Google CEO Sundar Pichai testifies before the House Judiciary Committee at the Rayburn House office building on December 11, 2018 in Washington, DC.
Alex Wong | Getty Images
In Monday’s decision that Google has a monopoly on internet search, US Judge Amit Mehta cited the company at the center of the most famous tech antitrust case in US history: Microsoft.
A federal judge ruled in 1999 that Microsoft had illegally used the market power of its Windows operating system to buy out competing browsers, namely Netscape Navigator. A settlement in 2001 forced the software giant to stop hurting competitors in its PC deals.
Google’s landmark case, filed by the government in 2020, alleged that the company has maintained its share of the search market by creating strong barriers to entry and a feedback loop that has maintained its dominance. The court found that Google violated Section 2 of the Sherman Act, which prohibits monopolies.
“The end result here is no different than the Microsoft court’s conclusion regarding the browser market,” Mehta wrote in his 300-page decision. “As agreements help in that case[ed] keep Navigator usage below the critical level necessary for Navigator or any other competitor to pose a real threat to Microsoft’s monopoly, Google’s distribution agreements have limited its rivals’ query volume, thus inoculating Google against of any real competitive threat.”
Mehta said a key similarity is the “power of default.” For Google, this refers to its search position on of Apple iPhones and Samsung devices — deals that cost the company billions of dollars a year in payments.
“Users are free to navigate to Google rivals through non-default search hotspots, but they rarely do,” Mehta wrote.
Mehta said a separate trial will be held on September 4 to determine remedies or sanctions against Google. At that point, Google can appeal, a process that experts said could take about two years. Microsoft appealed its initial decision before eventually settling with the Justice Department.
“All along, the government has said implicitly and explicitly that it’s basing this case on the Microsoft case,” said Sam Weinstein, a law professor at Cardozo Law School and a former DOJ antitrust attorney.
In the Microsoft case, Judge Thomas Penfield Jackson found that the company forced computer manufacturers to include the Internet Explorer browser in Windows and threatened to punish them for installing or promoting Navigator. The judge suggested that Microsoft divest either its operating systems business or its applications business, both of which enjoyed market leadership.
Following Microsoft’s successful appeal, a US district court prohibited the software company from retaliating against device makers for shipping computers that include multiple operating systems. Microsoft had to give software and hardware companies the same programming interfaces that Microsoft’s middleware uses to work with Windows.
Nicholas Economides, an economics professor at New York University’s Stern School of Business, said the similarities in Google’s case are clear.
“My first reaction to this is that Google seems to be losing across the board,” Economides said. “This big blow reminded me of the Justice Department’s victory against Microsoft.”
Risk to basic search
The most likely outcome, according to some legal experts, is that the court will ask Google to remove certain exclusive agreements. The court could suggest that Google make it easier for users to try other search engines.
While a fine is also on the table, the bigger risk is that Google will have to change its business practices in a way that undermines profitability. For example, if Google can no longer be seen as the default search engine on smartphones, it could lose a significant chunk of its business in its core market.
In its appeal, Google will likely present new evidence that artificial intelligence has played a greater role in competition, a dynamic that did not exist when the Justice Department filed its original lawsuit. However, it’s a perception that Google has tried to play down since upgrading from OpenAI’s ChatGPT.
Neil Chilson, former chief technologist for the Federal Trade Commission and currently head of AI policy at the Abundance Institute, sees increased competition for Google due in part to artificial intelligence, which could help the company’s case.
“Rigid market definitions mean the court finds that Google has illegally maintained a monopoly on general search,” Chilson said. But “search vertical providers” like Amazon and AI services like ChatGPT “threaten to upend Google’s entire general search advertising business model,” Chilson said.
Google shares didn’t move much after Monday’s decision, as the stock was already trading lower amid a broad market selloff. The stock slipped another 0.6% on Tuesday to close at $158.29. Google did not provide comment for this story.
Since Mehta did not discuss possible solutions to the decision, investors and analysts are left to wait. Experts say it is unlikely that Google will be forced to break itself up.
“I think there were obvious lines of business that you could divest in the Microsoft case, but it’s not so obvious here,” Weinstein said, adding that a divestiture is rarely ordered in a Section 2 case.
The trial, which begins on September 4, will provide some important answers. Bill Baer, who previously ran antitrust divisions at both the FTC and the DOJ, said Microsoft’s precedent makes the case against Google strong.
“It’s hard to say at this point what the DOJ will pursue and what the judge will accept,” Baer said.
— CNBC’s Jordan Novet contributed to this report.