U.S. Sues Google

One of possibly two suits alleging that Google engaged in antitrust and anti-competitive practices was filed. This one is arguing that Google’s search engine practices violate U.S. law.

The United States (U.S.) Department of Justice (DOJ) and a number of states have finally filed the antitrust suit against Google that has been rumored to be coming since late summer. This anti-trust action centers on Google’s practices of making Google the default search engine on Android devices and paying browsers and other technology entities to make Google the default search engine. However, a number of states that had initially joined the joint state investigation of Google have opted not to join this action and will instead be continuing to investigate, signaling a much broader case than the one filed in the United States District Court for the District of Columbia. In any event, if the suit does proceed, and a change in Administration could result in a swift change in course, it may take years to be resolved. Of course, given the legion leaks from the DOJ and state attorneys general offices about the pressure U.S. Attorney General William Barr placed on staff and attorneys to bring a case before the election, there is criticism that rushing the case may result in a weaker, less comprehensive action that Google may ultimately fend off.

In its press release, DOJ claimed

Today, the Department of Justice — along with eleven state Attorneys General — filed a civil antitrust lawsuit in the U.S. District Court for the District of Columbia to stop Google from unlawfully maintaining monopolies through anticompetitive and exclusionary practices in the search and search advertising markets and to remedy the competitive harms. The participating state Attorneys General offices represent Arkansas, Florida, Georgia, Indiana, Kentucky, Louisiana, Mississippi, Missouri, Montana, South Carolina, and Texas.

The DOJ added

As one of the wealthiest companies on the planet with a market value of $1 trillion, Google is the monopoly gatekeeper to the internet for billions of users and countless advertisers worldwide. For years, Google has accounted for almost 90 percent of all search queries in the United States and has used anticompetitive tactics to maintain and extend its monopolies in search and search advertising.  

The DOJ claimed:

As alleged in the Complaint, Google has entered into a series of exclusionary agreements that collectively lock up the primary avenues through which users access search engines, and thus the internet, by requiring that Google be set as the preset default general search engine on billions of mobile devices and computers worldwide and, in many cases, prohibiting preinstallation of a competitor. In particular, the Complaint alleges that Google has unlawfully maintained monopolies in search and search advertising by:

• Entering into exclusivity agreements that forbid preinstallation of any competing search service.
• Entering into tying and other arrangements that force preinstallation of its search applications in prime locations on mobile devices and make them undeletable, regardless of consumer preference.
• Entering into long-term agreements with Apple that require Google to be the default – and de facto exclusive – general search engine on Apple’s popular Safari browser and other Apple search tools.
• Generally using monopoly profits to buy preferential treatment for its search engine on devices, web browsers, and other search access points, creating a continuous and self-reinforcing cycle of monopolization.

These and other anticompetitive practices harm competition and consumers, reducing the ability of innovative new companies to develop, compete, and discipline Google’s behavior. 

In the complaint the DOJ and attorneys general asserted:

• Google’s practices are anticompetitive under long-established antitrust law. Almost 20 years ago, the D.C. Circuit in United States v. Microsoft recognized that anticompetitive agreements by a high-tech monopolist shutting off effective distribution channels for rivals, such as by requiring preset default status (as Google does) and making software undeletable (as Google also does), were exclusionary and unlawful under Section 2 of the Sherman Act.
• Back then, Google claimed Microsoft’s practices were anticompetitive, and yet, now, Google deploys the same playbook to sustain its own monopolies. But Google did learn one thing from Microsoft—to choose its words carefully to avoid antitrust scrutiny. Referring to a notorious line from the Microsoft case, Google’s Chief Economist wrote: “We should be careful about what we say in both public and private. ‘Cutting off the air supply’ and similar phrases should be avoided.” Moreover, as has been publicly reported, Google’s employees received specific instructions on what language to use (and not use) in emails because “Words matter. Especially in antitrust law.” In particular, Google employees were instructed to avoid using terms such as “bundle,” “tie,” “crush,” “kill,” “hurt,” or “block” competition, and to avoid observing that Google has “market power” in any market.
• Google has refused to diverge from its anticompetitive path. Earlier this year, while the United States was investigating Google’s anticompetitive conduct, Google entered into agreements with distributors that are even more exclusionary than the agreements they replaced. Also, Google has turned its sights to emerging search access points, such as voice assistants, ensuring that they too are covered by the same anticompetitive scheme. And Google is now positioning itself to dominate search access points on the next generation of search platforms: internet-enabled devices such as smart speakers, home appliances, and automobiles (so-called internet-of-things, or IoT, devices).
• Absent a court order, Google will continue executing its anticompetitive strategy, crippling the competitive process, reducing consumer choice, and stifling innovation. Google is now the unchallenged gateway to the internet for billions of users worldwide. As a consequence, countless advertisers must pay a toll to Google’s search advertising and general search text advertising monopolies; American consumers are forced to accept Google’s policies, privacy practices, and use of personal data; and new companies with innovative business models cannot emerge from Google’s long shadow. For the sake of American consumers, advertisers, and all companies now reliant on the internet economy, the time has come to stop Google’s anticompetitive conduct and restore competition.

The DOJ and state attorneys general asked the court to:

• Adjudge and decree that Google acted unlawfully to maintain general search services, search advertising, and general search text advertising monopolies in violation of Section 2 of the Sherman Act, 15 U.S.C. § 2;
• Enter structural relief as needed to cure any anticompetitive harm;
• Enjoin Google from continuing to engage in the anticompetitive practices described herein and from engaging in any other practices with the same purpose and effect as the challenged practices;
• Enter any other preliminary or permanent relief necessary and appropriate to restore competitive conditions in the markets affected by Google’s unlawful conduct;
• Enter any additional relief the Court finds just and proper; and
• Award each Plaintiff an amount equal to its costs incurred in bringing this action on behalf of its citizens.

A number of attorneys general who has joined the effort led by Texas Attorney General Ken Paxton in investigating Google released a statement indicating their investigation would continue, presaging a different, possibly broader lawsuit that might also address Google’s role in other markets. The attorneys general of New York, Colorado, Iowa, Nebraska, North Carolina, Tennessee, and Utah did not join the case that was filed but may soon file a related but parallel case. They stated:

Over the last year, both the U.S. DOJ and state attorneys general have conducted separate but parallel investigations into Google’s anticompetitive market behavior. We appreciate the strong bipartisan cooperation among the states and the good working relationship with the DOJ on these serious issues. This is a historic time for both federal and state antitrust authorities, as we work to protect competition and innovation in our technology markets. We plan to conclude parts of our investigation of Google in the coming weeks. If we decide to file a complaint, we would file a motion to consolidate our case with the DOJ’s. We would then litigate the consolidated case cooperatively, much as we did in the Microsoft case.

The DOJ and eleven state attorneys general are following in the footsteps of the European Union’s (EU) €4.34 billion fine of Google in 2018 for imposing “illegal restrictions on Android device manufacturers and mobile network operators to cement its dominant position in general internet search.” The European Commission (EC or Commission) claimed the offending behavior included:

• has required manufacturers to pre-install the Google Search app and browser app (Chrome), as a condition for licensing Google’s app store (the Play Store);
• made payments to certain large manufacturers and mobile network operators on condition that they exclusively pre-installed the Google Search app on their devices; and
• has prevented manufacturers wishing to pre-install Google apps from selling even a single smart mobile device running on alternative versions of Android that were not approved by Google (so-called “Android forks”).

The EC said its “decision concludes that Google is dominant in the markets for general internet search services, licensable smart mobile operating systems and app stores for the Android mobile operating system.”

The EC found:

General search services

Google is dominant in the national markets for general internet search throughout the European Economic Area (EEA), i.e. in all 31 EEA Member States. Google has shares of more than 90% in most EEA Member States. There are high barriers to enter these markets. This has also been concluded in the Google Shopping decision of June 2017.

Smart mobile operating systems available for licence

Android is a licensable smart mobile operating system. This means that third party manufacturers of smart mobile devices can license and run Android on their devices.

Through its control over Android, Google is dominant in the worldwide market (excluding China) for licensable smart mobile operating systems, with a market share of more than 95%. There are high barriers to entry in part due to network effects: the more users use a smart mobile operating system, the more developers write apps for that system – which in turn attracts more users. Furthermore, significant resources are required to develop a successful licensable smart mobile operating system.

As a licensable operating system, Android is different from operating systems exclusively used by vertically integrated developers (like Apple iOS or Blackberry). Those are not part of the same market because they are not available for licence by third party device manufacturers.

Nevertheless, the Commission investigated to what extent competition for end users (downstream), in particular between Apple and Android devices, could indirectly constrain Google’s market power for the licensing of Android to device manufacturers (upstream). The Commission found that this competition does not sufficiently constrain Google upstream for a number of reasons, including:

• end user purchasing decisions are influenced by a variety of factors (such as hardware features or device brand), which are independent from the mobile operating system;
• Apple devices are typically priced higher than Android devices and may therefore not be accessible to a large part of the Android device user base;
• Android device users face switching costs when switching to Apple devices, such as losing their apps, data and contacts, and having to learn how to use a new operating system; and
• even if end users were to switch from Android to Apple devices, this would have limited impact on Google’s core business. That’s because Google Search is set as the default search engine on Apple devices and Apple users are therefore likely to continue using Google Search for their queries.

App stores for the Android mobile operating system

Google is dominant in the worldwide market (excluding China) for app stores for the Android mobile operating system. Google’s app store, the Play Store, accounts for more than 90% of apps downloaded on Android devices. This market is also characterised by high barriers to entry. For similar reasons to those already listed above, Google’s app store dominance is not constrained by Apple’s App Store, which is only available on iOS devices.

The EC flagged three types of illegal behavior:

1) Illegal tying of Google’s search and browser apps

2) Illegal payments conditional on exclusive pre-installation of Google Search

3) Illegal obstruction of development and distribution of competing Android operating systems

The EC stated:

At a minimum, Google has to stop and to not re-engage in any of the three types of practices. The decision also requires Google to refrain from any measure that has the same or an equivalent object or effect as these practices.

The decision does not prevent Google from putting in place a reasonable, fair and objective system to ensure the correct functioning of Android devices using Google proprietary apps and services, without however affecting device manufacturers’ freedom to produce devices based on Android forks.

And, of course, this is only the latest anti-trust case Google has faced in the EU with the €2.42 billion fine in June 2017 “for abusing its dominance as a search engine by giving an illegal advantage to Google’s own comparison shopping service.”

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