The U.S. Department of Justice completed its evidence phase in its antitrust trial against Google a few weeks ago, and the parties are set to begin presenting closing arguments in May 2024. At the core of this case is a question: Can an industry giant engage in business practices that legally hinder competition, as long as those practices lead to improvements in the product for that business and its customers?
Discussion of Harm and Benefits
Judge Amit Mehta states that he “doesn’t know” how he will rule in this historic case that could define not only the future of the internet but also the future of antitrust law. It is no surprise that the judge is confused.
Doug Melamed, a law professor at Stanford University specializing in antitrust law, says, “Antitrust law is very unstable regarding what courts should do when they find harms and benefits together. Courts typically avoid this issue by finding just one side, not both.”
First Side: Google’s Monopoly in the Search Market
It is clear that Google has a monopoly in the search market, which it has partially achieved by sharing advertising revenue with smartphone manufacturers in exchange for being the default search engine on Apple and Android devices. Since 2015, Google’s market share has ranged between 83% and 91%, according to Statista. Google’s default agreements hinder the ability of competitors, or potential competitors, to challenge this monopoly.
The Other Side: Benefits Derived from Google’s Default Agreements
However, Google, its customers, and its advertisers have also benefited from these agreements by generating data over time that contributed to improving its search products.
Melamed states, “You may have a result that indicates that the default agreements have weakened competition and created legal and recognized benefits,” noting that the court must now evaluate the legality of these agreements when they weaken both competition (thus maintaining Google’s monopoly) and generate legitimate efficiency benefits.
Potential Paths for Ruling
Judicial laws support a variety of “imperfect pathways to reach the final outcome,” according to Melamed.
For example, the judge may rule in favor of Google if he determines that the benefits outweigh the harms. Or he could determine that, in fact, no company should hold a market share like Google’s and it is time to break it up.
But before we discuss potential outcomes, let’s take a look at the sides advocating for their arguments.
Claims from Each Side
The United States filed its lawsuit against Google in 2020, claiming that the company “illegally maintains monopolies in the public services markets of search, search advertising, and general text advertising in the United States.” The lawsuit seeks both to regulate Google and to obtain damages for the effects of its behavior, such as fines and imposed divestitures, and to make Google share data or change its business practices, etc.
To support its case, the government pointed to the amount Google paid to be the default search engine across platforms – $26 billion in 2021 alone – and the lucrative deal Google has with Apple. During the same year, Apple received around $18 billion to make Google the default search engine on the Safari web browser. Testimonies during the trial also revealed that Google pays Apple 36% of the revenue it earns from search ads made through Safari.
During the trial, the CEOs of Microsoft and DuckDuckGo testified that their search engines would have been more successful and even competitive with Google if they could strike similar deals with Apple. Even Microsoft CEO Satya Nadella stated that he was willing to spend $15 billion annually to make Bing the default search engine on Apple, according to The Information.
The narrative extends
The default setting of Google also applies to Android devices, many of which come preloaded with a bundle of 11 Google apps, including Chrome, Search, and Play. The company has revenue-sharing agreements with smartphone manufacturers and wireless carriers to set Google Search and the Chrome web browser as defaults.
Google’s Arguments and the Government
The government claims that Google’s actions have harmed its competitors by reducing their ability to compete against its monopoly. If competitors cannot access the same data that Google possesses due to its default agreements, they will be unable to improve their products enough to attract and retain customers.
Google argues that the default agreements are merely good business. They have allowed the company to gather incremental data to improve its product – which is almost undeniable – benefitting advertisers and users who rely on search.
How This Trial Could Proceed
The court could rule in favor of Google on the grounds that the default app setting it purchased generates benefits for the company, according to Melamed, noting that this might be a weak justification depending on the evidence on record. For example, the court could compare the price Google paid for its default status with the value of the data it gained from its default position. This information is not all part of the public record, but it is likely the judge will have this information as part of the evidence. Some experts believe that Google may have diminishing marginal returns from its data, meaning the incremental data Google acquired from default positions is less valuable to the company than it is to its competitors. If the evidence supports this claim, it means that Google has crossed the line of paying to conduct good business and entered into paying to stifle competition. Thus, the harms would outweigh the benefits, making the default positions unlawful.
Melamed also pointed to a possible outcome based on “legal precedent in exclusivity deals,” which simply states that these default positions harm competitors, provide benefits as well, but Google is a monopoly, and there is a limit to the power it can hold. In this outcome, the court might, for example, limit Google from purchasing default positions on more than a certain percentage of devices.
Finally, the court could align with Assistant Attorney General Jonathan Kanter, who oversees the lawsuit in this case, agreeing that the law exists to prohibit conduct that impairs competition and monopolizes the market, thus making the default positions unlawful. Whether there are benefits to Google’s business and consumers is irrelevant.
The Importance of This Case
Enforcers aim to demonstrate that antitrust law is still relevant and that the Department of Justice can hold large tech companies accountable. The outcome could affect other cases involving Google.
Recently, Google reached a settlement in a separate antitrust lawsuit with the dating site Match Group. Google is also currently in another trial with Fortnite maker, Epic Games. The latter hopes to prove that Google engages in anti-competitive behavior regarding its Android app store, Google Play, and its commission structure.
In January, the Department of Justice filed a separate lawsuit against Google, accusing the search giant of monopolizing advertising technology as well.
The Google case could also impact several other antitrust issues against large tech companies. The Federal Trade Commission sued Amazon in September, accusing the company of anti-competitive and unfair strategies to illegally maintain its monopoly power. The DOJ has been investigating Apple for years over its policy on third-party apps on its devices and whether it unfairly favors its own products. There is an ongoing case between the FTC and Facebook, where the agency is seeking to force the sale of Instagram and WhatsApp.
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