“iPhone” is one of the searches that generates the most advertising revenue for Google. This confidential piece of information that the company tried unsuccessfully to keep secret illustrates the love-hate relationship between Apple and Google at the heart of the trial against the search engine for alleged abuse of its dominant position. The 10 weeks of testimony in the 10th federal courthouse in Washington have shed light on what has been a toxic relationship, not for Apple and Google, but for the market and for the competition, according to the U.S. Department of Justice.
More than 50 witnesses have taken the stand for more than two months. Among them have been Satya Nadella, CEO of Microsoft, and Sundar Pichai, the CEO of Google, as well as experts, scholars and managers of the search engine and other technology companies. The hearings ended on Thursday, but the decision on the most important antitrust case in two decades will still take months. Judge Amit Mehta, appointed in 2014 by former president Barack Obama, has asked the parties to submit their closing briefs early next year and will be hearing closing arguments in early May.
“I can tell you as I sit here today that I have no idea what I’m going to do,” Mehta said Thursday as he closed the evidentiary phase of the trial. If the judge concludes that Google abused its dominant position in the U.S. internet search market, where it has a 90% market share, the most appropriate remedies to adopt will be determined at a second trial. The paradox is that a ruling preventing Google from renewing its agreements with Apple could harm the latter more than the search engine itself.
Google’s thesis is that its success is due to the fact that its technology is superior, because it has developed new services and tools, from its Chrome browser to its Android mobile operating system, which have allowed it to increase the quantity and quality of searches. The thesis of the Department of Justice is that the search engine has reached agreements from its dominant position that have closed the way to competitors. The two theories are to a certain extent compatible.
The transcripts of witness statements take up thousands of pages. Added to this are hundreds of annexes and documents that have been shown at the hearings, including internal reports and private communications between Google executives. Some of them have remained confidential, but others have revealed Google secrets.
A document dated October 12, 2018 ranks the 20 most profitable searches, those that generated the most income in the United States the week of September 22, 2018. The top two were “iphone 8” and “iphone 8 plus”; “iphone” itself also appeared on the list. The new Apple phone model had just hit the market and distributors were paying to be placed high up in the search engine to sell smartphones and accessories. Car insurance, cheap flights and pay TV services dominated the rest of the list.
That list is rather anecdotal. The focus of the lawsuit filed by the Department of Justice was on the agreements by which Google has paid tens of billions of dollars to be the default search engine for browsers and mobile phones. The Department of Justice won the battle to have that figure made public. In 2021 alone, Google paid $26.3 billion to be the default search engine as traffic acquisition costs. The figure appears in an internal company slide whose secrecy was only partially lifted. The main beneficiary of these payments was Apple.
The Justice Department has brought in experts and Google rivals to argue how those deals harmed the competition. But perhaps the key moment of the trial came when Google’s own CEO, Sundar Pichai, called up by the defense, provided testimony. In the first part of his statement, under questioning from Google’s lawyer, he told his personal success story to the top of Google and convincingly defended Google’s technological contributions. Then prosecutor Meagan Bellshaw took over for cross-examination.
Bellshaw used the company’s own documents to corner Pichai. She did it gently but firmly, conquering ground with simple questions, with which she got the head of Google to admit, one by one, the key points that underpinned her claim.
“You wouldn’t authorize contracts to pay billions of dollars each year to be the default search engine if it weren’t good for Google, would you?” Bellshaw asked. “Correct,” Pichai responded. Once she had laid the groundwork, the prosecutor attacked with a letter that Google sent to Microsoft when the company founded by Bill Gates was going to use its own search engine by default in its new version of Internet Explorer. Bellshaw highlighted fragments of that letter that were like daggers in Google’s defense strategy. The search engine told Microsoft that users do not change the default settings and that Microsoft’s decision could harm competition.
“And since users don’t change the defaults, was Google deeply concerned that Microsoft’s actions could harm the competitive process?” she asked. “Yes, that is what Mr. Drummond [Google’s chief legal officer] is articulating here,” Pichai admitted. At one point, the head of Google said that it depended on the context and conditions, to admit that “there are situations in which default configurations are very valuable.”
The attorney tried to argue that Google wanted to prevent Apple from becoming a competitor with its agreements. She displayed a message from Pichai in which he asked to be informed monthly of potential employees of the search services who switched to the competition. And he asked to be emailed directly if anyone from Google went to Apple.
Bellshaw focused on a report about a meeting of Google and Apple executives in which Pichai and Tim Cook were present, in which these agreements were discussed so that Google would be the exclusive default search engine for iPhones, iPads and Macs through Apple’s Safari browser.
The Justice Department’s argument is that Google and Apple compete in many markets, but not in search. There they prefer to maintain a revenue-sharing agreement with an exclusive deal that prevents other competitors from breaking through.
At the last day of the trial, Michael Whinston, professor at the Massachusetts Institute of Technology, compared the case of Google and its market power with that of other monopolies such as AT&T in long-distance calls or Microsoft (which in this case is presented as a victim) in operating systems for personal computers. On the ground floor of the federal courthouse in Washington, a modest permanent exhibition commemorates those two landmark cases. Perhaps the exhibition will have to be expanded soon.
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