United States v. Google LLC
In 2024 the US District Court for the District of Columbia ruled that Google (GOOG) had violated Section 2 of the Sherman Act (prohibits any single entity from monopolizing, attempting to monopolize, or conspiring to monopolize any part of trade or commerce in the United States, making such actions a felony punishable by fines and imprisonment), based on a decade of distribution agreements with browser developers, original equipment manufacturers, and wireless carriers to be the out-of-the box, default general search engine. According to the court, Google paid billions to lock up these channels which prevented rivals from competing and discouraged entry into the search market. Google used these agreements to build scale and generate what the court (United States v. Google LLC – 2023) called ‘monopoly profits’, essentially freezing the search market.
That said, since then, the courts acknowledge that Generative AI is changing the search market, providing information through chatbots, rather than search, which has put Gen AI in a prominent place at the ‘remedies’ hearing that determines what Google will face as a result of its monopolistic behavior. The plaintiffs want to make sure that Google’s dominance in search does not carry over into Gen AI and have proposed a number of remedies, while the court is interested in finding an equitable solution. Google has proposed the idea of an injunction that prohibits it from entering into exclusive distribution agreements, including its GenAI products, the Gemini app and Google Assistant. Google says it has already stripped from its existing contracts the provisions that the court found anti-competitive and says Gen AI is already highly competitive, and the company should not be restricted in areas where it has not been proven to be anti-competitive.
The plaintiffs want more, stating that they are trying to revive the search market and to protect the Gen AI market from a similar fate, however the court has decided to walk a more moderate path. Here are the details:
Positives
Negatives
The parties involved, the DOJ and a number of State Attorney Generals, have the ability to appeal the court’s rulings 60 days after the final judgement on the remedies is filed. The appeal would go to the Court of Appeals for the DC Circuit, but the plaintiffs cannot appeal because they are unhappy with the outcome, as the argument must be that the trial judge made an ‘error of law’. For example they could argue that the judge abused his discretion by creating remedies that were not sufficient to remove Google’s anti-competitive behavior, or they could argue that by allowing Google to keep its auction practices the remedies did not strip Google of the benefits it gained from its illegal activities. Should an appeal be filed (likely), if either side is then unhappy with the Appellate Court ruling they can petition the US Supreme Court, although it has no obligation to hear the case. All in, while Google came out ahead in this round, losing the battle (initial decision) but so fr, winning the war (remidies).
That said, since then, the courts acknowledge that Generative AI is changing the search market, providing information through chatbots, rather than search, which has put Gen AI in a prominent place at the ‘remedies’ hearing that determines what Google will face as a result of its monopolistic behavior. The plaintiffs want to make sure that Google’s dominance in search does not carry over into Gen AI and have proposed a number of remedies, while the court is interested in finding an equitable solution. Google has proposed the idea of an injunction that prohibits it from entering into exclusive distribution agreements, including its GenAI products, the Gemini app and Google Assistant. Google says it has already stripped from its existing contracts the provisions that the court found anti-competitive and says Gen AI is already highly competitive, and the company should not be restricted in areas where it has not been proven to be anti-competitive.
The plaintiffs want more, stating that they are trying to revive the search market and to protect the Gen AI market from a similar fate, however the court has decided to walk a more moderate path. Here are the details:
Positives
- Google will not be required to divest Chrome; nor will the court include a contingent divestiture of the Android operating system in the final judgment. This is a big win as Google, as a company, remains intact, despite the requests from the DOJ and a recent ‘helping out’ offer from PerplexityAI (pvt).
- Google will not be barred from making payments or offering other consideration to distribution partners for preloading or placement of Google Search, Chrome, or its GenAI products as the court found that cutting off payments from Google will impose substantial, in some cases, crippling downstream harm to distribution partners, related markets, and consumers. Another big win as ending the practice of payments for placement would materially change the mechanics of the search business.
- Google will not have to present users with choice screens on its products or encourage its Android distribution partners to do the same. This is a win for Google as both the plaintiffs and the DOJ asked for ‘choice screens’ to be part of the ‘remediation’. When a device (phone, PC, etc.) or application is set-up for the first time the user is given a choice of what browser and search engine they want. Most users pick the default, which is why plaintiffs wanted to force a choice screen. Now if Google is already the default, no other choices need to me shown.
- Google will not be required to share granular, query-level data with advertisers or provide them with more access to such data. Nor will it have to restore an “exact match” keyword bidding option. Query-level data are the search terms that a user typed in before clicking on an ad and Google does not make that detail available in order to keep advertisers using Google’s ad ecosystem. The keywords in that data give Google more control over ad placement and give advertisers less transparency, forcing them to bid on a wider variety of search terms. A loss here would have been a serious blow to Google’s ad bidding system, making the Google system more transparent and therefore less competitive for advertisers.
- Google will not have to underwrite a nationwide public education campaign. The court noted that such a remedy does not fit Google’s anti-trust violations and its terms are too indefinite.
- Google will not have to modify its policies to offer website publishers more choice in how Google uses their content. Another win for Google, with the court deciding not to compel Google to give publishers alternatives as to how their content is used. Publishers have been concerned that AI search summaries reduce the click-through rate to their content, so there was contention over whether Google should be forced to allow content providers a way to opt out of Ai summaries while still being included in Google’s search index. Again the court felt this did not relate to Google’s anti-competitive practices.
- Google will not be subject to an investment reporting requirement. This too bears no relationship to Google’s anticompetitive conduct. Another win for Google as the DOJ had asked the court to force Google to report any transactions or investments, particularly in AI, citing the fact that Google’s resources were so large that it could acquire smaller competitors or proprietary technology before its rivals. The court did not agree.
- Google will not be subject to anti-retaliation, anti-circumvention, or self-preferencing provisions. The DOJ requested that Google should be prevented from retaliating against partners that choose to work with Google competitors, Anti-circumvention, also a DOJ request, would have restricted Google from creating a new deal form, sort of a ‘quasi-exclusive’ deal that would not violate the restrictions but still allow Google to maintain an exclusivity with its partners. Self-preferencing refers to situations where a vertically integrated company, operating at a number of different levels of the supply chain, uses its influence in one area to force preferences in another. The example might be Google’s search algorithm, which puts Google products at the top of the search list, over those of competitors, regardless of the actual rankings. The court did not consider any of these practices as necessarily prohibitive to the competition under the ruling.
Negatives
- Google is barred from entering or maintaining any exclusive contracts relating to the distribution of Google Search, Chrome, Google Assistant, and the Gemini app or enter or maintain any agreement that conditions the licensing of the Play Store or any other Google application on the distribution, preloading, or placement of Google Search, Chrome, Google Assistant, or the Gemini app. Probably the best Google could have hoped for in light of the anti-competitive ruling. It eliminates all exclusive placement contracts.
- Google will have to make available to Qualified Competitors certain search index and user-interaction data, though not ads data. The court narrowed the datasets Google will be required to share to tailor the remedy to its specific anticompetitive conduct, but this means that competitors will now have access to Google’s search index and, in theory, no longer have to scrape the internet to create their own indexes. Creating an index from scratch is an expensive process and as Google’s index is, by far, the largest (2020 data says ~400 billion webpages, while Microsoft’s (MSFT) Bing is ~14 billion pages) this is a major plus for the competition and a blow to Google’s ability to compete.
- Google has been barred from receiving revenue share payments for the placement of a Google application (e.g., Search, Chrome, Google Assistant, or the Gemini app) on the placement of another such application, or conditions the receipt of revenue share payments on maintaining Google Search, Chrome, Google Assistant, or the Gemini app on any device, browser, or search access point for more than one year, or prohibits any partner from simultaneously distributing any other GSE, browser, or GenAI product. This allows a multi-year non-exclusive agreement where Google pays for placement but does not allow Google to require multi-year guaranteed payments. This keeps Google from establishing multi-year non-exclusive contracts that act as exclusive contracts because the partner cannot afford to lose the revenue by switching to another competitor after a year.
- Google must offer Qualified Competitors search and search text ads syndication services to enable those firms to deliver high-quality search results and ads to compete with Google while they develop their own search technologies and capacity. This has practical implications… New competitors, who have no index or monetization can send queries to Google search. The search results from Google appear as if they were the competitor’s results, along with Google ads. Should a user click on an ad, the new competitor shares in the revenue stream with Google. Sort of ‘renting’ Google, without the Google logo attached.
- Google will be compelled to publicly disclose material changes it makes to its ad auctions to promote greater transparency in search text ads pricing and to prevent Google from increasing prices by secretly fine-tuning its ad auctions. This means Google must disclose changes to its ad pricing, rather than secretly increasing or artificially inflating ad prices.
The parties involved, the DOJ and a number of State Attorney Generals, have the ability to appeal the court’s rulings 60 days after the final judgement on the remedies is filed. The appeal would go to the Court of Appeals for the DC Circuit, but the plaintiffs cannot appeal because they are unhappy with the outcome, as the argument must be that the trial judge made an ‘error of law’. For example they could argue that the judge abused his discretion by creating remedies that were not sufficient to remove Google’s anti-competitive behavior, or they could argue that by allowing Google to keep its auction practices the remedies did not strip Google of the benefits it gained from its illegal activities. Should an appeal be filed (likely), if either side is then unhappy with the Appellate Court ruling they can petition the US Supreme Court, although it has no obligation to hear the case. All in, while Google came out ahead in this round, losing the battle (initial decision) but so fr, winning the war (remidies).
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