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Lawyer who helped break up AT&T says DOJ has '50%-plus' odds of winning Google trial

Philip Verveer drafted the lawsuit that led to the breakup of AT&T when he was a young prosecutor for the Justice Department in the 1970s. He said the odds the DOJ can win its new antitrust case against online search giant Google (GOOG, GOOGL) are better than even.

"I think the government has a 50%-plus chance," he told Yahoo Finance.

Verveer, now 79 years old, sees some parallels in the two antitrust cases nearly 50 years apart. But he also acknowledged there are some new challenges that he and his colleagues didn’t have to face, which will make the task of the current Justice Department more difficult.

American Telephone and Telegraph, known for decades as AT&T or "Ma Bell," was the telephone company for decades just as Google essentially is the choice for most Americans navigating the internet.

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AT&T employed 1 million people and provided local and long-distance phone services for virtually the entire county; its ubiquitous TV ads urged you to "reach out and touch someone."

Black and white photo of American Telephone & Telegraph Co.'s 98th and last annual meeting before the company's divestiture.
The last annual meeting of AT&T before it was broken up in 1984. (Bettmann Archive) (Bettmann via Getty Images)

The Justice Department used a proposed lawsuit drafted by Verveer to sue AT&T in 1974, seeking a breakup of its phone service and phone equipment monopolies.

It got most of what it wanted in 1984 following a 1982 settlement that created a number of regional companies that eventually became the carriers that currently share the telecommunications market.

They include Verizon (VZ) and T-Mobile (TMUS) and the current version of AT&T (T).

AT&T Company Chairman John DeButts and its President and Director Charles L. Brown have a few words before the share owner's 92nd annual meeting.
John DeButts, left, and Charles L. Brown, right, led AT&T during efforts by the federal government to break up their empire in the 1970s and early 1980s. (Getty Images) (Bettmann via Getty Images)

'That's the American way'

The implications of that case are still evident today, even if many Americans aren’t aware. It is the reason that the country’s 307 million smartphone users have essentially one choice to make when they get their phones up and running: designating a wireless provider.

The rest of smartphone services — like the web browsing that Google dominates — come pre-installed.

The AT&T and Google cases, Verveer said, are "quite similar" in that they are what’s known in the legal world as "vertical foreclosure" cases. That means they seek to unravel business structures that allegedly abuse control of multiple markets to restrict the flow of competition.

Verveer began investigating AT&T after a rival phone company called MCI began complaining to the Justice Department that AT&T was a monopoly that needed to be broken apart, according to Steve Coll's book about the case called "The Deal of the Century."

He concluded in April 1974 that the government had a strong argument and drew up a case for consideration by higher-ups. William Saxbe, a new attorney general working for new President Gerald Ford, gave the go-ahead in November of that year. Ford had become president following the resignation that summer of Richard Nixon.

The department handed the case to Verveer, who said he was 30 years old at the time and learned about the filing from a radio news report.

"I’m not sure what Bill Saxbe’s personal motivation may have been, but the post-Nixon zeitgeist was distinctly good government," he said.

US Attorney General William Saxbe (1916 - 2010) seated in his office at the Justice Department in Washington on March 8th, 1974. (Photo by UPI/Bettmann Archive/Getty Images)
Former US Attorney General William Saxbe in his office at the Justice Department in 1974. (UPI/Bettmann Archive/Getty Images) (Bettmann via Getty Images)

The judge in the AT&T case, Harold Greene, appeared to find favor with the government's arguments, which may have contributed to the company's willingness to settle. Greene said during the trial that the department had shown "the Bell System has violated the antitrust laws in a number of ways over a lengthy period of time."

He later said in an oral history that "I am perfectly content in my own view that the breakup was a good thing. It brought competition into a field where there hadn't been any competition, and that's the American way."

But Carl Hittinger, a partner with BakerHostetler who represented AT&T at the time, said in an interview with Yahoo Finance that the company should not have been punished for being innovative and figuring out how to link the entire country together.

Big monopolistic companies aren't always bad, he added, and a breakup shouldn't be the automatic remedy when anticompetitive conduct is found.

Hittinger cited some of the immediate problems that followed the breakup as a reason for caution. It was a period marked by higher residential telephone prices, a decline in the quality of service being provided to American consumers, and confusion about the role certain companies were playing, according to Coll's book.

"I think that that kind of thinking sometimes gets carried away," Hittinger said. "And as a result, you end up getting a bad result. That result, it's not good for the public and good for society."

Federal Judge Harold Greene sits in his office in the United States District Courthouse in Washington, DC. (Photo by © Wally McNamee/CORBIS/Corbis via Getty Images)
Harold Greene, the federal judge who presided over the AT&T antitrust lawsuit. (Wally McNamee/CORBIS/Corbis via Getty Images) (Wally McNamee via Getty Images)

A new legal landscape

Verveer and other antitrust experts said there is significant difference between now and when AT&T was in the government's sights that will make it more difficult for the DOJ to win the Google case. Namely, judges have taken a more limited view of what constitutes anti-competitive behavior.

Decades ago, price mattered less as a way to evaluate consumer harm. And violations could be construed by weighing the course of a defendant’s behavior, even if the isolated conduct was legal.

The major hurdle that prosecutors now face with Google is the presumption that lower, even free, prices are a consumer advantage and not necessarily anticompetitive. Consumers don't pay Google to search for information on the web, although advertisers do pay to be featured by the company in searches.

“[S]earch engines are free, and consequently consumers don’t pay. It is difficult to make an antitrust claim of harm to consumers for a service provided for free,” former US Federal Trade Commissioner Harold Furchtgott-Roth told Yahoo Finance.

Prosecutors are trying to get around that hurdle by arguing Google Search isn't truly free for consumers because they enter valuable personal data that Google keeps in exchange for search results.

One former FTC attorney, Michael Kades, told Congress in 2020 that "under current case law, it is arguable that the government could not have successfully pursued its claim that led to the breakup of [AT&T]."

Nevertheless, Verveer views the government's case against Google as winnable because he said nearly everyone, including the judge overseeing the trial, understands the significance of internet search and why it matters if Google, or any entity with an alleged 90% of the market, stifles competition.

The government's core argument is that Google abuses its power through contracts that secured its search engine as the default on computers and mobile devices, including Apple’s iPhones and computers. These contracts, Verveer said, damage the playing field for other search engines.

Google's lawyer, he said, failed to clearly answer a key question last week from Federal District Judge Amit Mehta, who asked if the company was going to show evidence of users who changed the default so they could switch from Google to another search engine.

"It was one of those ‘ah ha’ moments," he said. "The answer is probably not good for Google’s defense."

U.S. Department of Justice lawyers, including Kenneth Dintzer, center, and Megan Bellshaw, right, arrive at the E. Barrett Prettyman U.S. Federal Courthouse, Tuesday, Sept. 12, 2023 in Washington. Google will confront a threat to its dominant search engine beginning Tuesday when federal regulators launch an attempt to dismantle its internet empire in the biggest U.S. antitrust trial in a quarter century. (AP Photo/Nathan Howard)
Department of Justice lawyers, including Kenneth Dintzer, center, and Megan Bellshaw, right, arrive at a federal courthouse in Washington last week for the start of the Google antitrust trial. (Nathan Howard/AP Photo) (ASSOCIATED PRESS)

Google "paid an awful lot of money to make themselves default and the inertial elements of consumer behavior are strong," he added, noting the alleged $10 billion that Google allegedly pays to device and software manufacturers.

"Make yourself the default and you’ve probably given yourself a terrific advantage."

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Alexis Keenan is a legal reporter for Yahoo Finance. Follow Alexis on Twitter @alexiskweed.