United States v. Google/Conclusions of Law/Section 4A
- A. “Competition for the Contract” Is No Defense.
Google disputes that the distribution agreements are exclusionary. Recall, the Supreme Court has drawn a line between exclusionary conduct versus “growth or development as a consequence of a superior product, business acumen, or historical accident.” Grinnell, 384 U.S. at 571. The former violates the Sherman Act; the latter does not. Google says that it has secured default distribution, not through exclusionary conduct, but by developing a “superior product” through constant innovation. Google claims that it “has repeatedly outcompeted its rivals . . . on the basis of its superior quality and monetization,” and that any “scale benefits achieved from winning customers’ business based on competition on the merits [do not] turn[] an otherwise lawful agreement into an unlawful one.” GTB at 50, 56. Google points out that its partners chose to design their products to have a default GSE, and Google simply has bested its rivals to secure those default positions. Google also emphasizes its superior “business acumen.” See id. at 50–60. For instance, unlike Microsoft, Google anticipated that there would be increasing demand for search on mobile, and it invested accordingly. Id. at 68. Thus, Google says, it has won (and continues to win) the defaults through competition as opposed to exclusionary conduct. See Paddock Publ’ns, Inc. v. Chi. Trib. Co., 103 F.3d 42, 47 (7th Cir. 1996) (“[C]ompetition for the contract makes it possible to have the benefits of exclusivity and rivalry simultaneously.”); see also Walker v. U-Haul Co. of Miss., 734 F.2d 1068, 1074 (5th Cir. 1984) (“The record contains no evidence to undermine the thesis that U-Haul’s power was acquired by virtue of its superior product and marketing ability, and the Sherman Act does not punish monopolists whose position has been ‘thrust upon’ them.”) (citation omitted); United States v. Aluminum Co. of Am., 148 F.2d 416, 430 (2d Cir. 1945) (“The successful competitor, having been urged to compete, must not be turned upon when he wins.”).[1]
In a sense, Google is not wrong. It has long been the best search engine, particularly on mobile devices. FOF ¶¶ 126–127. Nor has Google sat still; it has continued to innovate in search. FOF ¶ 128. Google’s partners value its quality, and they continue to select Google as the default because its search engine provides the best bet for monetizing queries. FOF ¶¶ 126, 133. Apple and Mozilla occasionally assess Google’s search quality relative to its rivals and find Google’s to be superior. FOF ¶¶ 324, 332–333, 340–344. And Google’s rivals have tried to oust it as the default GSE. Microsoft, most notably, has pitched Apple on making Bing the default multiple times, and DDG made a bid to be the default for private browsing mode searches on Safari. FOF ¶¶ 321, 330. These firms have not succeeded in part due to their inferior quality. FOF ¶¶ 324, 327, 332. It is also true that Google foresaw that the future of search was on mobile. Microsoft acknowledges that it was slow to recognize the importance of developing a search product for mobile, and it has been trying to catch up—unsuccessfully—ever since. See infra Section V.A.3.a.
But these largely undisputed facts are not inconsistent with possessing and exercising monopoly power. Nor do they tell the full story. There is no genuine “competition for the contract.” Google has no true competitor. Consider that Google’s monopoly in general search has been remarkably durable. Its market share in 2009 was nearly 80%, and it has increased since then to nearly 90% by 2020. FOF ¶ 23. Bing, during that same period, has never held a market share above 11%, and today it stands at less than 6%—meaning that Google’s biggest rival trails in market share by a whopping 84%. FOF ¶ 25. Yahoo, long ago considered Google’s closest competitor, today holds less than 2.5% of the market. Id. Thus, over the last decade, Google’s grip on the market has only grown stronger.
That is not the only evidence of market stasis. Only once in the last 22 years has a rival dislodged Google as the default GSE, and in that case, Mozilla switched back from Yahoo to Google three years later. FOF ¶¶ 337–339. Moreover, there have been only two new market entrants of note in the last 15 years—DDG and Neeva. One of them is no longer in business (Neeva), and the other has achieved a market share of 2.1% (as of 2020) after more than a decade in business. If there is genuine competition in the market for general search, it has not manifested in familiar ways, such as fluid market shares, lost business, or new entrants.
The market reality is that Google is the only real choice as the default GSE. Apple’s Senior Vice President of Services, Eddy Cue, put it succinctly when, in a moment of (perhaps inadvertent) candor, he said: “[T]here’s no price that Microsoft could ever offer [Apple] to” preload Bing. Tr. at 2519:10-11 (Cue) (emphasis added). “No price.” Mozilla stated something similar in a letter to the Department of Justice prior to the filing of this lawsuit. It wrote that switching the Firefox default to a rival search engine “would be a losing proposition” because no competitor could monetize search as effectively as Google. DX547.002. A “losing proposition.” If “no price” could entice a partner to switch, or if doing so is viewed as a “losing proposition,” Google does not face true market competition in search.
Google understands there is no genuine competition for the defaults because it knows that its partners cannot afford to go elsewhere. Time and again, Google’s partners have concluded that it is financially infeasible to switch default GSEs or seek greater flexibility in search offerings because it would mean sacrificing the hundreds of millions, if not billions, of dollars that Google pays them as revenue share. FOF ¶¶ 319, 320, 370–375, 378 (identifying instances in which Apple, Verizon, AT&T, and T-Mobile have all sought and failed to obtain greater flexibility under the relevant contracts). These are Fortune 500 companies, and they have nowhere else to turn other than Google.
That was the key takeaway from the testimony of Neeva’s founder and former Google Senior Vice President of Ads and Commerce, Dr. Ramaswamy. The court found him to be a particularly compelling witness. He put it best. When the court asked why Google pays billions in revenue share when it already has the best search engine, he answered that the payments “provide an incredibly strong incentive for the ecosystem to not do anything”; they “effectively make the ecosystem exceptionally resist[ant] to change”; and their “net effect . . . [is to] basically freeze the ecosystem in place[.]” Tr. at 3796:8–3798:22 (Ramaswamy). No one would ever describe a competitive marketplace in those terms. When the distribution agreements have created an ecosystem that has a “strong incentive” to do “nothing,” is “resist[ant] to change,” and is “basically [frozen] in place,” there is no genuine “competition for the contract” in search. It is illusory.
As was true of Microsoft and Windows, Google “may have gained its initial dominance in the [general search services] market competitively—though superior foresight or quality. But this case is not about [Google’s] initial acquisition of monopoly power. It is about [Google’s] efforts to maintain this position through means other than competition on the merits.” Microsoft, 253 F.3d at 56; see Berkey Photo, Inc. v. Eastman Kodak Co., 603 F.2d 263, 274 (2d Cir. 1979) (“Even if the origin of the monopoly power was innocent, . . . the Grinnell rule recognizes that maintaining or extending market control by the exercise of that power is sufficient to complete a violation of § 2.”). Google has succeeded in doing just that. Like Microsoft before it, Google has thwarted true competition by foreclosing its rivals from the most effective channels of search distribution. See infra Section V.A.2. The result is that consumer use of rival GSEs has been kept below the critical levels necessary to pose a threat to Google’s monopoly. See Microsoft, 253 F.3d at 71. The exclusive distribution agreements thus have significantly contributed to Google’s ability to maintain its highly durable monopoly. Id. at 78–79.
Google asserts that this case is unlike Microsoft because there, Microsoft radically changed its conduct in response to Netscape’s threat and, in so doing, flipped the companies’ market shares. Here, by contrast, Google says its conduct has been relatively constant, both before and after its acquisition of dominant market status. See Closing Arg. Tr. at 244:13–245:22. But “many anticompetitive actions are possible or effective only if taken by a firm that dominates its smaller rivals. A classic illustration is an insistence that those who wish to secure a firm’s services cease dealing with its competitors. Such conduct is illegal when taken by a monopolist because it tends to destroy competition, although in the hands of a smaller market participant it might be considered harmless, or even honestly industrial.” Berkey Photo, 603 F.2d at 274–75 (internal quotation marks and citations omitted). It is Google’s status as a monopolist that makes its distribution contracts exclusionary, even if the same conduct did not have that effect when Google first began employing it.
- ↑ This court determined at summary judgment that the so-called “‘competition for the contract’ defense [could not] be resolved on summary judgment at the prima facie stage and [wa]s better left for the procompetitive prong of the Microsoft analysis.” United States v. Google, 687 F. Supp. 3d 48, 73 (D.D.C. 2023). Upon further reflection at Google’s urging, see Closing Arg. Tr. at 243:4-10, the court thinks the defense is better considered here, when determining whether the distribution agreements qualify as exclusionary conduct, see Stearns Airport Equip. Co. v. FMC Corp., 170 F.3d 518, 526 (5th Cir. 1999) (analyzing impact of “qualitative merits of [defendant’s] product,” including the argument that it “enhanced rather than subverted competition on the merits” at the exclusionary conduct stage); Barry Wright Corp. v. ITT Grinnell Corp., 724 F.2d 227, 230 (1st Cir. 1983) (citing Areeda and defining exclusionary conduct as “conduct, other than competition on the merits or restraints reasonably ‘necessary’ to competition on the merits, that reasonably appears capable of making a significant contribution to creating or maintaining monopoly power”).