Google has a lot at stake as a federal judge weighs whether the tech giant’s search empire should be broken up.
So does the rest of Silicon Valley.
A landmark antitrust case pitting Google (GOOG, GOOGL) against the Justice Department entered its final stage this past week as prosecutors from the federal government and 14 states said in their closing arguments that Google illegally monopolized the online search and search advertising markets.
Google’s lawyer, John Schmidtlein, pushed back one more time with a claim the company has made from the beginning: “Google is winning because it’s better,” he said.
A government win would certainly threaten a giant piece of Google’s $237.8 billion profit engine. But the outcome, which will be decided by US District Judge Amit Mehta in the weeks or months to come, also has giant implications for some of the other big names in the tech world.
That’s because Apple (AAPL), Amazon (AMZN), and Meta (META) are defending themselves against a series of other federal- and state-led antitrust suits, some of which make similar claims, and because all three stand to lose or gain depending on the outcome.
In Apple’s case, US attorneys have alleged the iPhone maker blocked rivals from entering the smartphone market by using a “web of contractual restrictions.”
A similar claim was made by the government in Google’s case, which hinges on several types of contracts that Google allegedly used to cement its search dominance.
“The broad lessons here are a long way off, but this is clearly a really important time when the very first of these tech cases is going to be decided,” said University of Washington antitrust professor Douglas Ross.
“I do think they’re going to be interested in how narrowly or broadly [the judge] defines the markets here,” Ross added, “and if there is any learning in what he writes that might have application elsewhere.”
The government argues Google is violating Section 2 of the Sherman Act by blocking competitors from entering three distinct markets: general online search, search advertising, and search text advertising.
Generally, Ross said, prosecutors are inclined to craft narrower market definitions to make it easier to prove a defendant holds a monopoly.
How courts react to those arguments, he added, will be significant.
New York University Law professor Harry First said the impact of Google’s case also depends on the extent to which the judge accepts or rejects one of the government’s antitrust theories — that Google’s collective actions qualify as anticompetitive.
But if the judge in the Google case is persuaded that the theory has some merit, First explained, it could alter the way future antitrust cases are evaluated.
“I’m curious to see the extent to which the government tries to return to that theme and maybe move it in a direction that could be useful in other cases,” First said.
Many companies could be impacted by what the judge decides, even beyond the world of tech.
A government win would put at risk the billions of dollars in mutually lucrative contracts between Google and Apple, as well as deals with other device manufacturers and telecom companies.
The government alleged in its case that Google pays billions of dollars each year to LG, Motorola (MSI), and Samsung; major US wireless carriers such as AT&T (T), T-Mobile (TMUS), and Verizon (VZ); and browser developers such as Mozilla, Opera, and UCWeb.
Government prosecutors have alleged that Google had been paying Apple an estimated $8 billion to $12 billion per year — a portion of search ad revenue — in exchange for awarding Google Search default placement on Apple devices.
In 2022, according to prosecutors, those payments totaled roughly $20 billion. The DOJ said its figure represented 15%-20% of Apple’s worldwide net income.
Some tech companies, however, stand to gain if the government ultimately prevails.
A breakup of Google’s contractual arrangements could boost rival search engines like Microsoft’s Bing and DuckDuckGo.
It could also open the door to newcomer search engines and mobile manufacturers.
Amazon, for its part, exited the mobile phone market after Google’s contracts allegedly prevented it from attracting manufacturers to its alternative operating system, Fire OS, a competing “fork” to Google’s Android operating system.
Prosecutors said manufacturers were concerned that Amazon’s partnership with Bing for mobile search services would risk lucrative deals with Google.
The government has yet to say what precise remedy it desires should it prevail against Google. If the government does win on any of its claims, a separate remedies phase of the trial would be held.
The outcome of November’s presidential election could also impact the case, which was brought under former President Donald Trump’s administration.
If Biden is defeated, a new administration could decide to pursue different remedies or drop the case altogether.
The judge in this case, Mehta, may or may not have tipped his hand in his final questions to the lawyers during closing arguments this past week.
He pushed back on arguments made by both sides.
“You can talk about competition, but the competitor bears some responsibility for competing,” Mehta said while also questioning why new rivals were not pushing to enter Google’s market — and whether that’s even possible.
“It seems to be very, very unlikely, if not impossible, under the current market conditions,” Mehta said.
