The most significant tech antitrust trial of the 21st century thus far kicked off in US federal court Tuesday with the Department of Justice and 14 co-plaintiff states squaring off against the search engine giant. The DOJ accuses Google of unlawfully monopolizing the markets for general search services, search advertising, and general search text advertising in the via anticompetitive and exclusionary practices.
During opening arguments, Kenneth Dintzer, deputy director in the DOJ’s civil division, said, “This case is about the future of the internet, whether the Google search engine will ever face meaningful competition to protect that future.” At the heart of the government’s case is Google’s use of contracts to maintain what Dintzer contends is a “default status” market share that tops 89% in the search engine market and 74% in the search ads business.
“Monopoly maintenance starts with default settings that we find when we open the apps and download the browsers,” Dintzer said. “With these defaults, Google controls search distribution and gets more searches than its rivals. It is uncontested that Google gets sixteen times the fresh data than its nearest rival, Bing.”
Insurmountable feedback loop for rivals
The DOJ says that with its massive lead in fresh data, Google can provide users with more accurate results and, in turn, attract more users and advertising revenue, creating an insurmountable feedback loop for its rivals. “With this data, Google’s mobile search and ad products are better than its rivals can hope to be,” giving Google more money to pay for more default contracts with device makers and apps rather than investing in products, Dintzer argued
Google’s dominance not only forecloses competitors but also reduces innovation, Dintzer said, affecting the quality of results and allowing Google to neglect issues important to users, such as privacy. “Privacy is enormously important to some people. Without competition, Google refuses to offer credible protection.” Dintzer said the government will provide “direct evidence that Google refuses to offer more privacy because they’re not facing credible competition.”
On the advertising side, Dintzer said the government will prove that Google contracts have denied the distribution of potential rivals, affecting every phone and computer in the country, expressly targeting a potential entrant called Branch Metrics, and limiting Apple’s ability to innovate. When asked by Judge Amit Mehta how far back Google’s monopolization extends, Dintzer said that the DOJ’s case addresses the company’s business since 2010 when, even then, the company had a market share above 70%.
Mehta is overseeing the case in a bench trial, in which there is no jury and the judge acts as fact-finder as well as arbiter of the law.
Google’s lock on the advertising market
On behalf of the state of Colorado representing all the state plaintiffs, attorney William F. Cavanaugh, Jr. of Patterson, Belknap, Webb & Tyler, argued that Google exercises substantial market power in three relevant markets: general search services, general search text advertising, and general search advertising.
In their pretrial brief, the state plaintiffs argued that Google’s anticompetitive actions stem from the company’s default distribution agreements with Android devices, Apple, and browsers. They also pointed to Google’s operation of SA360, or Search Ads 360 — a platform that makes it easier for advertisers and marketers to manage campaigns across multiple engines and markets — arguing that SA360 harms advertisers by failing to implement valuable Microsoft Ads features.
The states say Google’s default distribution agreements leave rivals weaker and disadvantaged, making it harder for them to mount competition against Google. They note that SA360 excludes Microsoft’s Ad features. “Through SA360, a neutral search engine supposedly, Google has put advertisers in [Microsoft-owned] Bing at a disadvantage,” Cavanaugh said during opening arguments.
The disadvantage particularly, the states argue, extends to advertisers who focus on niche audiences or specialized service providers (SVPS), who are among the largest purchasers of Google Ads. SVPs stick with Google because they do not see rival search engines as meaningful alternatives.
The states raise another anticompetitive drawback to Google’s advertising practices: the company’s failure to incorporate auction pricing, which its main rival, Bing, does. The failure to embrace auction pricing proves that Google is a monopolist insulated from competitive pressures. “I have no doubt that during this trial, we will have an October surprise” in the form of Google auction bidding, Cavanaugh said.
Google: We win through innovation
Google, represented during opening arguments by John E. Schmidtlein of Williams & Connolly, argued that the company’s opponents use a too-narrow definition of the relevant markets to calculate Google’s market share. By comparing including Google in a mix that includes only generalized search engines such as Bing, Yahoo!, and DuckDuckGo, the plaintiffs ignore “specialized vertical providers (SVPs) such as Amazon, Yelp, and Expedia, as well as other popular places users go to search for information such as TikTok and Instagram.”
More importantly, most PC users prefer Google because it is innovative, contrary to the plaintiffs’ arguments. “Browser and carriers and Android device makers prefer Google,” Schmidtlein said. “Google competed on the merits to win pre-installation and default status.” To the contrary, Google’s rivals have failed to innovate, he argued. “Microsoft’s Bing search engine has failed to win customers because Microsoft did not prioritize innovation.”
To underscore his point, Schmidtlein said, “Bing is the only search engine preinstalled on Microsoft Windows PC,” yet most Microsoft users still prefer Google. “Google is no gatekeeper, and the truth is neither is Microsoft.”
Regarding the anticompetitive advantages that Google holds due to its sheer scale, Google doesn’t deny that its vast trove of data fuel improved search quality but says the government’s argument doesn’t hold water. “Google will show that there are diminishing returns to scale, that Microsoft has sufficient scale to compete, and that there are many aspects of search that can be improved without additional scale,” the company said in its pretrial brief.
When asked by Mehta whether device makers, such as Apple, have any choice but to choose Google as their default search engine, Schmidtlein responded, “Why would we second-guess Apple’s product decision? They are making a product that consumers want and prefer.” Schmidtlein also said that Google will be calling as witnesses Eddie Cue, Apple’s senior vice president of services, and John Giannandrea, Apple’s Senior vice president of machine learning and AI strategy, who will confirm they chose Google on the merits
The prosecution starts its case
After opening arguments, the DOJ began prosecuting the case by calling Hal Ronald Varian, chief economist of Google. The DOJ’s Dintzer probed Varian on some statements he made that seemingly bolster the government’s argument that Google is all too aware of its commanding market share (including, as DOJ notes in its pretrial brief, advising Penny Chu, senior director of Google’s Ads Marketing Analytics team, to “make sure that we are consistent in calling this ‘query share’ rather than market share.'”)
Dintzer also pressed Varian on data he included in presentations based on a paper he wrote. However, Varian effectively evaded giving Dintzer complete answers to his questions and frequently paused before responding or asking for further clarifications on what the questions meant.
The trial is expected to last 10 weeks. Even if Google wins, it still faces another, potentially more serious and certainly far more complex antitrust trial next year. In January 2023, the DOJ, with the attorneys general of California, Colorado, Connecticut, New Jersey, New York, Rhode Island, Tennessee, and Virginia, filed a civil antitrust suit against Google for monopolizing multiple digital advertising technology products.
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