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What did the judge decide, and what is the Google antitrust lawsuit alleging?
On Wednesday, January 21st, Judge Rita Lin decided that the plaintiffs in the case against Google had sufficient evidence to move forward. The plaintiffs allege that Google violated federal antitrust laws by making and maintaining contracts with mobile device manufacturers and sellers as well as browser developers to make Google the default browser. The plaintiffs allege that this created a monopoly which harmed them by hindering the development of search engines that would have had to compete by offering features such as privacy protections, fewer ads and compensation. In addition, the plaintiffs raised an unjust enrichment claim asserting that without default agreements, Google would allegedly not have the use and retention of search data that it does and benefits from.
Google had moved to dismiss all claims. Google principally argued that the plaintiffs lacked antitrust standing, and that unlike the federal government, private individuals must allege a plausible, non-speculative antitrust injury caused by the anticompetitive behavior. Google contended that the plaintiffs two theories of antitrust injury – search engines that would have paid user to search the web or were more privacy protective and had fewer ads – were fanciful, posing doubt to if any such search engine would have been developed in the absence of the challenged agreements.
However, Judge Lin found the plaintiffs' claims to be plausible and noted the examples given in the complaint of smaller search engines who offered rewards to users such as Microsoft's Bing and Presearch; additionally, other smaller search engines offered ad-free options such as Kagi Search and Brave, who offer subscription search engines with no ads.
Furthermore, Google argued that even in a world without the challenged agreement, it still would have been the strongest choice to be a default search engine due to its superior quality.
Judge Lin granted in part and denied in part Google's motion to dismiss the case. The Second Amended Complaint was dismissed to the extent they relied on the fraudulent concealment but otherwise survived.
What antitrust law applies to this case, and what conduct does it prohibit?
The antitrust law applicable to this case is Section 2 of the Sherman Act. Section 2 of the Sherman Antitrust Act (15 U.S.C. § 2) makes it illegal to monopolize, attempt to monopolize, or conspire to monopolize any part of trade or commerce between states or with foreign nations, targeting single-firm conduct that stifles competition, requiring possession of monopoly power and its willful acquisition, and punishable by significant fines or imprisonment.
Why are Google's default search and distribution agreements central to the lawsuit?
The default search agreements are central to the lawsuit as the plaintiffs argue that Google used these default contracts to exclude competitors and create a monopoly within the search engine space. A search engine cannot produce high-quality search results without enough search data and therefore cannot compete with established market participants like Google. This means that Google benefits from the network effects while smaller competitors are effectively frozen out of the market.
Google holds general search engine dominance; its overall market share in 2020 was 89.2% and 94.9% on mobile devices. Google's closest competitor, Bing, holds an overall market share of 5.5% and 1.3% on mobile devices. Moreover, Google derives significant benefits from being the preselected default general search engine; Google estimates that the default placement drove 54% of its overall search revenue in 2017.
The way theses default agreements work is that Google pays the mobile device manufacturer, sellers and browser developers either a percentage of search advertising revenue or a per-device fee in exchange for preselecting Google as the default general search engine. For example, since 2005 Google has an Internet Services Agreement with Apple that requires Apple to set Google as the default search engine on its Safari browser. In exchange for this, Google pays Apple 36% of its ad revenue from Apple driven searches, which totals up to tens of billions of dollars each year.
What does this ruling suggest for other companies with significant market power?
This ruling provides an example of the courts' renewed interest and willingness to pursue antitrust cases. In the case of Big Tech companies, particularly, this comes as a continuation of recent increased scrutiny over structural dominance and its effects on the market and overall consumer welfare. It signals to companies with significant market power, Big Tech, and otherwise, the importance of evaluating strategies and agreements for pro-competitiveness.
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