Wait, haven’t we seen this one before? In a federal courtroom in Washington, attorneys for the U.S. Department of Justice and 14 states are facing off against Google in an antitrust trial that focuses on Google’s overwhelmingly dominant position in the search engine market. According to the Amended Complaint filed in the case, Google accounts for nearly 90 percent of all computer search engine searches and almost 95 percent of all mobile device searches performed in the U.S. The government contends that Google has used anti-competitive agreements to achieve this enormous market share; Google, of course, disagrees. For example, have you ever wondered why Apple has never developed a search engine of its own? Well, the court is hearing testimony on the kind of deals that Google has made with others, involving designating its search engine as the exclusive search engine for Apple products, and the very significant revenue sharing that Google pays to Apple for the privilege.
In some ways, the Google antitrust trial echoes the Microsoft antitrust trial twenty-five years ago. Back then, the Justice Department and 20 states and the District of Columbia filed an antitrust suit against Microsoft for, among other things, requiring computer makers that wanted to license its Windows operating system to also include Microsoft’s “Internet Explorer” browser as part of the default installation on their computers. According to the complaint in that case, Microsoft’s Windows operating system was used on more than 80 percent of existing and 90 percent of new PCs equipped with Intel-branded chips, meaning that most users of those machines would also end up using Microsoft’s browser.
The Microsoft case eventually ended in a settlement (after a win for the government at the trial court level and a reversal of much of the matter in Microsoft’s favor at the appellate court level). Microsoft agreed to modify some of its practices in ways designed to open up its programming interface somewhat to third parties. Notably, in the years since, Microsoft’s share of the browser market has dwindled to about 3%, with the “Bing” browser being Microsoft’s latest offering. And who currently dominates the browser market? Google, through its Chrome browser.
In Google’s case, like Microsoft, it similarly pays computer and mobile device manufacturers (including Apple) to use Google’s search engine by default on their devices. While these payments from Google may benefit these companies, they also yield enormous benefits for Google by ensuring that Google’s search engine processes more search queries. According to the Justice Department in the antitrust case, these payments make it almost impossible for rival search engines to compete with Google and gain a foothold in the market.
The government’s antitrust complaint alleges that advertisers pay Google about $40 billion per year to place their ads on Google search result pages. Google shares a part of this revenue with companies that agree to use its search engine on their devices, allegedly creating a significant incentive for them to continue working with Google. (The complaint says, for example, that Google’s ad share payments to Apple of about $8 to $12 billion per year make up from 15 to 20 percent of Apple’s net income worldwide and that Google pays roughly another $1 billion to major US mobile carriers.)
As a result of these significant ad revenue share payments, the government claims, smaller competitors in the market for search engine results simply cannot compete with Google. This argument makes some sense; why would a mobile phone manufacturer end a lucrative relationship with Google and move to another search provider that couldn’t afford to pay the same amount? This would result in losing millions or even billions of dollars of revenue.
In an argument similar to one made by Microsoft a quarter of a century ago, Google counters that consumers can easily change search engines and browsers on their devices but choose not to do so because they prefer the quality of Google’s search results.
The trial in Washington is expected to last 10 weeks, with testimony set to come from Sundar Pichai, the CEO of Google’s parent company, Alphabet. Top Apple executives and many others are also expected to testify. While Google was able to get portions of the case dismissed shortly before the trial began, the bulk of the allegations remain in place.
A ruling against Google could result in an order directing Google to stop paying companies such as Apple and Motorola for making Google’s search engine the default search engine on their devices. While this could open up the market for other search services, such as Bing, Duck Duck Go, and Yahoo, it would likely take years for these companies to make significant inroads on the dominant position Google has achieved. After all, Chrome didn’t overtake Internet Explorer’s market share until the middle of 2012, some 10 years after the Microsoft case settled.
As a side note, much of the Google antitrust trial is being held in a closed courtroom, with no outside press or ordinary people present. Google, and other companies involved, including Apple, have successfully argued to the court that the marketing secrets involved are so sensitive that they cannot be disclosed in open court. The trial judge has, at least for the moment, agreed with that position. (This position was, to our knowledge, first successfully advocated by our firm and our co-counsel in an antitrust preliminary injunction trial between two major pharmaceutical companies. The trial was held behind closed doors, and only later did the court agree to release transcripts which were redacted to remove references to extremely confidential marketing secrets of both companies.)
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Earp Cohn partner Douglas Johnson has years of trial-level experience helping clients with antitrust matters and a wide range of other business disputes. Named as one of the Best Lawyers in America, Doug represents clients involved in antitrust grand jury investigations, state and federal antitrust litigation, pre-merger Hart-Scott-Rodino clearances, and more. He frequently leverages his substantial litigation experience to advise corporate clients on strategies designed to help them avoid litigation in the first place.