Federal Court Rules That Google Illegally Maintained a Monopoly

A decision is here in the massive, multi-government case against Google. In an August 5 ruling, the U.S. District Court for the District of Columbia held that Google violated federal antitrust law.

The case stems from lawsuits filed by both the U.S. Department of Justice (DOJ) and several U.S. states. In the suits—now consolidated—they argued that Google held a monopoly on internet searches and search advertising and had engaged in “exclusionary conduct” to maintain this monopoly, in violation of Section 2 of the Sherman Antitrust Act of 1890.

Far from showing Google to be some sort of mustache-twirling corporate villain, however, the ruling showcases how vague U.S. antitrust law is, how subjective interpretations of it can be, and how weirdly federal courts tend to view market dynamics.

Google Is the Default

In a decision penned by U.S. District Judge Amit P. Mehta, the court acknowledges that Google earned its top spot in the search engine game by hiring highly skilled people, innovating constantly, and making “shrewd business decisions,” thereby becoming “the industry’s highest quality search engine.” Nothing wrong with that.

But Google also struck deals with browser developers, mobile phone companies, and wireless carriers to be the default search engine on their browsers or devices.

These deals do not seem, to me, like they should be illegal. No one is forcing Apple, Mozilla, etc., to strike said deals with Google. And no one is forcing users of their products to use Google for web searching just because it’s pre-set as the default. The default may be “extremely valuable real estate,” as the court puts it, but if consumers were unhappy with Google, they could set another default.

The reason many don’t switch from the default surely turns on Google being, in the court’s own words, “the industry’s highest quality search engine.” Inertia and laziness probably play a role, too, of course. But if Google was terrible, many people would overcome inertia or laziness in order to switch.

“Today’s decision pretends that defaults aren’t easy for users to change, which they are,” said Jessica Melugin, director of the Competitive Enterprise Institute’s Center for Technology and Innovation. “Google was believed by Apple to provide the best value, but if customers disagree, it takes about 30 seconds for them to switch to their preferred search tool.”

Will a finding that such deals are illegal actually help consumers? Probably not.

“The default contract was a competitive, private process that likely reduced costs for phone purchasers,” said Melguin. “That benefit is now in question.”

‘Google Is a Monopolist’

After more than two years of discovery, with “millions of pages” and “petabytes of data” exchanged, the case came to a trial in September 2023 and, after a lot of post-trial motions, closing arguments were held in March 2024. In the end, the court found Google’s distribution agreements to be illegally anticompetitive.

“After having carefully considered and weighed the witness testimony and evidence, the court reaches the following conclusions: Google is a monopolist, and it has acted as one to maintain its monopoly,” Mehta writes.

Specifically, the court found that Google had a monopoly on general search services and general search text ads. “Google’s distribution agreements are exclusive and have anticompetitive effects,” states the decision. “Google has not offered valid procompetitive justifications for those agreements.” The court also concluded that Google “exercised its monopoly power by charging supracompetitive prices for general search text ads.”

The ruling wasn’t all bad news for Google. The court rejected the DOJ’s argument that Google had a monopoly on search advertising, held that Google was not liable “for its actions involving its advertising platform, SA360,” and decided against sanctioning Google for not saving employee chat messages.

Google Is ‘the Best’

Still, the ruling showcases how weird antitrust law is. The court doesn’t deny that Google has a great product, and it doesn’t allege that Google engaged in any sort of deceptive or devious behavior to get people to use it. The issue is merely that Google willfully attempted to maintain its perch as the top search engine by striking deals to be the default search setting on browsers and phones or by setting it as the default on its own products.

Google says it won its contracts with other tech companies through competition—and “in a sense, Google is not wrong,” the court admits. “It has long been the best search engine, particularly on mobile devices,” and it has perpetually innovated.

“Google’s partners value its quality, and they continue to select Google as the default because its search engine provides the best bet for monetizing queries,” Mehta writes. Microsoft and DuckDuckGo have tried to bid for the default positions and “these firms have not succeeded in part due to their inferior quality.”

The court also admits that Google won out here by having the foresight to concentrate on mobile devices when Microsoft did not.

But because “Google’s monopoly in general search has been remarkably durable,” it now “has no true competitor,” the court determined. Therefore any agreements it makes to maintain its dominance are illegal, basically.

This is nuts. The court essentially says that you can work hard, innovate, be shrewd, spend money, and do all sorts of legal things to gain massive market share—but, once you do, you better sit back and let others usurp your position or else you’re an illegal monopolist.

‘Courts Are Not Very Good at Understanding How Markets Work’

“The court’s order, which relies heavily on contested theories from the field of behavioral economics about the supposed power of defaults, fails to demonstrate how the contractual agreements at-issue harm consumers or competition,” said International Center for Law and Economics President Geoffrey A. Manne via email. “Moreover, the court overlooks the broader competitive landscape in search and the vigorous competition in which Google has been engaged to become the default search engine.”

“The fact that Google search has an 80% market share even on Windows devices, where Edge is the default browser and Bing is the default search engine, demonstrates that consumers go out of their way to use Google because they believe it is the best option,” Manne pointed out. “A default placement is worth very little if your product isn’t any good. By the same token, Google hasn’t been ousted as the default anywhere, because it has a superior product. The opinion offers no evidence to suggest that Bing would have become a viable competitor under any other set of facts.”

Or, as Dan Greenberg, general counsel at the Competitive Enterprise Institute, put it: “The reason people use Google isn’t because of monopoly power; it’s because the company offers something people like. Sometimes courts are not very good at understanding how markets work.”

One long-standing bug of antitrust decisions around tech is that courts look at the current technological landscape and are unable to imagine how things might change. This happened previously with Microsoft, in a 1990s case that echoes the current case against Google. The case turned on the charge that Microsoft had illegally set its own browser, Internet Explorer, as the default on Microsoft’s Windows operating systems. I looked at the Microsoft case and its lessons in this 2021 piece about the bipartisan antitrust crusade against big tech:

Attorney General Janet Reno claimed Microsoft had given itself “a chokehold on the browser software needed to access the Internet”—despite the fact that computer manufacturers could also give users other browser software and Windows users could install them. Since Explorer was included as the default option (and could never be fully deleted) and Windows was the most widely used operating system at the time, the feds claimed that consumers were trapped or tricked into using Microsoft’s portal to the web. The DOJ sought to force Microsoft to either unbundle the Internet Explorer browser or to include the browser of its competitor, Netscape, in its operating system.

The DOJ’s case had rested on the assumption that Microsoft had given itself an unfair advantage over competitors that made it the permanent king of the tech industry. This argument assumed that the market was static and that change could come only from the heavy hand of the government. Yet as with IBM, Microsoft lost market power because a host of nimble upstart competitors found ways to meet consumer needs in unexpected ways.

The government went after Microsoft just as web-based applications won out over operating system–based applications and mobile operating systems won out over desktop computing.

The same thing may be happening now with Google, suggests Jennifer Huddleston, a senior fellow in technology policy at the Cato Institute.

“The court’s decision has a rather static view of the market for search at a time when the way we interact with technology is changing what it means for search (and if general search engines will even be relevant in a few years),” Huddleston posted on X. “For example, the court did not address the ways in which generative AI products including Google’s own Gemini or ChatGPT might alter the overall market for search services.”

Huddleston also points out how the ruling’s focus is not on consumer well-being or utility. “Notably, the decision focused not on the end user consumer or their preferences for various search services but on the underlying agreements between various businesses. It is unclear what the potential remedies might be or how they will impact the consumer experience,” she said.

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Source: https://reason.com/2024/08/07/federal-court-rules-that-google-illegally-maintained-a-monopoly/