As reported by The Hollywood Reporter, in an unprecedented ruling with potential far-reaching ramifications for the digital advertising industry, a federal judge has ruled in favor of the government in a landmark antitrust case. This ruling stems from allegations that competitors were unfairly marginalized and that internet users received a subpar experience due to the overwhelming dominance of a tech giant in the search market. According to the court, the tech giant, Google, engaged in exclusive agreements with other companies, such as Apple and Samsung, to ensure that its search engine was the default option on their devices.
"Google is a monopolist, and it has acted as one to maintain its monopoly," wrote U.S. District Judge Amit Mehta.
The court is now poised to make further determinations in the upcoming months regarding potential structural remedies, which could involve divestitures or alterations to the company's operational practices.
This ruling stands as the government's first triumph in an antitrust case against a major tech corporation since the lawsuit against Microsoft over 20 years ago.
The height of this legal battle originated from a 2020 lawsuit filed by the Justice Department. The complaint, filed in D.C. federal court, alleged that Google abused its market authority, claiming a 90 percent share of internet search and a 95 percent share of mobile search, thus violating Section 2 of the Sherman Act.
The government contended that Google safeguarded its search monopoly through exclusionary agreements and engaged in anticompetitive behavior to control distribution channels and block competitors.
The court highlighted Google's deals with phone manufacturers, which stipulated that its search engine be the default option, sometimes with the requirement to feature a bundle of its other apps prominently while excluding engagements with its rivals.
The court determined that these agreements had "anticompetitive effects in the general search services market." The pivotal issue revolved around whether the exclusive distribution contracts Google secured with other companies significantly contributed to its maintenance of monopoly power.
"The answer is 'yes,'" Mehta wrote, reasoning that these agreements effectively ensured that half of all U.S. search engine users utilized Google as the default service on Apple and Android devices. This ultimately prevents rivals from attaining a sufficient scale to compete with Google and diminishes their incentives to invest and innovate in general search, among other consequences, the court stated.
“For more than a decade, the challenged distribution agreements have given Google access to scale that its rivals cannot match,” the order stated.
For years, Google has recognized the value of exclusive contracts with phone manufacturers and browsers. In 2021, the company allocated approximately $26 billion in traffic acquisition costs, representing four times more than its other search-related costs combined, including research and development.
Google estimated that losing its default search engine status would result in a significant drop in queries and billions of dollars in lost revenue. Court proceedings revealed that the company estimated that default placements drove over half of its overall search revenue, with the 2016 figure indicating that it accounted for 80 percent of search revenue on Samsung devices.
Google further projected that without its exclusive deal with Apple, it stood to lose between 60 to 80 percent of its query volume on iPhones, resulting in revenue losses of up to approximately $33 billion.
“The defaults are more than just 'incremental promotion,'” Mehta wrote. “They supply Google with unequaled query volume that is effectively unavailable to rivals.”
During a 10-week trial last year, Google defended its monopoly status by asserting that its products and services simply outperform those of its competitors.
These arguments parallel those presented by Apple in its high-profile antitrust dispute with Epic Games. In that case, a federal judge ruled in favor of Apple on most claims but found that some of its policies violated California competition laws.
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