Google is an Illegal Monopoly, Federal Court Rules

Following a nine-week bench trial starting in September 2023 and closing arguments in May 2024, District of Columbia district court judge Amit Mehta ruled on August 5, 2024, that Google illegally maintained its monopoly in markets for general search services and general search text advertisements in violation of Section 2 of the Sherman Antitrust Act. The case was initially brought in 2020 when the U.S. Department of Justice (DOJ) and nearly every state’s attorney general sued Google, alleging that it unlawfully uses distribution agreements to stifle competition and maintain its monopoly position in multiple markets relating to online search and advertising.

The government plaintiffs’ allegations were centered around distribution agreements through which Google pays device manufacturers such as Apple and Samsung billions of dollars per year to make its search engine the default on their devices. The plaintiffs alleged that Google likewise spent billions of dollars every year to be the default search engine on internet browsers such as Safari and Firefox. Users can switch their search browser preference, but economists—including Google’s in-house team—found that even the small burden of making that switch is enough to prevent users from doing so. According to the Court, this phenomenon, dubbed “choice friction,” enabled Google to acquire and maintain its monopoly on search services.

The plaintiffs also accused Google of charging supracompetitive prices for general search text advertisements (advertisements that resemble organic search results but are labeled as sponsored on Google). The government claimed that because of Google’s monopoly position in the search text advertisement market, it can raise the price of advertisements above the rates that would exist in a competitive market, further evidencing its monopoly power.

Counsel for Google argued that it has procompetitive justifications for its conduct and that its market prevalence is the result of offering the best product. Google argued that it spends an extraordinary amount of resources to improve user experience and better tailor searches and advertisements to customers, all of which improve consumer welfare. Google also countered that the barriers to entry in these markets are lower than the plaintiffs claimed, pointing to new entrants in the space, the emergence of new technologies such as artificial intelligence (AI), and Google’s own ascension in a market that other players previously dominated, such as Yahoo.

Ultimately, however, the Court determined that Google’s distribution agreements are exclusionary and have anticompetitive effects, namely market foreclosure, preventing competitors from reaching scale and diminishing the incentives of rivals to invest and innovate in general search. The Court found that any procompetitive benefits do not justify Google’s exclusive dealing contracts because a nonexclusive default contract would provide the same benefits that Google touts without having the same detrimental effect on competition. The Court also disagreed with Google’s arguments concerning barriers to entry, highlighting the immense cost to build, operate, and monetize a general search engine. Similarly, the Court agreed with the plaintiffs’ arguments that Google has inflated prices for search advertisements. These inflated prices enable Google to pay for its exclusive distribution agreements and further cement its monopoly.

An interesting component of the Court’s opinion is its discussion of the rise of AI and concerns that Google would use its market power to stifle competitors in the AI market. In trial testimony, CEO of Microsoft Satya Nadella warned of a “nightmare” scenario if Google’s search term dominance continues, given Google’s vast trove of search data and its value in training AI, stating that “this is going to become even harder to compete in the AI age with someone who has that core . . . advantage.” The Court noted that AI technology allows for an accelerated, improved search quality and that “the integration of generative AI is perhaps the clearest example of competition advancing search quality.”

The Court bifurcated the liability and remedies phases of the trial, so this decision only addresses whether Google has violated the antitrust laws. Judge Mehta will now hold additional hearings to determine appropriate remedies, which could range from requiring Google to change its business practices to forcing Google to sell off portions of its business. Whether such remedies will have a significant impact on how the online search and advertising business looks going forward—and the resulting impact on consumers—remains to be seen.

Google has stated that it intends to appeal the decision, commenting that “this decision recognizes that Google offers the best search engine, but concludes that we shouldn’t be allowed to make it easily available.” The timing of a decision from Judge Mehta on remedies versus Google’s likely appeal on liability is unclear. It is also possible that the parties could reach a negotiated solution before any final decision, like Microsoft did in the early 2000s during the DOJ’s antitrust challenge to its integration of web browsing software with its operating system. Barring settlement, however, the consensus is that both parties are willing to take this case all the way to the Supreme Court.

As the tech world awaits the next steps in this landmark case, the decision gives US government enforcers momentum in their broader antitrust challenge to Big Tech. The DOJ is currently engaged in litigation against Apple, alleging that Apple has used its monopoly in the smartphone market to stifle competition and raise prices. The DOJ has also brought an additional suit against Google, alleging that it has acquired rivals through anticompetitive mergers in the online advertising market. Similarly, the Federal Trade Commission has recently filed antitrust lawsuits, accusing Amazon of illegally maintaining its monopoly position in the online retail industry and Meta of illegally thwarting competition through its acquisitions of Instagram and WhatsApp. And lurking behind Judge Mehta’s recent decision is the impact of AI technology in online markets, which has already begun to face scrutiny from antitrust regulators worldwide.

Goodwin’s Antitrust & Competition team brings decades of experience in advising clients in tech-focused industries on their most complex antitrust matters in a changing enforcement landscape. Please contact a member of our team with any questions.