Apple’s Multibillion-Dollar Default Placement Deal Looms in Google Antitrust Trial

Google has not one but two Department of Justice antitrust trials this year — and the first, over Google Search, is finally coming to an end. On Thursday, lawyers appeared in Washington, D.C. District Court for the first of two days of closing arguments in the trial before Judge Amit Mehta.

This was the first technology antitrust lawsuit the government has filed in two decades since USA x Microsoft. Its result directly affects one of the most valuable companies in the world. At this stage, the judge will only determine whether Google is responsible for the antitrust charges brought against it. In this case, there will be a separate process to determine appropriate solutions. These could be court-imposed restrictions on Google’s behavior or something as drastic as spinning off elements of its search business.

Thursday’s arguments centered on allegations that Google violated antitrust law — Section 2 of the Sherman Antitrust Act — through its allegedly anticompetitive conduct in the search engine market generally. The DOJ defined the relevant market as “general search engines” – such as Google Search, Bing and DuckDuckGo, as opposed to specialized search engines that focus on one category, such as Yelp. It is up to the judge to decide whether that is in fact the relevant market, as well as the question of whether Google is a dominant player in that market.

It’s not enough to be dominant – the DOJ must also show that Google used its dominance to eliminate rivals and maintain monopoly power. Thursday’s arguments also addressed the question of whether Google’s actions were anticompetitive or merely reasonable business decisions. Friday’s closing arguments will focus on the government’s allegations that Google illegally monopolized the search advertising market.

The government argues that Google has maintained its monopoly on the overall search market through exclusionary agreements that block distribution channels so that rivals cannot become real threats. It alleges that Google’s contracts with phone makers and browser companies for default search engine status make it difficult for rivals to enter the market and reinforce a negative feedback loop that makes it nearly impossible for them to achieve scale – particularly devastating since that scale is the key to having a quality search engine.

Google says it’s easy to change standards and that manufacturers want to compromise because it’s invested in being the best search engine out there.

Judge Mehta has kept his cards close to his chest in terms of how he will rule, but his questioning of the government and Google highlighted where he could see flaws in their cases.

Mehta appeared to agree with the government’s definition of the relevant market as general search engines — the first step toward proving a monopoly. He didn’t seem convinced that Google could be sufficiently replaced by a category-specific search provider (like Amazon for shopping), even if they could compete in some areas.

But he seemed to question whether Google’s business decisions were reasonable or anti-competitive. For example, Google Search isn’t as privacy-focused as DuckDuckGo — but isn’t that just a reasonable business decision?

The DOJ’s Kenneth Dintzer said Google’s decisions sometimes seemed arbitrary. For example, it stored query-related data for 18 months when most users preferred it to be stored for two months or less. Ignoring users “because you feel like it” didn’t seem like a business decision, he said.

Mehta also told Dintzer that he was “struggling” to come to the conclusion “that Google’s product has gotten worse over the last ten years,” specifically due to a lack of competition.

The judge also wondered whether the government had effectively proven that Google had erected barriers to entry, pointing to the example of rival search engine Neeva. Although the company went bankrupt, Mehta asked why he shouldn’t take Neeva’s entry into the market as an indication that the barriers to entry are not that high.

Dintzer said that while Neeva was able to enter the market, it still relied on Microsoft’s Bing to power many of its queries. Furthermore, barriers to distribution – the great difficulty in getting people to use your search engine other than Google, which is probably what killed Neeva – are also barriers to entry. (Neeva, like DuckDuckGo, initially relied on Bing’s API, but later built its own search engine from scratch at great expense.)

The specter of Neeva resurfaced when Mehta directed questions to Google. In a billion-dollar market like search, “one would think… there would be a lot of companies trying to come in and take that profit.” But instead, only two new competitors (Neeva and DuckDuckGo) have emerged in the last decade. “Doesn’t that tell us everything we need to know?”

Google lawyer John Schmidtlein said massive investments in AI will significantly change the way people interact with websites. Mehta admitted that may be true, but “my resolve here is today.”

Mehta gave Google a particularly difficult time because of its massive payments to Apple to remain the default search engine on iOS. Last year’s test revealed that Google gives Apple 36% of Safari search ad revenue. The New York Times previously reported that Google paid Apple around $18 billion in 2021 for default status.

The judge posited that for another search engine to effectively compete with Google for this default space, it would not only need to be as good, but would also need to spend the billions that Google pays to be the default – perhaps even more. Mehta noted that there is only “one example in the last 15 years where someone dislodged Google” from a default location, referring to Yahoo’s short-lived default status in Mozilla’s Firefox browser.

Furthermore, Mehta said, “there is no example of any case where any of these vendors have seriously considered anyone other than Google.” And in the one area where “Microsoft thought it was making progress, we heard [Apple executive] Sir. [Eddy] Let me say there is no price they could have offered us. How is this a competitive market?

Schmidtlein said Apple evaluated Bing’s quality against Google’s and ultimately chose Google. But why then, Mehta asked, sign such an expensive deal with Apple? Schmidtlein said Apple’s ability to abandon the deal whenever it expires is “enough to keep Google on its toes and compete.”

Mehta acknowledged that Apple has no better alternatives to choose from. Dintzer responded that there is no real competition because Google has maintained a monopoly for more than a decade.

“Winning legal agreements on quality” could discourage potential rivals, but that didn’t mean it was anticompetitive, Schmidtlein argued.

Mehta asked whether it would be possible for a nascent competitor to dislodge Google. Yes, said Google’s lawyer, highlighting that almost 40% of the market is no contracts locked by default.

Mehta responded that it would take a company with huge capital and the ability to create an equally good search engine without user data. “If this is what it takes for someone to dislodge Google as the default search engine, wouldn’t the people who wrote the Sherman Act be concerned about that?”

Closing arguments in the trial will continue on Friday morning.