Google ‘dominance’: Tech giant under fire as antitrust trial set to begin

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The biggest American antitrust trial in a generation is set to begin this week as Google defends its position as the world’s default search engine.

The U.S. Department of Justice (DOJ) and the attorneys-general of 38 states are accusing the tech giant of using unfair business practices to hold onto its monopoly on search traffic. In response, Google says its dominance is just because it has the best product on the market.

If the case is successful, it could lead to Google GOOGL-Q tearing up the multibillion-dollar agreements it has with phone makers such as Apple APPL-Q, or even lead to the breakup of the company’s lucrative search business.

It is one of the most significant steps so far in a global push by governments to rein in Big Tech’s market power through regulation and legal action.

“This trial marks the return of the ‘big case’ tradition in U.S. antitrust enforcement,” said Tim Wu, a Columbia University law professor and former adviser on competition policy to presidents Barack Obama and Joe Biden. He compared it to the cases that led to the dramatic corporate breakups of Standard Oil in 1911 and AT&T in 1982.

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Google handles around 90 per cent of search volume in the U.S., according to estimates in court filings, and the company does not contest that it holds a monopoly on the search industry.

At issue in the trial, which begins Tuesday in Washington, is whether certain business practices unfairly keep would-be rivals at bay.

“A dominant firm like Google does not violate the law, however, merely because it occupies a monopoly market position,” wrote District Judge Amit Mehta in a preliminary ruling in August. “It must act in a manner that produces anticompetitive effects in the defined markets. That is, a company with monopoly power acts unlawfully only when its conduct stifles competition.”

The U.S. government’s lawsuit zeroes in on the deals that Google has signed with other companies to make its search engine the default option on browsers and mobile phones. In return for being the default search engine, Google shares some of its advertising revenue with those companies.

The revenue can be substantial, according to the filings. They estimate Google pays Apple between US$8-billion and US$12-billion a year, which is about 15 per cent to 20 per cent of Apple’s worldwide net income.

“Essentially, the argument is that Google paid its way out of competition with exclusionary deals,” Mr. Wu said.

Google also licenses its Android operating system to mobile phone makers such as Samsung. This gives it additional leverage, the U.S. lawsuit alleges.

For example, the documents say that in 2015, a major U.S. mobile carrier considered asking phone manufacturers to install a different search engine on their devices. In response, a Google executive said such a move should lead to a termination of the revenue-sharing agreement and end support for Google apps on those devices, according to court documents. (The filing does not identify the other companies involved. Google confirmed the veracity of the documents, but said they mischaracterized what happened, without elaborating.)

Google’s defence rests on the quality of its product. The company said phone manufacturers have opted in to these agreements because it has the best search engine.

It also said that in most cases, Google’s search is merely the default option, and consumers can switch away from it if they want to – or even use social networks such as TikTok or Reddit to find information or products.

“We plan to demonstrate at trial that our search distribution agreements reflect choices by browsers and device makers based on the quality of our services and the preferences of consumers,” said Kent Walker, president of global affairs at Google and Alphabet Inc. (Google’s parent company), in a statement.

“In sum, people don’t use Google because they have to – they use it because they want to.”

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The coming trial is expected to run for two months. Google chief executive Sundar Pichai and other tech-industry executives are expected to be among the witnesses called.

Other countries have recently introduced new laws and regulations targeted at Big Tech companies. For example, Canada passed Bill C-18 this summer that would require Google and Facebook to share ad revenue with news outlets. The European Union announced this week that Google and five other major tech platforms would be covered by new rules in the Digital Markets Act that aim to give consumers more choice.

The U.S. case was initiated under former president Donald Trump and continued under his successor, Mr. Biden, reflecting bipartisan agreement on the issue. The states involved likewise cross the political spectrum, including Texas and California.

It is one of two major antitrust cases the DOJ is currently pursuing against Google. In January, the department and eight states filed a separate lawsuit in Virginia against the company, alleging it had assembled an anti-competitive monopoly in digital advertising.

The cases are the most significant antitrust actions since the U.S. sued Microsoft in 1998. At the time, government lawyers alleged Microsoft held a monopoly in personal computing software and improperly blocked rival Internet browsers. A district judge agreed and ordered Microsoft to be broken up, but that was overturned on appeal and the U.S. government settled with Microsoft in 2001.

Still, tech industry veterans say the case ultimately caused Microsoft to cool on some of its more aggressive tactics and opened the door for new, innovative companies to flourish.

“When you go back to the early 2000s, there were probably 20 to 25 search startups that all had the same opportunity, and Google won it,” said Boris Wertz, who was among that era’s entrepreneurs in online marketplaces and is now founding partner of the Vancouver-based Version One venture-capital firm.

But in the last decade, that level of opportunity has declined as a handful of firms, including Google, have grown as domineering as their forebears, he said.

Jim Balsillie, chair of the Council of Canadian Innovators and former co-CEO of Research in Motion, said the nature of the data-driven economy – with global firms collecting troves of customer information through massive networks – has entrenched and extended monopolies.

“Every new data set makes all pre-existing data sets in the hands of the same few companies more valuable, disproportionately enhancing the power of established data giants and their vested assets,” he said.

Mr. Wertz said he hopes competitive markets can be restored: “Making it easier for innovation to happen and compete against these big platforms is good, in the long run, for the economy.”