The tech court case of the decade just concluded, and the DOJ defeated Google. So now what?

In a historic DOJ win against Google, Judge Amit Mehta affirms that Google is, in fact, a monopoly. But is that illegal? And what does it mean next for Google and other big tech companies?

Unless you’ve been under a technology-devoid rock for the past week (yes, there are smart rocks – we’re in the glory days), you’ve probably seen the ruling from the US District Court Judge Amit Mehta on Monday, August 5:

After having carefully considered and weighed the witness testimony and evidence, the court reaches the following conclusion: Google is a monopolist, and it has acted as one to maintain its monopoly. It has violated Section 2 of the Sherman Act.

This seems pretty damning. I mean, we created the Sherman Act back in 1890 to deal with anticompetitive practices by large corporations and give the government a way to combat companies that were being anticompetitive.

So what does this mean? Microsoft lost a similar lawsuit over 20 years ago in which the government initially pushed to have the company split up (this was later overturned on appeals). Does this mean Google may face a similar fate, or will it just be a slap on the wrist and some fines?

Let’s tackle this with a few simple but very reasonable questions.

What is a monopoly?

Well, according to Wikipedia:

Monopoly is a multiplayer economics-themed board game. In the game, players roll two dice to move around the game board, buying and trading–

Shoot. Sorry, it seems like ChatGPT is hallucinating when I told it to write this blog post for me.¹ I guess I’ll have to do it the old-fashioned way from here on out – with my mind…

Surprisingly, a monopoly is not really defined in most US legislation nor in charters for any part of the government bodies that promote competition and consumer protection.

The generally agreed-upon definition is something like this: a monopoly is a market in which one player is the only supplier of a good or service. So, first of all, monopoly ≠ company. Google is not a monopoly. Google can have a monopoly on a specific market.

But then this begs the question – what market? Well, that’s actually a really relevant question. One of the first and most important things in these cases is to actually define what market the relevant company has a monopoly over. In this case, the court ruled that Google has a monopoly over the “general search services” and the “general search text ads” markets.

So, a monopoly is a market in which one player dominates, and Google was declared a monopolist in the “general search services” and “general search text ads” markets.

Is having a monopoly illegal?

Nope. Surprisingly, it’s not. This is counter to what many people seem to think. With the Sherman Act, two things were made illegal:

1. Getting a monopoly through anticompetitive actions (exclusive contracts, predatory pricing, etc.).

2. Agreements between businesses to limit trade or competition (price-fixing, dividing markets among competitors, etc.)

The act also gives the government the ability to investigate and prosecute when companies are being anticompetitive:

1. The FTC can investigate and fine companies

2. The DOJ can file lawsuits against companies

And we frequently see this happening, with some popular instances of the government keeping an eye on anti-competition:

• DOJ launches two antitrust probes into NVIDIA (Aug 2024)

• DOJ sues Apple over monopolizing smartphone market (Mar 2024)

• FTC launches probe to investigate generative AI data collection of Google, Amazon, Anthropic, OpenAI, Microsoft (Jan 2024)

• FTC sues Amazon for anticompetitive practices to maintain a monopoly (Sept 2023)

In short, having a monopoly is not illegal, but getting a monopoly through anticompetitive actions is illegal.

So what did Google do?

Google has a standing exclusive agreement with Apple to be the default search engine in Safari. Back in 2002, when this agreement started, no money exchanged hands.

But it quickly became an ad revenue sharing agreement, which in 2022 resulted in Google paying Apple over $20 billion. Even on an Apple scale, this is no chump change – it’s over 15% of Apple’s annual operating income coming directly from Google!

It’s this agreement that the DOJ alleged and the court agreed was anti-competitive for two reasons:

1. It helped Google get a monopoly since it foreclosed the rest of the market and gave them >90% market share of search queries on mobile devices.

2. It limited competition from others because it was exclusive and essentially priced out competitors.

But let’s consider some very reasonable rebuttals (some of which Google tried to make in their case)…

It’s not like Google stopped people from changing their search engine on Safari. If people really wanted to, couldn’t they just change it manually?

Yup. But defaults matter, and the fact that Google was willing to pay so much in the first place to be the default meant they realized that too. In addition, many users don’t even realize they can change the search engine, which requires going through multiple settings.

Outside of Safari, most people still choose to search on Google because it’s the best. Doesn’t that mean it’s in consumers’ best interest for Google to be the default on Safari?

Not really. The goal of the court is to stop anticompetitive actions. In this case, setting a default allows Google to maintain a monopoly and stifle competition. In addition, just because Google is the best today doesn’t mean it’ll always be the best, and stifling competition in the long term hurts consumers because it makes it harder for someone to invent an even better search engine.

Okay, but if Google already has a monopoly, why does it even need to pay Apple? Doesn’t the fact that they need to pay so much to Apple mean they don’t have a monopoly?

The court didn’t really get into this, but a relatively simple take is to reframe the payment from Google to Apple as a payoff for Apple not to compete. I mean, look at the smartphone market – the fact that Google and Apple compete so much for the global market is only because there’s no clear dominant player worldwide. And look at Google Maps vs. Apple Maps, which continues seeing improvements for consumers because they’re both competiting.

Apple could probably build a great search engine (and has thought about it before!) but chooses not to because of the guaranteed payment from Google every year. It’s basically a payoff.

So what’s next?

My goal for this post was to simplify what exactly this trial was about and what the court ruled without all the technical or legal jargon. The court basically uncovered that one of the biggest companies in the world was paying off the other biggest in multi-billion dollar payments to reduce competition. And the DOJ and court said, “Nuh uh. Not on my watch.”

But what happens next? Well, both sides (Google and the DOJ) have to work together to agree on the penalties for Google. But Google is also appealing this ruling and could keep appealing all the way to the Supreme Court, which means we may not know what happens for a few years.

My guesses?

1. Google is forced to stop its exclusivity default agreement with Apple.

2. Apple decides to use Siri to better answer search queries in Safari rather than going to a search engine at all.

3. If they do have to go to a search engine, Apple still uses Google (because, apparently, they think Bing sucks).

1. This is a joke. All content on this blog is written exclusively by me and not by any LLM.