D.C. Court Deems Google Search and Text Ad Services Monopolistic

In a case Judge Amit Mehta of the U.S. District Court for the District of Columbia dubbed “remarkable,” the court ruled Monday that “Google is a monopolist” and that the search engine has violated Section 2 of the Sherman Act.

The U.S. Department of Justice and 11 states first sued Google on October 20, 2020, alleging Sherman Act violations via Google’s practice of entering into agreements to secure distribution in “nearly all desktop and mobile devices in the United States.” In December of 2020, 38 states filed suit, adopting and supplementing the claims made in the first suit, and the cases were consolidated. The proceedings concluded in March 2023 and featured “[m]illions of pages” exchanging hands, “petabytes of data” from Google, and the deposition of “dozens of witnesses,” according to the opinion.

Only 30% of search queries in the United States run through a search access point that does not default to Google, according to data cited by the court. On Apple and Android devices, the pre-loaded default search engine is Google, as it is on the Firefox web browser. On Windows devices the default search engine is Bing. The data shows that users generally do not change their default search engine, whether they have the option to or not, although users of Windows devices, where the default browser is Edge and the default search engine is Bing, did change their default far more often.

The D.C. court provided an exhaustive analysis of Google’s practices, the relevant markets and the challenged agreements before turning to the arguments. Google countered the plaintiffs’ claim that “Google has a dominant and durable share in that market, and that share is protected by high barriers to entry,” by arguing that there simply is no such thing as a product market for general search services. And even if one did exist, Google did not have a monopoly, it added.

Search Services

The court assessed the Brown Shoe factors under Brown Shoe Company v. United States, 370 U.S. 294 (1962) to reach its conclusion on whether general search engine (GSE) Services is a relevant product market and concluded that it is. Because GSEs have “peculiar characteristics and uses,” industry and public recognition, and “unique production facilities,” the Brown Shoe factors were satisfied, said the court.

Google argued that the relevant product is “query responses” rather than general search services, which would make platforms such as specialized vertical providers (SVPs) like Amazon and social media sites its competition. But “SVPs are ‘walled gardens,’ meaning their query responses are derived from structured data available only on that particular platform,” whereas most of Google’s searches are navigational in nature, wrote the court.

As to whether Google has monopoly power, the court said that, while the direct evidence was “limited,” the plaintiffs “easily demonstrated” that Google has dominant market share; that (1) high capital costs, (2) Google’s control of key distribution channels, (3) brand recognition, and (4) scale all showed significant barriers to entry; and rejected all of Google’s counterarguments.

Advertising Markets

With respect to monopoly power in advertising markets, however, the court found that “search advertising” is a relevant market but that Google does not have a monopoly in it. The court said the plaintiffs’ direct evidence of price hikes for its general search text ads was not sufficient to extrapolate to the broader search ads market.

As to general search text advertising though, which appear more as organic search results, the court found there was a relevant market and that plaintiffs’ direct and indirect evidence proved that Google has monopoly power in it. Advertisers testified that their text ads spending allocation corresponds to Google’s and Bing’s “relative query volumes (i.e., 90% of spend on Google vs. 10% on Bing)” and barriers to entry for new players are inordinately high. The direct evidence showed it is undisputed that Google does not consider competitor pricing when setting text ad prices, which is “something a firm without a monopoly would have been unable to do,” explained the court. With respect to general search advertising, the court said the evidence did not support finding that a product market exists.

The court went on to find that Google’s distribution contracts are exclusionary due to its monopolist status and that the challenged agreements are exclusive, and these agreements have anticompetitive effects in the GSE and general search text advertising markets. Finally, the court did not find that the plaintiffs had proven Google’s proprietary search engine management tool, SA360, had anticompetitive effects.

Request for Sanctions

The court also addressed the plaintiffs’ arguments for sanctions against Google for “(1) ‘its systemic destruction of documents’ and (2) its ‘flagrant misuse of the attorney-client privilege,’ both of which Plaintiffs also say are ‘strong indicators that Google knows its conduct is unlawful.’”

The destruction of documents charge relates to Google’s “longtime practice (since 2008) of deleting chat messages among Google employees after 24 hours, unless the default setting is turned to ‘history on,’ which preserves the chat,” wrote the court. The attorney-clent privilege charge had to do with Google’s instruction to employees to add in-house attorneys on certain emails dealing with antitrust issues and to mark the emails “Attorney/Client Privileged.”

“As a result, Google’s outside counsel in this case initially withheld tens of thousands records on the grounds of privilege, which ultimately were re-reviewed, deemed not privileged, and produced to Plaintiffs,” explained the court.

While the court said it was “taken aback by the lengths to which Google goes to avoid creating a paper trail for regulators and litigants,” it declined to impose sanctions because it said “an adverse evidentiary inference would not change the court’s finding” on the points favorable to Google. However, concluded the opinion:

“The court’s decision not to sanction Google should not be understood as condoning Google’s failure to preserve chat evidence. Any company that puts the onus on its employees to identify and preserve relevant evidence does so at its own peril. Google avoided sanctions in this case. It may not be so lucky in the next one.”

In a post on X, Google’s President, Global Affairs, Kent Walker, said yesterday that the company plans to appeal. “As this process continues, we will remain focused on making products that people find helpful and easy to use,” the statement said.

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Author: alexeynovikov
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