Yesterday Judge Amit P. Mehta ruled simultaneously in two separate cases dating from 2020, one filed by the U.S. Department of Justice and the other by dozens of individual states headed up by Colorado as the lead party, that, “Google is a monopolist, and it has acted as one to maintain its monopoly.”
By doing so, the ruling continued, Google “has violated Section 2 of the Sherman Act.”
As summarized in the introduction to the 286-page ruling issued by Judge Mehta yesterday:
“Specifically, the court holds that (1) there are relevant product markets for general search services and general search text ads; (2) Google has monopoly power in those markets; (3) Google’s distribution agreements are exclusive and have anticompetitive effects; and (4) Google has not offered valid procompetitive justifications for those agreements. Importantly, the court also finds that Google has exercised its monopoly power by charging supracompetitive prices for general search text ads. That conduct has allowed Google to earn monopoly profits.”
In a detailed historical business analysis which begins in the mid-2000s, only a few years after Google was founded, the Judge outlines how every aspect of Google’s business was crafted to expand what by 2009 was an 80% share in all general search queries to 89.2% by 2020. It did so, the judgement explains, through expansion of Google’s “free” software offerings, such as its Google Chrome Browser, Google Maps, Gmail and other tools, to embed its search engine within them to make it virtually impossible to escape being brought into the web of search services Google provides. It then built on this using exclusive distributor agreements for its search services, under which companies from Mozilla, which makes the Firefox browser, to Apple, which has its own Safari browser, are paid tens of billions of dollars by Google in return for exclusivity in providing Google as its default search engine.
In the mobile market, which is split principally between products running on Google’s Android operating system with bundled Google services, and Apple’s iOS software which powers its iPhones, Google has locked up an even higher percentage of the search market. As of 2020, the time the cases were filed, the company controlled 94.9% of all searches carried out on smartphones. Data provided during the pre-trial events and by various witnesses demonstrated that searches on smartphones happen 19 times more on Google than on any other option.
In many cases, Google pays handset manufacturers in return for embedding its search engine as the default method of many web queries. It also provides its Android operating system “for free”, in exchange for bundling everything from its “Hey, Google!” voice search to its wide range of other software offerings, as a means of maintaining that domination of the search market.
The contracts with Apple, Samsung, and other companies automatically push users to select Google for their search. This is despite the fact that there are now options in many handsets to switch the default search engine, mostly because users either don’t know or don’t attempt to make those changes.
The contracts with the handset makers also effectively disincentivize those makers from bundling other alternative search approaches into their devices by default. As cited in the judgment released yesterday, for example, Samsung avoided including some of those alternatives as pre-installed software, which it would have done under contract just as it did with Google, after considering possible legal and financial repercussions tied to their pre-existing deals with Google for its search.
As a result of those arrangements, the ruling explains, “roughly 50% of all general search queries in the United States flow through a search access point covered by one of the challenged contracts” at issue in the case.
Another 20% of all searches pass through Google’s Chrome browser, whether on mobile devices or laptops and desktop computers. So even before all other tools available in Google’s sales and software arsenal are considered, Google by default controls 70% of the market.
The remaining 30% of general searches pass through other tools. But most of those often involve a licensing arrangement which links them back to Google, in one way or another.
The only real competitor to Google is Microsoft’s Bing. The last figures showed it was rising slightly after it became “powered” by OpenAI’s artificial intelligence tools which Microsoft brands as “Copilot”, but for the term of the lawsuit the maximum market percentage Bing ever achieved was at best 6%.
By controlling search, Google also of course controls the revenues associated with advertising connected with search, and that constitutes a large portion of the legal arguments and analysis Judge Mehta provides.
In considering his final ruling text, Judge Mehta went through an exhaustive analysis of the concept of market “foreclosure”. That has to do with how a company’s business practices not only dominate a market, but also how their anticompetitive business practices lock out competition.
As Mehta summarized from past case law, “an exclusive agreement violates the Sherman Act only when its ‘probable effect’ is to ‘foreclose competition in a substantial share of the line of commerce affected.” This is where the data provided by expert witnesses provided by the plaintiffs in the case, that over 50% of all search queries in the U.S. default to Google thanks to the presence of the deals the company cut with entities such as Apple, becomes so important. Over 50% is by default a majority all searches, which as cited in a previous case which found Microsoft’s dominance of the desktop operating system and Office suite products a monopoly, is considered “significant” evidence of market foreclosure.
Why the 50% number matters is about more than just market share. As noted in the ruling, the existence of “exclusive agreements have deprived rivals of [the efficiencies and cost-effectiveness] of scale” in the design and distribution of their alternatives.
A further element of case law cited by Mehta regarding this issue also involved not just the nature of those exclusive arrangements but also how long they had remained in effect. As the judge quoted from another Sherman Act trial, “Percentages higher than 50 percent are routinely condemned when the practice is complete exclusion by a contract of fairly long duration.” As an example of importance to this specific case, Apple’s contract with Google, which began in 2016, was recently renegotiated and continued for another five-year term as of 2021. That means that for ten years Apple users have been effectively wedded to Google for search.
Google paid handsomely for those exclusive arrangements, of course. According to documents and testimony provided in the case, “In 2021, Google spent $26.3 billion in traffic acquisition costs—the revenue share paid to its partners—which is four times more than the company’s other search-related costs combined, including research and development.” That was the same year Google logged total revenues of $257.6 billion, a value roughly 10 times the cost of the special deals Google put in place to control search traffic.
Other arguments Mehta lays out how Google’s exclusive distribution deals have enabled the company to charge high prices even for its text-based advertising, while at the same time allowing it to lower the quality of that advertising mainly because it has little competition in that space. Other data cited in the ruling describes how having these special contracts in place has “capped rivals’ advertising revenues”, both from a market share perspective and because with such much smaller business opportunities, they cannot afford to spend as much to develop the most competitive products.
The result of Google's actions not only obliterated competition but stifled innovation in its rivals. That harmed both the market and the opportunity for customers to find better solutions than the ones Google offers.
With all that analyzed and documented, Judge Mehta’s “court concludes that Google has violated Section 2 of the Sherman Act by maintaining its monopoly in two product markets in the United States—general search services and general text advertising—through its exclusive distribution agreements.”
In announcing the decision yesterday. U.S. Attorney General Merrick Garland said, “This victory against Google is an historic win for the American people.”
“No company — no matter how large or influential — is above the law,” he continued. “The Justice Department will continue to vigorously enforce our antitrust laws.”
Google’s President of Global Affairs, Kent Walker, brushed off the ruling as failing to properly prove its case.
“This decision recognizes that Google offers the best search engine but concludes that we shouldn’t be allowed to make it easily available,” Walker explained in a published statement. "Given this, and that people are increasingly looking for information in more and more ways, we plan to appeal.”
Judge Amit P. Mehta’s decision does not include stipulations as to ways to remedy the finding that Google is operating an unlawful monopoly in the search business. Determining that will be the next step in the case, even as Google and its parent company, Alphabet, appeal the decision. That will require hearings of its own, and filings from the states who filed suit in this case and from the Department of Justice.
A final settlement of the case is therefore still years away, despite the clarity of the ruling. Because there is also no direction from the court of how Google must change its ways to pull into compliance, it will likely continue its anticompetitive behavior until this is all resolved.