The U.S. Department of Justice (DOJ) and 11 state attorneys general filed a long-anticipated antitrust lawsuit in federal court on Tuesday alleging that Google maintains a monopoly in violation of federal law.
“Two decades ago, Google became the darling of Silicon Valley as a scrappy startup with an innovative way to search the emerging internet,” the complaint filed in the U.S. District Court for the District of Columbia begins. “That Google is long gone.”
“The Google of today is a monopoly gatekeeper for the internet, and one of the wealthiest companies on the planet, with a market value of $1 trillion and annual revenue exceeding $160 billion,” the complaint continues. “For many years, Google has used anticompetitive tactics to maintain and extend its monopolies in the markets for general search services, search advertising, and general search text advertising—the cornerstones of its empire.”
Filed under the auspices of the Sherman Antitrust Act, Monday’s filing is the result of a year-long investigation and will likely take several years to litigate–if the incoming administration even decides to maintain the case.
The Barack Obama administration was serially criticized for failure to hold large technology companies accountable for perceived violations of the country’s anti-monopoly laws even though European regulators have exacted several concessions and repeatedly fined companies such as Google over the last decade. This reticence may be explained by the Democratic Party’s strong associations with Google–a trend that Obama in particular exacerbated during his time in office.
The lawsuit alleges that Google’s vast suite of anticompetitive behavior has “separately and collectively harmed competition” by stamping out “any meaningful competition” in the realm of general internet search services, by excluding would-be rivals from “effective” and already-available distribution channels that would allow them to effectively compete and by impeding “other potential distribution paths” in general.
Additionally, the lawsuit claims that Google’s tactics create a nearly impenetrable wall of “barriers to entry” for potential competitors on both desktop and mobile devices and that such tactics actually stunt innovation overall–while insulating Google from having to actually do much in the way innovation or product improvement.
The heart of the DOJ’s case against the technology giant focuses on Google’s “exclusionary agreements” and “distribution agreements” that have served the tech behemoth well by making multiple Google products the default access point for internet searches and other services across millions of desktop and mobile devices.
“Between its exclusionary contracts and owned-and-operated properties, Google effectively owns or controls search distribution channels accounting for roughly 80 percent of the general search queries in the United States,” the complaint notes. “Largely as a result of Google’s exclusionary agreements and anticompetitive conduct, Google in recent years has accounted for nearly 90 percent of all general-search-engine queries in the United States, and almost 95 percent of queries on mobile devices.”
The lawsuit mentions several such agreements–spotlighting Google’s partnerships with Apple and Android device manufacturers.
“Google has contracted with Apple for many years to preset Google’s search engine as the default for Apple’s Safari browser and, more recently, other search access points on Apple’s mobile devices,” the complaint notes. “When a consumer takes a new iPhone or iPad out of its box, all the significant access points default to Google as their general search provider. Indeed, Google has preset default status for an overwhelming share of the search access points on mobile devices sold in the United States.”
Per the DOJ, Apple’s business relationship with Google is essentially an anticompetitive version of the quid pro quo [emphasis in original]:
Apple has not developed and does not offer its own general search engine. Under the current agreement between Apple and Google, which has a multi-year term, Apple must make Google’s search engine the default for Safari, and use Google for Siri and Spotlight in response to general search queries. In exchange for this privileged access to Apple’s massive consumer base, Google pays Apple billions of dollars in advertising revenue each year, with public estimates ranging around $8–12 billion. The revenues Google shares with Apple make up approximately 15–20 percent of Apple’s worldwide net income.
Although it is possible to change the search default on Safari from Google to a competing general search engine, few people do, making Google the de facto exclusive general search engine. That is why Google pays Apple billions on a yearly basis for default status. Indeed, Google’s documents recognize that “Safari default is a significant revenue channel” and that losing the deal would fundamentally harm Google’s bottom line. Thus, Google views the prospect of losing default status on Apple devices as a “Code Red” scenario. In short, Google pays Apple billions to be the default search provider, in part, because Google knows the agreement increases the company’s valuable scale; this simultaneously denies that scale to rivals.
A similar situation has developed with Google and the companies that create Android-based mobile devices.
The lawsuit notes that Google uses preinstallation agreements which force manufacturers to pair devices running the Android operating system with Google’s own cash-generating products “to ensure that its entire suite of search-related products is given premium placement.”
Other contracts, such as those focused on revenue sharing, force manufacturers into doing the same–but also expressly foreclose against manufacturers featuring apps developed by Google’s competitors. Still other contracts inhibit startups from actually doing much with Android’s technically open source code because they threaten would-be developers with losing access to Google’s entire network if the company deems them guilty of so-called “fragmentation.”
All of this, the DOJ and the states claim, are the makings of a monopolistic monster.
“Absent Google’s exclusionary agreements and other conduct, dynamic competition for general search services would lead to higher quality search, increased consumer choice, and a more beneficial user experience,” the filing alleges.
But there’s likely an awful lot more in the offing.
“[T]he complaint centers on Google’s contracts with device manufacturers running Android and the way those contracts preference Google to lock in its dominance in Internet search and mobile search,” antitrust law expert and University of Michigan Law Professor Daniel A. Crane told Law&Crime in an email.
“It’s a bit of a surprise that the complaint is so focused on anticompetitive vertical agreements as opposed to other things that many critics accuse Google of–such as the design of its search verticals and the way it sells advertising,” Crane continued. “But those additional claims may well come out in further complaints to be filed shortly. So consider this just the tip of the iceberg.”
New York University Law Professor of Trade Regulation Eleanor Fox also advised caution.
“Why now is a good question,” she told Law&Crime in response to concerns about the timing of the DOJ’s lawsuit. “Much of the complaint is what the [European Union] brought three years ago. But it is good to see that the U.S. and 11 states brought something.”
“Those many people who fear the power of big tech should not be misled to think that it is now all under control,” the antitrust and competition expert added.
Read the full complaint below:
[image via ALASTAIR PIKE/AFP/Getty Images]
Editor’s note: this article has been amended post-publication to include an additional quote.
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