What you need to know about the DOJ’s antitrust case against Google

The United States Department of Justice under Attorney General William Barr has filed suit against Google after a year-long investigation into the company’s search business. The Department alleges that the search giant wrongfully wielded its digital dominance to the detriment of corporate rivals and consumers. This antitrust lawsuit should come as no surprise—the U.S. Antitrust Subcommittee already identified Google as an abuser of its market position. Google has been under investigation for over a year now by the U.S., and today’s news is the follow-up to that investigation. As expected, the case will focus primarily on the company’s search business and search-related advertising.

That’s not all, though. The lawsuit also targets Google’s handling of its services being preloaded on Android smartphones under licensing agreements. The U.S. government also alleges that Google unlawfully prohibited competitors’ search applications from being pre-loaded on Android smartphones under revenue-sharing agreements. Because Google handles 88% of all search queries in the U.S., its competitors are unable to build enough search queries in order to compete. The U.S. Department of Justice also points out that Google owns 94% of all searches from mobile devices.

This leaves consumers with reduced choice, stifles innovation, and increases costs of advertising due to reduced competition. In full, the complaint accuses Google of the following:

• 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.

Google’s control over Android

The company’s control of Android has been described as “exclusionary”, despite the open-source nature of the operating system. The Department of Justice references all of Google’s agreements that Android device makers must sign if they want to preload Google Mobile Services, or GMS for short. The fact that device makers can’t display Google’s trademarked Android branding without GMS pre-installed is also mentioned, as the case background states that “Android devices are not marketable without them”.

The case background also illustrates how a user is unknowingly introduced to a Google ecosystem from the moment they set up their device. It also mentions bloatware, stating that “Google requires some of these apps to be undeletable from the device, regardless of whether consumers want them”.

Furthermore, the case background shows a 2014 draft strategy presentation that shows Google chased search exclusivity.

The suit also mentions that “through these interlocking, anticompetitive agreements, Google insulates and protects its monopoly profits.” One internal analysis of these restrictive agreements concluded that only one percent of Google’s worldwide Android search revenue was currently at risk to competitors. This analysis noted that the growth in search advertising revenue from Android was “driven by increased platform protection efforts and agreements.” AOSP may be free, but there are a number of agreements that make it impossible to effectively ship Android without Google’s involvement.

Google’s revenue-sharing agreements

Google has revenue-sharing agreements (RSAs) with many Android manufacturers and carriers. The suit says that the company “generally requires exclusive distribution as the sole preset default general search service on an ever-expanding list of search access points; in exchange, Google remits to these companies a percentage of search advertising revenue.” The suit says that the company has entered into RSAs with AT&T, T-Mobile, Verizon, and Samsung. Some of these agreements require that all devices from the companies comply with the agreement. This means that all units must comply with the agreement for any unit to generate revenue for the manufacturer.

The suit states that these revenue-sharing agreements (and preinstallation agreements) with Android device manufacturers, together, account for more than 30 percent of mobile device usage in the United States.

Google also has Revenue Sharing Agreements with nearly every significant web browser in exchange for being the default search engine. This excludes Microsoft Edge, Mozilla’s Firefox, Opera, and UCWeb. Google shares up to 40 percent of the advertising revenue it generates from these search access points with its browser rivals. Browser revenue sharing agreements typically last at least two years and are routinely extended.

Google and Apple’s revenue-sharing agreement

Apple accommodates Google’s search denial, as, after a 2018 meeting, the document states that a senior Apple employee wrote to a Google counterpart: “Our vision is that we work as if we are one company.” The suit estimates that 15-20% of Apple’s yearly income is said to be as a result of payments Google makes to Apple to be the default search provider on Apple devices. Apple does not have its own search provider, and Apple’s Siri makes use of Google. In exchange for this privileged access to Apple’s massive consumer base, Google pays Apple billions of dollars in advertising revenue each year, “with public estimates ranging around $8–12 billion.”

The suit mentions that Google entered into an agreement in 2005 when Apple began to use Google as its default search engine in its Safari web browser. In return, Apple was given a “significant” percentage of Google’s advertising revenue derived from Apple device searches. Two years later, this was extended to iPhones, and then in 2016, extended to cover Siri and Spotlight. (Spotlight is Apple’s system-wide search feature.) Apple’s devices make up 60% of the mobile market in the U.S., and Macs account for 25% of the computer market in the US.

Google learned from Microsoft’s antitrust suit

The suit alleges that Google instructed staff on what language to use in emails, and referred directly to the US v Microsoft case of 1998. The state aims to use precedence that has been set in the case against Microsoft and draws parallels to requiring a preset default status and making software unremovable.

The suit also states that, while Google was under investigation for anticompetitive practices, they entered into agreements with distributors that were even more exclusionary than the agreements they replaced.

Preinstallation agreements

The suit goes into detail about Google’s forced preinstallation of GMS on Android smartphones. It states that manufacturers must preinstall the core apps (including the Google Play Store, YouTube, Chrome, Gmail, Google Search App, Maps, and other “GMS Core” applications) in an unremovable manner, even if consumers do not want them. These installation agreements cover nearly all of the Android smartphones sold in the U.S. The suit states that in 2011, “one major electronics manufacturer considered giving a group of consumers outside the United States a choice between two home screen experiences for their device: one home screen with the Google search widget and a second home screen with a rival search widget. Discussing this proposal with colleagues, one Google employee noted ‘[a]llowing a mode that does not have Google as the default search provider and completely changes the home screen’ would violate Google’s terms and risk breach.”

The same was said of a major U.S.-based carrier in 2015, who Google was concerned would ask manufacturers to install a search widget powered by the carrier’s in-house search engine. Google’s Vice President of Partnerships wrote to a colleague that the company needed to make clear to manufacturers that “[these] customization requests will not go far” and replacing the Google search widget with a different search box would violate the preinstallation agreement.

Internal disagreements in the Department of Justice

However, the WSJ reported in early August that there were internal disagreements in the Department of Justice over the filing of charges against Google. AG William Barr’s timeline was described as “aggressive”, and that the case may not be “airtight”. The Washington Post has corroborated this report. Staffers in the Department of Justice are also worried that the primary motivation behind the case being filed now was the upcoming U.S. Presidential election. AG William Barr, according to the report, believes that they are acting too slowly and has repeatedly pushed for the department to move forward.

The Washington Post reported last week that Colorado, Iowa, Nebraska, and New York plan to issue a joint statement to indicate they are still scrutinizing a wide array of Google’s business practices and may instead opt to join any federal case later. It is worth indicating that so far, all four of these states have been left out of the suit. Famously, the U.S. Department of Justice filed a suit against Microsoft in 1998 which alleged that Microsoft illegally used its market dominance of the Windows operating system to shut out competitors to Internet Explorer. The case officially closed in May 2011. Microsoft was initially ordered in 2000 to split the company up but appealed and won. This case is referenced in the suit filed against Google.

This is a landmark case and may have repercussions for companies through Silicon Valley. With mounting pressure on tech companies in the U.S. from progressives calling for the breaking up of big tech, it’s entirely possible the same may be ordered of Google. There is no telling how long this case may drag out or what the potential ramifications may be.

Google has already faced antitrust investigations in the EU

Google has faced numerous antitrust battles in the European Union. Google was forced to provide search provider choices for Android users in the EU after the European Commission ruled that Google had “imposed illegal restrictions on Android device manufacturers and mobile network operators to cement its dominant position in general internet search”, and subsequently fined the company $5 billion. After the ruling, Google announced changes to how it did business in the EU, allowing partners to build smartphones with forked OS builds for the European Economic Area, and introducing a new paid licensing agreement for smartphones shipped to the EEA, among other changes.

Later on, Google also announced that it would present additional app options for Search and Browser on smartphones for users in Europe. Every time a user selects one of the alternatives, Google will receive a fee. Google Search may not be used by as many people, but the company is still making money off of every user whenever a user selects an alternative search browser. They are also shown in random order, so as to not potentially favor one search engine over another. This did not solve every problem though, as DuckDuckGo called the solution a “pay-to-play auction in which only the highest bidders are on the menu.”.

Google’s Response

In a blog post, Kent Walker, SVP of Global Affairs at Google, laid out the company’s response to the DOJ’s lawsuit. The company calls the lawsuit “deeply flawed” because people choose to use their search engine—”not because they’re forced to, or because they can’t find alternatives.” If the DOJ’s case succeeds, Google argues that “it would artificially prop up lower-quality search alternatives, raise phone prices, and make it harder for people to get the search services they want to use.” Google confirms the company “pay[s] to promote [its] services” (which was never really in dispute), but that this practice is common in business, much like how a “cereal brand might pay a supermarket to stock its products at the end of a row or on a shelf at eye level.” Google says they, like cereal brands competing for space on a supermarket shelf, also compete with rival search providers for prominence in browsers. As an example, Google says that Microsoft and Yahoo also pay Apple to feature their respective search engines in Safari.

On Android, Google argues that these promotional agreements are necessary to pay for the development and distribution of the operating system. Even so, Google argues that carriers and device makers still preload numerous competing apps and app stores. (The latter, however, is in dispute since Google has been alleged to discourage the preloading of third-party app stores that aren’t owned by device makers.) Lastly, the company points out that it’s incredibly easy to install a different search app or widget on Android. The company will obviously fight the DOJ’s claims in federal court, so we’ll have to wait and see how things turn out.

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