Google distributes proprietary applications for its open-source Android mobile operating system (OS) free of charge. Some of those applications (apps) are offered together as a suite of apps known as Google Mobile Services (GMS). Manufacturers of mobile devices can agree, pursuant to Google's Mobile Application Distribution Agreement (MADA), to install the suite of apps on their devices at a price of zero. Some theorize that Google's policy of offering some applications together as a suite of apps harms competitors or menaces consumer welfare. That theory is wrong. As a matter of economics, Google's practice of distributing free mobile apps in the GMS suite benefits consumers (as well as manufacturers, mobile carriers, app developers, and advertisers) by stimulating demand, by reducing the risk of fragmentation of the Android OS, and by preventing Google's competitors from free riding on its investment to make the Android OS and mobile apps a viable open-source competitor to closed and proprietary-"walled garden"-platforms for mobile devices. As a matter of antitrust law, Google's distribution of apps as part of a larger whole- GMS-is lawful under the Supreme Court's four-part test for such arrangements. Google does not force consumers to pay for apps they do not want, and the MADA's requirements enhance competition overall. The same conclusion holds with even greater certainty under the rule-ofreason analysis for software integration that the D.C. Circuit adopted in its historic Microsoft decision.
Google, famous for its popular search engine, entered the mobile device business with its launch of the first Android-operated mobile device in 2008.1 Android, an operating system (OS) for mobile devices, is an open-source platform available under the Apache open-source license free of charge to any end user, manufacturer of mobile devices, or developer of applications (or "apps").2 Google also develops mobile apps that enable users to manage various functions on their mobile devices, such as checking email, watching videos, browsing the Internet, and accessing instant chat services.3 End users can download the vast majority of Google apps on their mobile devices free of charge. Google also permits manufacturers to preload a set of Google apps-called Google Mobile Services (GMS)-on their mobile devices if they so choose. Google thereby makes its apps available to the end user "out of the box." Google offers GMS to manufacturers free of charge, provided that the manufacturer accepts the conditions specified in its Mobile Application Distribution Agreement (MADA).
In April 2013, FairSearch-an association founded by Microsoft, Nokia, and several other software and Internet companies-filed a complaint with the European Commission alleging that the MADA's terms are anticompetitive.4 In April 2014, an antitrust class-action complaint filed against Google by individual mobile device owners in the U.S. District Court for the Northern District of California presented similar allegations.5 The class-action plaintiff filed an amended complaint on August 1, 2014.6 The amended classaction complaint alleges that the MADA's requirements enable Google to "maintain and extend" its alleged monopoly in the "general search" and "handheld general search" markets.7
In this article, I consider the economic and legal validity of claims that the MADA harms either competition or consumers. In Part II of this article, I review the economic literature on potential tying arrangements. Most economists recognize that tying usually increases competition and benefits consumers by reducing costs or improving quality control. Although some theorists describe models in which tying might have harmful effects, economists generally caution, first, that courts will find these models to have little practical value in antitrust inquiries and, second, that the effects of alleged tying be assessed factually on a case-by-case basis. In Part III, I analyze the development of the Supreme Court's evolving antitrust jurisprudence on tying arrangements. Although the Court continues to label some tying arrangements as per se illegal, in fact the Court applies a rule-of-reason analysis that requires an analysis of foreclosure effects and includes an affirmative defense of efficiency justifications. In Part IV, I examine the explicit rule-of-reason standard for software integration used by the U.S. Court of Appeals for the D.C. Circuit.
In Part V, I explain the relevance of the MADA's requirements to Google's business model. I analyze the relationship between the Android OS, Google apps, and GMS. Although the use of these products is interrelated, Google does not precondition the use of one product on the use of another. In particular, a manufacturer using the Android OS on its devices is not forced to preload GMS. The manufacturer may offer its devices without any Google apps. For example, Amazon has decided to offer a set of smartphones and tablets that operate on Android but do not have GMS preloaded.8 In addition, manufacturers that pre-load GMS are free to-and in fact often do-preload non-Google apps as well. I further show how these features serve Google's business model. By providing an open mobile platform, Android facilitates Google's participation in the mobile device business. Android and GMS are free, which increases Google's audience of end users. Google's role in developing Android as a trusted open platform was important to Google's successful entry into mobile markets. Finally, I explain why Google has compelling business justifications for the MADA licensing arrangements. The MADA addresses the risk that Android will fragment into incompatible versions-a particularly severe risk for open operating systems, such as Android.9 The MADA's requirements enable Android-operated devices that include GMS to meet consumer expectations, by offering an out-of-the-box experience comparable to that offered by mobile devices that rely on closed or propriety operating systems. The MADA's requirements also enable Google to avoid free riding and cherry picking by its competitors, which would harm Google's ability to fund continued investments in innovation for mobile devices and applications.
In Part VI, I examine the antitrust allegations that the MADA's requirements enable Google to restrict competition from other developers' apps, restrict manufacturers' choice of apps, and protect Google's alleged monopoly over general search. Those allegations are unpersuasive as a factual matter, as an economic matter, and ultimately as a legal matter. The facts cannot support the prima facie case for unlawful tying under the Supreme Court's current jurisprudence. A court should well consider the apps distributed as a suite in GMS to be a single product, not two (or more) distinct products. There is no evidence that Google has market power over any service in the app suite. Google cannot meaningfully force any consumers to pay for a product that he or she does not want. In short, the MADA requirements harm neither consumers nor competition. One reaches the same conclusion when analyzing the economic impact of the MADA's requirements under the D.C. Circuit's rule-of-reason approach to software integration. Google's strategy of distributing free apps for Android is lawful and benefits consumers. By making GMS available out-of-the-box and free of charge, the MADA directly benefits consumers. The GMS apps also benefit consumers by bolstering competition both in the market for mobile operating systems and in the market for mobile devices. Lower prices and increased innovation obviously benefit consumers. The MADA's requirements also benefit manufacturers. Furthermore, by sustaining Android's appeal, the MADA's requirements enable Google to compete with other OS providers in attracting app developers. Therefore, the MADA not only benefits consumers, but also creates significant positive externalities that benefit other stakeholders in the mobile industry.
J. Gregory Sidak is an Expert Economist in the fields of Antitrust, Telecommunications Regulation, Commercial and Investment Arbitration, and Intellectual Property Law. Prof. Sidak is the Ronald Coase Professor of Law & Economics at Tilburg University and the Chief Economic Expert at Criterion Economics in Washington, DC. The focus of his research has been regulation of network industries, antitrust policy, the Internet and electronic commerce, intellectual property, and constitutional law issues concerning economic regulation.
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