: you look at how much consumers paid that they shouldn't

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Speaker 1: have here, he calculates the damages close to one billion

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Speaker 1: dollars just for that, So one billion for consumer redress

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Speaker 1: or nearly that, and then civil penalties that, as we said,

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Speaker 1: could easily reach absurd billions of dollars, but likely would

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Speaker 1: get into the billion dollar range as well. And so

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Speaker 1: even with the company, you know, with the resources like Amazon,

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Speaker 1: it's really hard for any judgment to be disruptive to

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Speaker 1: a company like Amazon that has you know, annual profits

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Speaker 1: in the you know, sixty seventy billion dollar range. It's

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Speaker 1: hard to be material, but this might might get their

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Speaker 1: attention when numbers like that are in place. So I

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Speaker 1: think when you add all of that up, there's going

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Speaker 1: to be considerable pressure for the company to settle this

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Speaker 1: before the judge gets to decide on what is the

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Speaker 1: reasonable penalty.

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Speaker 2: But that's a really difficult calculation for Amazon to make,

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Speaker 2: isn't it So what they'll watch the jurors through the

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Speaker 2: trial and see whether any of them are reacting favorably

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Speaker 2: to their arguments. I mean, it's really hard to read

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Speaker 2: a jury.

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Speaker 1: It's very difficult to predict exactly when these companies will

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Speaker 1: will settle in trial. I've seen cases settle at the

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Speaker 1: beginning of trial. I've seen cases settle at the very end,

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Speaker 1: right before we're about to get a verdict. I think,

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Speaker 1: you know, it's reasonable to see how it's going, you know,

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Speaker 1: get a read on the on the jurors. It's possible

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Speaker 1: they take their chances because one of the things that

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Speaker 1: Amazon has going for it is that for the judge

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Speaker 1: to impose civil penalties here, it's not enough that Amazon

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Speaker 1: violated this federal law we've talked about, but also the

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Speaker 1: FDC has to prove that Amazon did so knowingly, and

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Speaker 1: so I think Amazon's going to have an argument that, Okay, look,

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Speaker 1: even if we did technically not give consumers a simple

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Speaker 1: method to cancel, if if this number of clicks is

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Speaker 1: a couple too many, did we really know that knowingly

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Speaker 1: given the limited FTC guidance that's out there, Given that

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Speaker 1: the FTC itself has said that this isn't simple, So

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Speaker 1: there's actually a chance for the company to be found

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Speaker 1: liable in the sense that it violated the law, but

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Speaker 1: not subject to these serious financial penalties. And so if

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Speaker 1: I'm Amazon, that's the kind of thing I'd be watching

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Speaker 1: out for. But I think, you know, you might want

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Speaker 1: to think about settling. If I'm Amazon, you might want

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Speaker 1: to think about settling, you know, before the returns its verdict,

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Speaker 1: because you have the prospects to win with the jurors,

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Speaker 1: and so that should help your negotiation posture with the

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Speaker 1: FDC in reaching sort of a reasonable settlement. If you

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Speaker 1: lose with the jurors, that argument falls away. You've already lost,

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Speaker 1: and it's all a question of how bad it's going

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Speaker 1: to be.

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Speaker 2: Are there internal documents that talk about that?

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Speaker 1: Ili I like process, I mean, I think there is

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Speaker 1: some internal evidence that won't look great here, and you

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Speaker 1: think about how is a reasonable jur going to think about,

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Speaker 1: you know, Amazon employees talking about their process like you know,

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Speaker 1: some of these allegations claim it might not be a

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Speaker 1: great look to a jur and a jur looking at

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Speaker 1: a company with significant resources like Amazon and thinking maybe

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Speaker 1: about how much they've spent on their own Amazon account,

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Speaker 1: and you know, you can see why why a company

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Speaker 1: could be nervous. Anytime a case like this goes to

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Speaker 1: a jury, it's going to be unpredictable. It's going to

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Speaker 1: be risky for a company. So you know a lot

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Speaker 1: of sure to settle to just make the thing go

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Speaker 1: away for a sum that won't be material for a

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Speaker 1: company like Amazon.

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Speaker 2: Like other companies, Amazon has been attempting to forge friendlier

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Speaker 2: ties with President Trump. Can you tell us a little

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Speaker 2: about that?

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Speaker 1: Yeah, I mean we're seeing that across a number of

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Speaker 1: companies right now. There's often a question, you know, where

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Speaker 1: companies can can fight aggressively against this administration or they

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Speaker 1: can choose to not rock the boat. And I don't

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Speaker 1: know how much this case will will fit into that paradigm.

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Speaker 1: Is a case that came during the Biden administration and

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Speaker 1: it was continued under the Trump administration. But you know,

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Speaker 1: I think that that probably does play into part of

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Speaker 1: the calculation as well, like how aggressive do we really

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Speaker 1: want to be here in fighting and a settlement that

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Speaker 1: that isn't material might be better to make the whole

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Speaker 1: thing go away.

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Speaker 2: The FTC has another antitrust case against Amazon that's going

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Speaker 2: to trial in twenty twenty seven.

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Speaker 1: Yes, that's right. So my colleague Jenrie covers the anti

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Speaker 1: trust side for us on that, and so yeah, that's

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Speaker 1: in many ways a much more significant threat for the

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Speaker 1: company than this which is really focused on, you know,

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Speaker 1: sort of a discrete issue, as we said, a past practice.

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Speaker 1: But Amazon faces you know, much more significant threats on

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Speaker 1: the anti trust front. And I think so that's a

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Speaker 1: good point as well. You look at this stuff in

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Speaker 1: the big picture and do you want to really be

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Speaker 1: resisting this administration? Maybe the anti trust case plays into

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Speaker 1: that calculation.

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Speaker 2: Coming up next on the Bloomberg Lawn Show, I'll continue

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Speaker 2: this conversation with Matthew Shettenhelm of Bloomberg Intelligence. Jimmy Kimmel

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Speaker 2: is returning to the air tonight, but not everywhere. I'm

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Speaker 2: June Grosso and you're listening to Bloomberg. Jimmy Kimmel Live

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Speaker 2: will return to the air tonight, ending a suspension Walt

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Speaker 2: Disney imposed following controversial remarks the late host made about

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Speaker 2: the shooting death of conservative activists Charlie Kirk. Disney's decision

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Speaker 2: to suspend the show followed pressure from both the federal

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Speaker 2: government and independent operators of ABC stations. Brendan Carr, the

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Speaker 2: Republican chairman of the Federal Communications Commission, criticized Kimmel's remarks

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Speaker 2: on a podcast and suggested the company could lose its

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Speaker 2: broadcast licenses.

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Speaker 4: But frankly, when you see stuff like this, I mean, look,

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Speaker 4: we can do this the easy way or the hard way.

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Speaker 4: These companies can find ways to change conduct, to take

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Speaker 4: action frankly on Kimmel, or you know, there's gonna be

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Speaker 4: additional work for the FCC ahead.

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Speaker 2: But two Republican senators Ted Cruz of Texas and Ran

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Speaker 2: Paul of Kentucky attacked the FCC chairman's actions, with Cruz

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Speaker 2: accusing Carr of mafioso tactics.

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Speaker 3: Look look, I like Brendan Carr. He's a good guy.

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Speaker 3: He's the chairman of the FCC. I work closely with it.

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Speaker 3: But what he said there is dangerous as hell. He says,

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Speaker 3: we can do this the easy way, but we can

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Speaker 3: do this the hard way. Yeah, And I got to say,

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Speaker 3: that's right out of good fellows. That that that that

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Speaker 3: that's right out of a mafioso coming into a bar,

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Speaker 3: going nice bar you have here, It'd be a shame

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Speaker 3: of something happened to it.

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Speaker 2: So, Matt Kimmel's coming back on the air tonight, but

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Speaker 2: some stations are not carrying the show.

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Speaker 4: Right.

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Speaker 1: So the FCC rules say that local stations have the

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Speaker 1: right to preempt national network content. And what we're seeing

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Speaker 1: now is that two of those bigger local station owners,

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Speaker 1: next Star and Sinclair, are exercising their right to preempt

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Speaker 1: that network programming. And so I think this is, you know,

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Speaker 1: directly tied to FCC Chair Brendan Carr's push the other

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Speaker 1: day the podcast. He told those companies, Look, you can

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Speaker 1: do this if you don't like, you don't believe that

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Speaker 1: Jimmy Kimmel's content is in the public interest, you, as

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Speaker 1: a local station owner, have this right to preempt it.

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Speaker 1: All these local stations negotiate contracts with the networks that

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Speaker 1: protect this right, and so this is just an exercise

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Speaker 1: under those FCC rules, But maybe because the FCC chairman

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Speaker 1: told them to do this directly, and they have an

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Speaker 1: incentive to follow what the FCC chairman asked them to do.

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Speaker 2: The stations that aren't taking the show tonight, are they

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Speaker 2: ones that are looking to.

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Speaker 1: Merge Next Star. Yes. Nextstar has recently announced a six

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Speaker 1: billion dollar deal to acquire Tegna, another owner of TV stations,

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Speaker 1: and it's really important that the FCC be supportive of

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Speaker 1: that for two reasons. One, the FCC has to approve

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Speaker 1: the transaction because it involves swapping licenses from Tegna to Nextstar.

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Speaker 1: The FCC has to sign off on that. And even

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Speaker 1: more importantly, there's an FCC rule right now that says

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Speaker 1: no broadcast station can reach more than thirty nine percent

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Speaker 1: of US households. This deal would let Nextstar reach something

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Speaker 1: like seventy eighty percent of US households, So they need

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Speaker 1: the SCC to scrap that rule first. And so there's

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Speaker 1: a real incentive when the FCC chairman asks you to

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Speaker 1: do something, or at least strongly encourages you to do

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Speaker 1: something when you need all these steps for a major

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Speaker 1: deal to happen, you have a strong incentive to go

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Speaker 1: along with that. Sinclair doesn't have a pending deal in

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Speaker 1: the same at least not of the same scale right now,

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Speaker 1: but it also is a big supporter of this deregulation

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Speaker 1: that the FCC is working on, the thirty nine percent

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Speaker 1: cap and a couple other rules that the sc is

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Speaker 1: looking at. Easy.

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Speaker 2: Why do you think Disney brought Kimmel back.

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Speaker 1: Well, there was you know, significant pressure, I think public

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Speaker 1: pressure on the company, raising concerns about whether the company

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Speaker 1: was folding to government pressure here. When it was initially announced,

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Speaker 1: they were deliberately I think cautious about not saying how

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Speaker 1: long the suspension of the programming would last. And so

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Speaker 1: I think it's possible that this is a response to

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Speaker 1: that public pressure to bring him back pretty quickly.

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Speaker 2: There was a lot of negative reaction from conservatives about

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Speaker 2: taking Kimmel off the YEIR and the threat to free speech.

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Speaker 2: But is car still standing by his words.

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Speaker 1: Yeah, I think Brendan Carr is saying, look, I wasn't

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Speaker 1: threatening the companies on this. I I was pointing out

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Speaker 1: how the law works. But yeah, it was sort of

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Speaker 1: surprising to see Senator Ted Cruz in particular, haul out

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Speaker 1: Brendan Carr for those comments. And that's when you saw

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Speaker 1: Brendan Carr sort of pulling back a little bit and

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Speaker 1: maybe not using quite the same tone, but still saying, look,

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Speaker 1: here's how FCC processes work. I was just talking about that.

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Speaker 1: It seems like a little bit of a softening in

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Speaker 1: the tone at least from Brendon Carr after a pretty

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Speaker 1: important Senator, Ted Cruz, who runs the Commerce Committee, the

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Speaker 1: Senate Commerce Committee that oversees the SEC, spoke out pretty strongly,

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Speaker 1: and so I think it's possible that his sort of pullback,

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Speaker 1: at least a softening on his comments was in response

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Speaker 1: to that always good.

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Speaker 2: To talk to you, Matt, thanks so much. That's Matthew Schettenheim,

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Speaker 2: Bloomberg Intelligence litigation and government analyst. Coming up next. Google

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Speaker 2: is facing another breakup possibility in court. I'm June Grosso

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Speaker 2: and this is Bloomberg. The Justice Department has opened its

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Speaker 2: offensive in court to force a breakup of Google before

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Speaker 2: the junior federal judge who's already ruled the search giant

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Speaker 2: illegally monopolized advertising technology markets, Judge Leoni Brinkhema is hearing

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Speaker 2: testimony over two weeks from website publishers, advertisers, tech experts,

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Speaker 2: and Google's own employees about whether the company should be

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Speaker 2: forced to divest a key piece of its business the

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Speaker 2: Advertise against Change Addicts Joining me is Bloomberg Intelligence Senior

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Speaker 2: litigation analyst Jenniferree. Jen, can you tell us about the

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Speaker 2: judge's decision that Google illegally monopolized ad tech markets?

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Speaker 5: Well, the viability decision has already been made that at

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Speaker 5: least for some tools that Google has in what's called

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Speaker 5: the ad tech stack, it has a monopoly position and

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Speaker 5: it has undertaken illegal conduct to maintain those monopolies. You know,

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Speaker 5: under the US law, it isn't illegal to have a monopoly,

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Speaker 5: but once you have one, you can't do things that

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Speaker 5: exclude competitions to stay in that monopoly position. There were

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Speaker 5: three products that Google has that the DOJ alleged to

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Speaker 5: be monopolized, and one of those was called a publisher

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Speaker 5: ad server, one was called an ad exchange, and one

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Speaker 5: worked a series of tools on the advertiser side. So

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Speaker 5: if you think about you know, advertisers and digital advertisers

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Speaker 5: and publishers coming together to place an advertisement on a website.

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Speaker 5: The publishers have a tool, the advertisers have a tool,

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Speaker 5: and then there's an exchange in between them to conduct

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Speaker 5: an auction for an advertiser to actually bid on space

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Speaker 5: and win that space and pay for that space and

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Speaker 5: run their ad. The court decided on the advertiser side,

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Speaker 5: Google didn't have a monopoly and that the Department of

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Speaker 5: Justice didn't define the market in a proper way that

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Speaker 5: sort of outlined a specific competitive product and failing to

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Speaker 5: properly identify the exact market they're talking about this monopolized

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Speaker 5: You kind of fail across the board. So that dropped out.

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Speaker 5: But what stayed in the case and where the judge

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Speaker 5: did find liability was with the public publisher ad server

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Speaker 5: and the AD Exchange. So the publisher ad server is

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Speaker 5: a tool that the publishers that have space on their

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Speaker 5: websites that they're selling to an advertiser. It's where they

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Speaker 5: can manage that inventory and where they can then access

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Speaker 5: the ad Exchange, and the AD Exchange is where the

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Speaker 5: auction would take place.

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Speaker 2: This gets very technical. Can you tell us the main

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Speaker 2: thing that the judge found Google did that was anti competitive?

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Speaker 5: You know, the judge found a number of things, but

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Speaker 5: the main conduct of Google that the judge said was

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Speaker 5: anti competitive and harm the competitive process was tying. In antitrust,

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Speaker 5: tying is when a company has a product that's a

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Speaker 5: must have product or where they have market power and

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Speaker 5: consumers want to use that product, but that seller of

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Speaker 5: that product has a second product that's not as desirable,

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Speaker 5: and they leverage the must have products to force customers

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Speaker 5: to buy the second product. So in this case, there

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Speaker 5: was this very valuable inventory that Google had in its

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Speaker 5: own ad exchange. This inventory was really valuable because advertisers

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Speaker 5: were on that exchange through the ad products that Google has,

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Speaker 5: because it also places ads on Google Search, and as

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Speaker 5: we know, Google Search is a monopoly product. It's been

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Speaker 5: seen that by a court most searches are done by Google,

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Speaker 5: and so advertisers want to be able to place ads

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Speaker 5: when a search is conducted and on that search page.

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Speaker 5: So Google has this great inventory of advertiser demand, and

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Speaker 5: that advertiser demand feeds into its ad exchange. And what

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Speaker 5: Google said is, hey, publishers, if you want access to

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Speaker 5: that demand, you have to use our publisher ad server.

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Speaker 5: You can't use any other rival publisher ad server. And

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Speaker 5: in that way Google tide it's AD exchange to its

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Speaker 5: publisher ad server and so what does that do to you?

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Speaker 5: And it blocks all the other competitors out for these products,

437
00:25:49,119 --> 00:25:52,959
Speaker 5: and it keeps this entire transaction within Google's ads tech stack.

438
00:25:53,320 --> 00:25:56,320
Speaker 5: And Google's now extracting fees all along the way because

439
00:25:56,359 --> 00:25:58,680
Speaker 5: at each step of the process there's some feed that's

440
00:25:58,720 --> 00:26:01,800
Speaker 5: taken by the host of these ad tech tools. When

441
00:26:01,800 --> 00:26:04,040
Speaker 5: in an auction is one and an added paid for,

442
00:26:04,359 --> 00:26:07,159
Speaker 5: Google's taking fees for that, and so it manipulated this

443
00:26:07,280 --> 00:26:10,680
Speaker 5: process by controlling all of these pieces. And that's essentially

444
00:26:10,720 --> 00:26:13,119
Speaker 5: what the court found. So the primary finding was this

445
00:26:13,280 --> 00:26:16,560
Speaker 5: tying of the publisher ad server of Google. It's called DSP,

446
00:26:16,800 --> 00:26:19,320
Speaker 5: that's what Google calls it to its AD exchange, which

447
00:26:19,359 --> 00:26:20,080
Speaker 5: is called add X.

448
00:26:20,720 --> 00:26:24,240
Speaker 2: This trial is going to determine the remedy and the

449
00:26:24,520 --> 00:26:28,320
Speaker 2: Justice Department is asking that Google be required to sell

450
00:26:28,359 --> 00:26:30,040
Speaker 2: off some of its tech.

451
00:26:30,600 --> 00:26:33,320
Speaker 5: Yes, that's right. So the judge is looking about what

452
00:26:33,600 --> 00:26:36,600
Speaker 5: do we do about this monopolistic conduct and what the

453
00:26:36,640 --> 00:26:39,800
Speaker 5: DOJ has proposed its own set of remedies, and Google

454
00:26:39,800 --> 00:26:41,920
Speaker 5: has proposed its set of remedies, and the judge is

455
00:26:41,960 --> 00:26:44,840
Speaker 5: now going to have to decide, and the DOJ basically says, look,

456
00:26:44,880 --> 00:26:47,439
Speaker 5: the only way to fix this is to force Google

457
00:26:47,480 --> 00:26:50,200
Speaker 5: to sell the ad exchange that's the add X product

458
00:26:50,280 --> 00:26:53,159
Speaker 5: to a buyer that's subject to the DOJ approval. Because

459
00:26:53,440 --> 00:26:56,000
Speaker 5: this is so technical and there's so many things Google

460
00:26:56,040 --> 00:26:59,240
Speaker 5: could do to manipulate the process. If all we do

461
00:26:59,320 --> 00:27:02,920
Speaker 5: is impose theavioral remedies and say Google stop doing what's illegal,

462
00:27:03,440 --> 00:27:06,320
Speaker 5: there's so many other sneaky ways Google could come in there,

463
00:27:06,600 --> 00:27:09,919
Speaker 5: manipulate the process and pervert the process to benefit itself.

464
00:27:09,960 --> 00:27:12,080
Speaker 5: And the only way to really prevent that, and a

465
00:27:12,160 --> 00:27:15,680
Speaker 5: really easy and streamlined and kind of clear concise way

466
00:27:15,720 --> 00:27:17,639
Speaker 5: of doing that is to force Google to sell the

467
00:27:17,680 --> 00:27:21,400
Speaker 5: ad exchange. And maybe also by the way DSP it's

468
00:27:21,440 --> 00:27:25,399
Speaker 5: Publisher ad Server. That's kind of a contingent remedy. The

469
00:27:25,520 --> 00:27:29,760
Speaker 5: Dot's proposing sort of a strange phased divestiture of that

470
00:27:29,880 --> 00:27:33,240
Speaker 5: product where it first basically Google has to just make

471
00:27:33,240 --> 00:27:36,800
Speaker 5: it a little bit more interoperable, provide access to APIs

472
00:27:36,920 --> 00:27:40,639
Speaker 5: so publishers could migrate their products, their inventory off of

473
00:27:40,680 --> 00:27:43,159
Speaker 5: that publisher to another one, and make some of this

474
00:27:43,359 --> 00:27:46,800
Speaker 5: code available to be run by a neutral organization sort

475
00:27:46,800 --> 00:27:48,760
Speaker 5: of opening it up a little bit, but not fully

476
00:27:48,800 --> 00:27:51,440
Speaker 5: selling it. But if that all doesn't work to fix competition,

477
00:27:51,520 --> 00:27:54,560
Speaker 5: then fully divest it. So it's kind of like they're saying,

478
00:27:54,640 --> 00:27:57,720
Speaker 5: divest the ad exchange and sort of open up the

479
00:27:57,760 --> 00:28:00,359
Speaker 5: publisher ad server and maybe divest added need it.

480
00:28:01,160 --> 00:28:03,240
Speaker 2: I mean what would that do to Google? How much

481
00:28:03,240 --> 00:28:06,280
Speaker 2: of a loss would that be for Google?

482
00:28:06,920 --> 00:28:10,600
Speaker 5: I mean billions of dollars of ad revenue. Advertising is

483
00:28:10,640 --> 00:28:13,840
Speaker 5: the main money making products of a lot of websites.

484
00:28:13,880 --> 00:28:16,639
Speaker 5: Search is free, and YouTube is free, and Google Maps

485
00:28:16,680 --> 00:28:18,800
Speaker 5: is free, and a lot of these products are free

486
00:28:18,840 --> 00:28:21,399
Speaker 5: because they make their money via this ad revenue, and

487
00:28:21,440 --> 00:28:23,919
Speaker 5: they make a lot of money not just placing ads

488
00:28:23,960 --> 00:28:26,359
Speaker 5: on a search page when somebody does search, but also

489
00:28:26,600 --> 00:28:29,359
Speaker 5: via this ad tech stack and via the placement of

490
00:28:29,359 --> 00:28:32,480
Speaker 5: that between other digital publishers and advertisers.

491
00:28:32,720 --> 00:28:35,040
Speaker 2: And what is Google proposing instead?

492
00:28:35,680 --> 00:28:38,080
Speaker 5: So what Google's proposing obviously is to not have to

493
00:28:38,120 --> 00:28:42,440
Speaker 5: sell anything and just what's called a behavioral remedy. We're

494
00:28:42,480 --> 00:28:45,080
Speaker 5: going to change the way we conduct our business. So

495
00:28:45,120 --> 00:28:48,280
Speaker 5: they're saying that they would remove that tie, you know,

496
00:28:48,400 --> 00:28:51,960
Speaker 5: they would allow publishers to have access of this great

497
00:28:52,040 --> 00:28:55,960
Speaker 5: and unique demand that comes from the ad network products

498
00:28:55,960 --> 00:28:59,040
Speaker 5: that fits in the AD exchange to make bids, will

499
00:28:59,080 --> 00:29:01,680
Speaker 5: let you have access that at least demand for open

500
00:29:01,720 --> 00:29:04,080
Speaker 5: web display ads that's different from an AD that's a

501
00:29:04,080 --> 00:29:08,200
Speaker 5: search AD will allow you to use other publisher ad

502
00:29:08,240 --> 00:29:12,320
Speaker 5: networks and still have access to that demand. So we'll

503
00:29:12,360 --> 00:29:15,520
Speaker 5: just remove that tie. And also they had had imposed

504
00:29:15,520 --> 00:29:18,880
Speaker 5: some pricing rules on publishers, and they had forced them

505
00:29:18,920 --> 00:29:22,120
Speaker 5: to set price floors that were unified. They'd say, well,

506
00:29:22,120 --> 00:29:24,400
Speaker 5: we'll allow publishers to do what they want to. We'll

507
00:29:24,440 --> 00:29:26,520
Speaker 5: open up some of our rules. If they want to

508
00:29:26,520 --> 00:29:29,520
Speaker 5: set different price floors for different bidders rather than a

509
00:29:29,600 --> 00:29:32,040
Speaker 5: unified price floor for everyone, we'll let them do that.

510
00:29:32,800 --> 00:29:36,000
Speaker 5: And they also had some technical things they'd implemented that

511
00:29:36,280 --> 00:29:40,480
Speaker 5: advantaged Google's own tools, gave them special priorities, or gave

512
00:29:40,520 --> 00:29:42,880
Speaker 5: them the ability to sort of see bids and adjust

513
00:29:42,960 --> 00:29:45,280
Speaker 5: and match bids so that they could win. They say,

514
00:29:45,440 --> 00:29:48,160
Speaker 5: you know, we'll not use that stuff. We've already fased

515
00:29:48,160 --> 00:29:50,080
Speaker 5: some of that out. Google says, and we'll phase all

516
00:29:50,080 --> 00:29:51,960
Speaker 5: the rest of it out. We'll get rid of all

517
00:29:52,000 --> 00:29:54,960
Speaker 5: these technical things that we've done in this process that

518
00:29:55,080 --> 00:29:57,920
Speaker 5: advantage us and advantage our tools. So we'll make the

519
00:29:57,960 --> 00:30:01,800
Speaker 5: whole process more neutral. Generally, will make it a lot easier.

520
00:30:01,880 --> 00:30:04,800
Speaker 5: All of these products, will make them interoperable, will make

521
00:30:04,840 --> 00:30:07,800
Speaker 5: it easier for publishers to use Google tools on the

522
00:30:07,840 --> 00:30:11,520
Speaker 5: ad network side in conjunction with other ad tet providers,

523
00:30:11,520 --> 00:30:14,560
Speaker 5: some other ad exchange of another company, or some other

524
00:30:14,800 --> 00:30:18,040
Speaker 5: publisher ad server from some other company. So publishers now

525
00:30:18,080 --> 00:30:20,480
Speaker 5: can sort of mix and match rather than using the

526
00:30:20,520 --> 00:30:21,360
Speaker 5: whole Google stack.

527
00:30:21,920 --> 00:30:25,840
Speaker 2: During a May hearing, did the judge hint that she

528
00:30:26,160 --> 00:30:31,320
Speaker 2: was considering seriously the government's argument to force a sale.

529
00:30:31,760 --> 00:30:34,400
Speaker 5: She has to explore all of this, you know, she

530
00:30:34,560 --> 00:30:36,560
Speaker 5: has to dig into all of this, and she did

531
00:30:36,920 --> 00:30:39,840
Speaker 5: suggest in a hearing that you know, she's considering that.

532
00:30:39,920 --> 00:30:42,880
Speaker 5: But bear in mind, in the Google Search case, which

533
00:30:42,920 --> 00:30:45,000
Speaker 5: is much farther along than this, where we already have

534
00:30:45,120 --> 00:30:47,600
Speaker 5: the remedies that have been imposed on Google for now

535
00:30:47,720 --> 00:30:52,200
Speaker 5: pending appeal, that judge also very seriously appeared to consider

536
00:30:52,320 --> 00:30:56,320
Speaker 5: the prospect of forcing Google to divest Chrome, but didn't

537
00:30:56,440 --> 00:30:59,280
Speaker 5: ultimately impose that remedy. You know, the judge has to

538
00:30:59,360 --> 00:31:02,360
Speaker 5: explore all of the possibilities in order to come up

539
00:31:02,360 --> 00:31:04,960
Speaker 5: with those possibilities that she thinks are going to be

540
00:31:04,960 --> 00:31:07,800
Speaker 5: the best in this case to basically stop the anti

541
00:31:07,840 --> 00:31:11,360
Speaker 5: competitive conduct and restore healthy competition in the market.

542
00:31:12,080 --> 00:31:15,320
Speaker 2: What kind of testimony will there be a trial. She's

543
00:31:15,400 --> 00:31:17,360
Speaker 2: heard a lot already from the first trial.

544
00:31:17,760 --> 00:31:19,160
Speaker 5: Right now, A lot of this is going to be

545
00:31:19,240 --> 00:31:22,880
Speaker 5: very technical. So I think what's already started are some

546
00:31:22,960 --> 00:31:25,560
Speaker 5: of the entities that have been harmed by Google's conducts.

547
00:31:25,560 --> 00:31:29,160
Speaker 5: For instance, rival publisher ADS or Verse that can't get

548
00:31:29,200 --> 00:31:32,360
Speaker 5: business because they don't have access to this desirable demand

549
00:31:32,360 --> 00:31:35,520
Speaker 5: on ADEK talking about how it's hurt them and supporting

550
00:31:35,560 --> 00:31:38,040
Speaker 5: the idea that the only thing that would help would

551
00:31:38,080 --> 00:31:41,360
Speaker 5: be divestitures. So right now, the DOJ putting on witnesses

552
00:31:41,480 --> 00:31:44,320
Speaker 5: talking about how they've been hurt by the conduct, why

553
00:31:44,400 --> 00:31:48,520
Speaker 5: they think just behavioral remedies won't work, and why they

554
00:31:48,520 --> 00:31:51,800
Speaker 5: think divestitures will be needed. Google will very likely put

555
00:31:51,800 --> 00:31:54,720
Speaker 5: on some very technical people that will talk about how

556
00:31:54,760 --> 00:31:58,480
Speaker 5: difficult and complicated it would be to force the structural

557
00:31:58,560 --> 00:32:01,160
Speaker 5: change to force a divestiture, and the fact that it

558
00:32:01,200 --> 00:32:05,120
Speaker 5: could have all sorts of bad unanticipated consequences.

559
00:32:05,560 --> 00:32:10,400
Speaker 2: You mentioned Judge Meta backed off on breaking up Google.

560
00:32:10,840 --> 00:32:14,720
Speaker 2: It's a difficult decision for a judge if she did that,

561
00:32:15,040 --> 00:32:16,720
Speaker 2: would it be presidential?

562
00:32:17,200 --> 00:32:20,080
Speaker 5: You know, it really would June because first, there isn't

563
00:32:20,120 --> 00:32:23,840
Speaker 5: this precedent, right because the Department of Justice and Federal

564
00:32:23,840 --> 00:32:27,880
Speaker 5: Trade Commission hasn't really brought a lot of monopoly lawsuits

565
00:32:28,000 --> 00:32:31,080
Speaker 5: in the last thirty years or so forty years. The

566
00:32:31,160 --> 00:32:33,640
Speaker 5: last really big one was Microsoft. That was by the

567
00:32:33,640 --> 00:32:37,240
Speaker 5: Department of Justice, and the Department did initially seek a

568
00:32:37,280 --> 00:32:39,760
Speaker 5: divestiture and they weren't able to win that in court

569
00:32:39,920 --> 00:32:42,959
Speaker 5: ultimately after there was an appeal, And it would be

570
00:32:43,000 --> 00:32:47,440
Speaker 5: presidential because where we've seen divestitures has really been in

571
00:32:47,520 --> 00:32:51,160
Speaker 5: a different context. It's been where a merger took place

572
00:32:51,400 --> 00:32:54,040
Speaker 5: that in and of itself was illegal, that it was

573
00:32:54,120 --> 00:32:57,240
Speaker 5: illegal for company A to buy Company B, and now

574
00:32:57,280 --> 00:33:00,440
Speaker 5: they have to divest company B. It's very different situation

575
00:33:00,800 --> 00:33:04,400
Speaker 5: than when the initial in this case, Google actually bought

576
00:33:04,760 --> 00:33:08,120
Speaker 5: the publisher ad server. It was a company called double Click,

577
00:33:08,320 --> 00:33:10,320
Speaker 5: and they bought the ad exchange. But the judge said

578
00:33:10,440 --> 00:33:13,960
Speaker 5: that acquisition was not anti competitive. So it's not a

579
00:33:14,000 --> 00:33:17,160
Speaker 5: situation where you have an anti competitive acquisition. So to

580
00:33:17,560 --> 00:33:22,880
Speaker 5: require a divestiture for bad conduct would be fairly presidential today.

581
00:33:23,520 --> 00:33:25,920
Speaker 5: And this judge has a little more leeway than Judge

582
00:33:25,920 --> 00:33:28,680
Speaker 5: Meta had in the Google Search case, because in that case,

583
00:33:28,920 --> 00:33:31,400
Speaker 5: Judge Meta was really bound by the precedent from the

584
00:33:31,440 --> 00:33:34,680
Speaker 5: Microsoft decision, which was an appellate court within his circuit.

585
00:33:35,120 --> 00:33:36,960
Speaker 5: This case is not in that circuit. It's in the

586
00:33:37,000 --> 00:33:40,200
Speaker 5: Eastern District of Virginia, and those cases can be persuasive

587
00:33:40,240 --> 00:33:43,440
Speaker 5: for this judge but not necessarily binding, so she has

588
00:33:43,480 --> 00:33:46,200
Speaker 5: a little more leeway. I think Judge Meta felt very

589
00:33:46,320 --> 00:33:50,520
Speaker 5: much constricted by the language in Microsoft which cautioned against

590
00:33:50,680 --> 00:33:53,600
Speaker 5: using a divestiture remedy in the kind of case that

591
00:33:53,720 --> 00:33:58,720
Speaker 5: Judge Meta was overseeing where it wasn't extraordinarily clear that

592
00:33:58,880 --> 00:34:03,360
Speaker 5: Google's monopoly and search wouldn't have occurred if Google hadn't

593
00:34:03,480 --> 00:34:05,800
Speaker 5: engaged in the conduct that was alleged in that case,

594
00:34:05,800 --> 00:34:08,920
Speaker 5: which was exclusionary dealing. You have to have a strong

595
00:34:08,960 --> 00:34:12,359
Speaker 5: causation standard, according to Microsoft case, in order to use

596
00:34:12,400 --> 00:34:15,520
Speaker 5: divestiture as a remedy, and in that case, Judgment it

597
00:34:15,560 --> 00:34:18,280
Speaker 5: didn't feel he had that strong causation standard, and because

598
00:34:18,280 --> 00:34:20,680
Speaker 5: of the Microsoft president, it felt that he couldn't impose

599
00:34:20,719 --> 00:34:24,000
Speaker 5: the divestiture in that case. This judge isn't necessarily bound

600
00:34:24,040 --> 00:34:24,319
Speaker 5: by that.

601
00:34:24,719 --> 00:34:26,920
Speaker 2: Is it just me? Or are there a lot of

602
00:34:27,120 --> 00:34:31,439
Speaker 2: trials antitrust trials lately? It seems like, you know, there's

603
00:34:31,520 --> 00:34:32,439
Speaker 2: one after the other.

604
00:34:33,120 --> 00:34:35,520
Speaker 5: No, there are so many. And you know, it's funny

605
00:34:35,520 --> 00:34:37,600
Speaker 5: because a lot of people sort of credit a Biden

606
00:34:37,640 --> 00:34:41,320
Speaker 5: administration for all of the monopoly cases government ones, enforcement

607
00:34:41,400 --> 00:34:44,120
Speaker 5: ones that are out there now. But these investigations and

608
00:34:44,160 --> 00:34:47,000
Speaker 5: a couple of the cases actually started during President Trump's

609
00:34:47,040 --> 00:34:51,160
Speaker 5: first term. So there was a lawsuit STC versus Meta

610
00:34:51,520 --> 00:34:55,000
Speaker 5: over its acquisitions of Facebook and Instagram. We're still waiting

611
00:34:55,000 --> 00:34:57,200
Speaker 5: for a liability decision on that case, but that was

612
00:34:57,239 --> 00:35:00,800
Speaker 5: brought by the Trump administration and then basically acuted during

613
00:35:00,840 --> 00:35:04,080
Speaker 5: the Biden administration. And you also have this Google Search case,

614
00:35:04,520 --> 00:35:07,120
Speaker 5: and you have a case against Amazon, and you have

615
00:35:07,160 --> 00:35:10,160
Speaker 5: a case by the USDJ by Apple. But one of

616
00:35:10,200 --> 00:35:13,840
Speaker 5: the other things it's done is all of these actions

617
00:35:13,840 --> 00:35:17,560
Speaker 5: by the government have empowered private entities as well, So

618
00:35:17,680 --> 00:35:21,080
Speaker 5: you have follow on class actions that are the consumers

619
00:35:21,160 --> 00:35:22,920
Speaker 5: or in this case, let's say, the publishers and the

620
00:35:22,920 --> 00:35:25,240
Speaker 5: Google ad Tech case, that have been harmed by the conduct.

621
00:35:25,600 --> 00:35:28,000
Speaker 5: So when you get a liability decision that it says

622
00:35:28,040 --> 00:35:30,160
Speaker 5: publishers have been harmed or didn't get let's say the

623
00:35:30,239 --> 00:35:32,439
Speaker 5: best prices. Well, they're going to turn around and file

624
00:35:32,440 --> 00:35:35,040
Speaker 5: a class action where they're probably looking for a monetary

625
00:35:35,080 --> 00:35:37,840
Speaker 5: relief more so than injunctive release by the government. But

626
00:35:38,000 --> 00:35:41,000
Speaker 5: you know, those then can go on for years and

627
00:35:41,040 --> 00:35:43,520
Speaker 5: our additional burden on these companies, and you have that

628
00:35:43,600 --> 00:35:46,640
Speaker 5: in almost every case with Google, with ad Tech, with Google,

629
00:35:46,719 --> 00:35:50,160
Speaker 5: with Apple, with respect to the DJ's allegations against Apple,

630
00:35:50,520 --> 00:35:54,160
Speaker 5: against Amazon, with respect to the SEC's allegations against Amazon,

631
00:35:54,560 --> 00:35:57,640
Speaker 5: and then also with respect to Google's play Store and

632
00:35:57,719 --> 00:36:01,200
Speaker 5: Apple's App Store by Epic Games not liking the fact

633
00:36:01,200 --> 00:36:04,040
Speaker 5: that there are closed ecosystems for downloading apps on either

634
00:36:04,080 --> 00:36:07,120
Speaker 5: Android or iOS. And those cases have been ongoing for

635
00:36:07,120 --> 00:36:08,080
Speaker 5: a long time as well.

636
00:36:08,960 --> 00:36:13,479
Speaker 2: And of course, whatever happens, Google will appeal. Thanks so much, Jen.

637
00:36:13,960 --> 00:36:18,759
Speaker 2: That's Bloomberg Intelligence Senior Litigation Analyst, Jenniferree, And that's it

638
00:36:18,800 --> 00:36:21,360
Speaker 2: for this edition of The Bloomberg Law Show. Remember you

639
00:36:21,400 --> 00:36:23,840
Speaker 2: can always get the latest legal news on our Bloomberg

640
00:36:23,960 --> 00:36:27,560
Speaker 2: Law podcasts. You can find them on Apple Podcasts, Spotify,

641
00:36:27,760 --> 00:36:32,799
Speaker 2: and at www dot Bloomberg dot com, Slash podcast, Slash Law,

642
00:36:33,200 --> 00:36:35,800
Speaker 2: and remember to tune into the Bloomberg Law Show every

643
00:36:35,840 --> 00:36:39,760
Speaker 2: weeknight at ten pm Wall Street Time. I'm June Grosso

644
00:36:39,880 --> 00:36:41,480
Speaker 2: and you're listening to Bloomberg