On the same day that the US Federal Trade Commission sued Amazon for using anticompetitive and unfair strategies to maintain monopoly power in the online retail sector, Eddy Cue, Apple’s senior vice president of services, spent hours a few blocks away at the E. Barrett Prettyman US District Court House as a reluctant prosecution witness in the antitrust trial of Google.
The US Justice Department (DOJ) has accused Google of monopolizing the search engine market through exclusive deals to become the default search engine for device manufacturers and software companies. The feds say that Google’s nearly 90% share of the search engine market hands it an unfair competitive advantage that makes it impossible for rivals to compete.
Roughly half of Cue’s nearly four hours on the witness stand Tuesday, like much of the testimony in the three weeks of the trial so far, was hidden in a sealed courtroom, closed to the press and interested citizens. The rest of Cue’s time on the stand took place in an open session, during which the DOJ questioned him on the revenue-sharing agreement between Apple and Google, Apple’s decision to rely on Google for its default search engine, and the extent to which Apple might be ignoring Google’s more undesirable characteristics.
Drill-down on Apple’s revenue share
Megan Bellshaw, assistant chief of the DOJ’s antitrust division, questioned Cue on Apple’s information service agreement (ISA) with Google, first forged in 2002 and subsequently extended several times. Although Cue was not involved in the earlier versions, he was the lead negotiator for a revised ISA agreed to in 2016.
One of Cue’s goals during the negotiations with Sundar Pichai, CEO of Alphabet, which owns Google, was to increase revenue. Under an agreement hammered out during a sealed court session at the day’s start, a “Rosetta Stone” was developed, a rubric that allowed Cue to use letters corresponding with numbers when answering questions by Bellshaw about the revenue-sharing arrangement.
“One of the goals was to increase revenue share back to where it was in the beginning,” Cue said. Cue said Pichai couldn’t agree to Apple’s requested “c” percentage of revenue and felt that it should stay at the “a” level.
“I told him that he and I need to sit down alone next week,” Cue said. “If we can’t agree on a revenue share agreement, we should not move forward. Google ended up agreeing to pay “b” as a percentage of revenue, maintaining Google as “the default search engine on all Apple devices where we have a search engine,” according to Cue.
Bellshaw continued questioning Cue on how much money Apple generates from its deal with Google, prompting Cue to say, “The deal has a lot more to it than just economics. I think it was fairly clear at the time that there was nobody out there in terms of search engines that was better than Google.”
The complexity of search engine choice
Bellshaw presented Cue with the easy set-up options Apple offers to new iPhone users, including one-click selections of privacy and do-not-track choices. Regarding these simple options, Cue said, “The more options you get tend to frustrate customers.”
But these convenient choices don’t apply to Apple’s choice of Google for the default search functionality for the Safari browser, Cue said. For one thing, the ISA with Google doesn’t permit Apple users to choose a default search option.
Moreover, search engine choice is more complex. “Sharing location, being tracked, everyone understands,” Cue said. But a lot more goes into selecting a search engine, which most consumers don’t understand. “We wanted the capability to provide the best services for our customers, and Google does that best,” he said. Later, Cue noted that customers are free to install any separate search engine app they choose, just not the default search engine used by Apple’s Safari.
Apple does, however, allow customers to opt out of the default search engine in some countries, such as China or North Korea, where the governments have banned Google search, Cue confirmed.
Challenging Apple’s rosy view of Google
Bellshaw pressed Cue on evidence that undercut Cue’s upbeat assessment of Google’s search engine qualities. She pointed to an August 2012 FTC civil penalty of $22.5 million that Google paid for misrepresenting to Apple Safari users that it would not place tracking “cookies” or serve targeted ads to those users, a misstep that violated an earlier FTC privacy deal.
She also pointed to former Google CEO Eric Schmidt, who once said, “The Google policy on a lot of things is to get right up to the creepy line and not cross it.” Cue’s response to these examples of Google’s less-than-desirable aspects was to point out that in providing users with a Google default engine, Apple steers clear of some of Google’s problems by eliminating the need for users to log in. “When we did the deal with Google, from the very beginning, we didn’t allow Google to make customers log in.”
Bellshaw asked Cue if Apple has a contractual obligation to defend the ISA in situations involving government action. Cue said that Apple’s lawyers know more about this contract provision than he does, but he thought the language was put in the contract by both counsels related to an EU investigation of Google.
A high-stakes antitrust trial effectively held in secret
It’s difficult to place any of Cue’s testimony in context because about half of it occurred during a sealed court, during which connections between the DOJ’s allegations and Cue’s answers might have arguably been made clear. The opaque nature of the trial, which began on September 12 and will last until mid-November, is a result of efforts by both Google and Apple, which combined are worth around $5 trillion, to maintain secrecy around the court’s proceedings to protect competitively sensitive information.
Google successfully opposed a petition by a group of public interest advocates to make available a publicly accessible audio feed of the unsealed portions of the trial. Google also successfully challenged the DOJ’s online posting of the company’s emails, charts, and internal presentations used as evidence in the trial, forcing the federal prosecutors to remove them. (On September 26, Judge Mehta resolved the dispute, ruling that documents used during the trial can be published online at the end of each day.) On September 25, on the eve of Cue’s testimony, the Justice Department objected to a request by Apple to seal exhibits it planned to use in questioning Cue.
The sealed proceedings have obscured so much of the trial that Matt Stoller, Director of Research at the American Economic Liberties Project, calculates that by September 24, half of the week’s courtroom days were sealed. A New York Times analysis revealed that two-thirds of thirty-five motions and responses filed by Google before opening statements began on September 12 were sealed.
As Stoller points out, the tech giants’ demands for secrecy are finding a receptive audience with Judge Mehta. During a pretrial hearing, Mehta said, “Look, I’m a trial judge. I am not anyone that understands the industry and the markets in the way that you do. And so, I take seriously when companies are telling me that if this gets disclosed, it’s going to cause competitive harm.”
‘Atrocious, highly unusual’ secrecy fuels feelings of big tech capture
Megan Gray, former General Counsel and Vice President of Public Policy at search engine DuckDuckGo and a key player in the FTC case that cost Google $22.5 million for false privacy claims, tells Computerworld that the unparalleled degree of secrecy surrounding the case is “atrocious, highly unusual, and I think ultimately counterproductive. All it’s going to do is generate more conspiracy theories and feelings of capture by big tech.” (DuckDuckGo’s CEO Gabriel Weinberg testified on the stand last week for nearly five hours, with only one hour of his testimony open to the public. Late on September 26, Mehta authorized the release of the under-seal portion of Weinberg’s testimony.)
Gray also echoes the concern that Mehta has been too accommodating to the big tech players. “The judge has deferred to the companies on how to interpret the law on what justifies closure of a court trial,” she says.
Moreover, she takes a dim view of what she perceives as the DOJ’s weak objections to all the secrecy. “They have made a calculation that they don’t want to ruffle this court’s feathers,” she says. “They also need the cooperation of a lot of third-party witnesses, all of whom, like Apple, want everything kept under wraps. So, they made a calculated decision that we’re going to just focus on liability and the verdict, not the other equally important goals of a trial.”
She further underscores the difficulty of making sense of what’s being argued during the trial, given that only shards of information are poking through the veil of secrecy. “I’m sympathetic to a lot of positions, but I really have a hard time trying to understand what the competitive harm here is,” she says.
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