Google is now 0 for 2 in antitrust trials. United States District judge Amit Mehta ruled on Monday that Google has unlawfully maintained its dominance in search by using anticompetitive deals to keep rivals from gaining traction. And without fear of pressure from competitors, Google has been able to charge whatever it wants for search ads, he said.
“The trial evidence firmly established that Google’s monopoly power, maintained by the exclusive distribution agreements, has enabled Google to increase text ads prices without any meaningful competitive constraint,” Mehta wrote in a 286-page ruling. “Unconstrained price increases have fueled Google’s dramatic revenue growth and allowed it to maintain high and remarkably stable operating profits.”
His findings are arguably the most comprehensive modern examination of Google’s search business, which over the past 26 years has become a $175 billion annual revenue behemoth that accounts for much of parent company Alphabet’s profits. Google will appeal, as it risks losing its prominent placement on iPhones and other gateways to the web.
Kent Walker, Google’s president of global affairs, said in a statement that the company would fight the ruling because it “recognizes that Google offers the best search engine, but concludes that we shouldn’t be allowed to make it easily available.”
United States Attorney General Merrick Garland called the decision “an historic win.” Assistant Attorney General Jonathan Kanter said it “paves the path for innovation for generations to come.”
The ruling follows a weeks-long trial in Mehta’s courtroom last year in Washington, DC, in which the US Department of Justice alleged that Google had become the world’s most used search engine by paying partners such as Apple and Samsung to promote it on their devices and software. Google had attributed its success to providing the best service and argued that it faced significant competition from the likes of Microsoft and others.
Mehta sided with Google on some issues but rejected its overall argument that the company held no illegal monopoly whatsoever. Last year, a jury in federal court in San Francisco ruled Google’s Play app store an illegal monopolist.
The ways in which Google will have to adjust its business in light of the judgments in San Francisco and Washington are yet to be determined. Mehta will hold a separate trial to determine remedies in the search case, and a judge is mulling proposed penalties in the Play litigation. But some changes Google has made in response to antitrust scrutiny in recent years have been costly.
First Trial
The case before Mehta traced back to the increased oversight of the tech industry under then president Donald Trump. The Justice Department sued Google in 2020 before Trump left office, and the lawsuit became the first of several against Big Tech companies to go to trial.
Mehta ruled that Google, with about 90 percent market share, has monopoly power in both general search and general search text ads. He found that Google’s deals with partners harm competition and that Google hadn’t shown otherwise.
About 50 percent of searches in the US are made using products covered by contracts that Mehta deemed illegal, with Apple accounting for about 28 percent, Android device makers and wireless carriers making up about 19 percent, and browser companies such as Mozilla at about 2 percent, according to Mehta’s ruling. Add in Google’s Chrome browser, and roughly 70 percent of queries flows through portals in which Google is the default search engine. As of 2017, Google attributed an estimated 54 percent of its overall search revenue to default placements.
In exchange for default status, Google shares revenue with partners. Apple receives the highest amount—an estimated $20 billion from Google in 2022—under a deal that runs through 2026. Rivals have been unable to match those payments, and would-be competitors have no reason to take on Google. “The prospect of losing tens of billions in guaranteed revenue from Google—which presently come at little to no cost to Apple—disincentivizes Apple from launching its own search engine when it otherwise has built the capacity to do so,” Mehta wrote.
Meanwhile, Google has been able to routinely increase revenue by adjusting the auction system through which it sells search ads. The company has made those changes with no care to what rivals such as Microsoft are doing, and some of the adjustments have even led to less transparency and benefits for advertisers, according to Mehta’s findings.
“The only apparent constraint on Google’s pricing decisions are potential advertiser outcry and bad publicity,” Mehta wrote. But Google has been deliberate to make those changes “barely perceptible and rarely announced,” and the company “has suffered no consequences because it does not operate in a competitive text ads market.”
The ruling drew inspiration from a district court judgment in the government’s case against Microsoft in the late 1990s, which found that company’s efforts to boost its Internet Explorer browser and stymie rivals were unlawful. A later settlement contributed to the proliferation of new browsers such as Google’s Chrome.
In his decision on Monday, Mehta declined to rule that Google held monopoly power in the more general search ads market. He found Google didn’t have pricing power in product ads, which include images and compete more directly with ads on Amazon and social media.
In a loss for attorneys general of 38 states that had joined the case, Mehta ruled that Google hadn’t unlawfully denied Microsoft access to a key service that advertisers use to buy search ads. Colorado attorney general Phil Weiser, who led that part of the case, did not immediately respond to a request for comment on whether he would appeal.
Mehta also rejected the government’s request to sanction Google for failing to preserve internal communications related to search projects. The judge said any additional evidence wouldn’t have changed his ruling. “The court’s decision not to sanction Google should not be understood as condoning Google’s failure to preserve chat evidence,” Mehta wrote. “Google avoided sanctions in this case. It may not be so lucky in the next one.”
