Throughout this week, I’ve been in and out of the E. Barrett Prettyman United States Courthouse to watch U.S. v. Google, the Department of Justice antitrust case against Google in the search market. Due to very strict confidentiality rules from the court, you can’t watch or even listen to the trial unless you are there in the building. And while you’re watching, only credentialed media are allowed to use electronic devices. So here’s a brief recap of what we learned this week in U.S. v. Google!
Right out of the gate and continuing through the week, Google and supporters of the status quo have been trying to intermingle two very separate legal questions. The government this week was focused on showing the huge impact that default contracts have on users and on the market. This is important because the default contracts are the key illegal conduct that Google is accused of engaging in. However, it’s easy to get confused because canceling the default contracts may be part of a remedy for the illegal conduct as well. But the remedy stage of this litigation is months away. Google’s argument in court — and even more, their supporters’ argument outside the court — is that the remedy is worse than the disease. I think the company is not only wrong about that, but further, it’s absolutely not a compelling legal argument that defends Google’s past conduct.
There doesn’t seem to be much dispute that Google has been paying many billions of dollars each year to Apple, Android OEMs (device manufacturers like Samsung or LG), mobile carriers, and browsers to be the exclusive default search engine on their products. Getting a clear number on exactly how much Google pays is tricky because so much of the detailed information in this trial is redacted from the public. The DOJ has referred to one contract, the revenue sharing agreement with Apple, as Google paying more than $10 billion a year, while outside sources have pegged this one contract at $15 billion or potentially as high as $20 billion a year. And, of course, that doesn’t include the many other contracts that may also be quite expensive.
The government had a great summary slide in their opening statement that asked a few key questions of the case. One was, if defaults don’t matter, why does Google pay so much for them? I think there are two potential answers to this question, and neither one of them sounds good for Google. The obvious answer, the one that I think the government is arguing for in court this week, is that the default contracts matter enormously. They presented a lot of evidence of that fact, and a lot of evidence that key decision-makers within Google believed it. Note the question is not, “how much do default contracts matter today?” But rather, “how much did default contracts matter during the relevant period in the lawsuit (2010 to 2020)?”
But another alternative answer to the question is that the default contracts, otherwise known as revenue sharing agreements, are also agreements not to compete. They’re not just to prevent existing competitors from winning enough queries to compete at scale — maybe they’re also preventing potential competitors from entering the market. In the government’s opening statement, they talked about a time Apple started to route some search queries on iPhones through their own mini-search engine, essentially answering the queries themselves instead of sending those queries to Google. Google noticed immediately and reminded Apple that this was not allowed in their contract, and updated the contract with new limitations. We didn’t get the details about this from any witness testimony this week, so that’s something I’ll really be curious about in the coming weeks. Few companies are well situated to compete against Google in search, but Apple is one of them. If these default exclusivity contracts had the effect of preventing Apple from entering the market, that’s a huge anticompetitive effect.
Apple couldn’t reject the Google revenue share agreement and fully replace Google search all at once. It takes time and query data to build a high-quality search engine. Building it gradually with just a small percentage of queries is a smart strategy, and one that would have been available to Apple in the absence of the contract.
The trial continues next week!