United States v. Google/Conclusions of Law/Section 5A

by United States District Court for the District of Columbia

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V. EFFECTS IN THE MARKET FOR GENERAL SEARCH SERVICES

A. The Exclusive Agreements Cause Anticompetitive Effects in the General Search Services Market.

Merely categorizing Google’s distribution agreements as “exclusive” does not answer the question of whether those deals violate Section 2. That is because exclusive agreements are not condemned per se by the antitrust laws, even if they involve a dominant firm. Microsoft, 253 F.3d at 69 (“[E]xclusivity provisions in contracts may serve many useful purposes.”); In re EpiPen Mktg., Sales Pracs. & Antitrust Litig., 44 F.4th 959, 983 (10th Cir. 2022) (“Courts repeatedly explain that exclusive dealing agreements are often entered into for entirely procompetitive reasons and pose very little threat to competition even when utilized by a monopolist.”). They can, however, “run afoul of the antitrust laws when used by a dominant firm to maintain its monopoly.” McWane, 783 F.3d at 832; see also ZF Meritor, 696 F.3d at 270 (“The primary antitrust concern with exclusive dealing arrangements is that they may be used by a monopolist to strengthen its position, which may ultimately harm competition.”).

“[T]o be condemned as exclusionary, a monopolist’s act must have an ‘anticompetitive effect.’ That is, the monopolist must harm the competitive process and thereby harm consumers. In contrast, harm to one or more competitors will not suffice.” Microsoft, 253 F.3d at 58. A plaintiff bears the burden to show “that the monopolist’s conduct indeed has the requisite anticompetitive effect.” Id. at 58–59 (emphasis added). “Even though monopolistic conduct requires proof of actual or threatened consumer harm, the proof need not invariably be elaborate.” Areeda ¶ 651e2.

Anticompetitive effects analysis involves establishing a “causal link.” Microsoft, 253 F.3d at 78. The exclusionary conduct must cause the anticompetitive harm. As here, when a regulator is seeking only injunctive relief, the standard is somewhat relaxed. See id. at 79. Courts may “infer ‘causation’ from the fact that a defendant has engaged in anticompetitive conduct that ‘reasonably appear[s] capable of making a significant contribution to . . . maintaining monopoly power.’” Id. (quoting 3 Areeda & Hovencamp, Antitrust Law ¶ 651c, at 78 (1996) [hereinafter Areeda (1996)]); id. (holding that the plaintiff in an “equitable enforcement action” need not “present direct proof that a defendant’s continued monopoly power is precisely attributable to anticompetitive conduct”); accord Viamedia, Inc. v. Comcast Corp., 951 F.3d 429, 485 (7th Cir. 2020) (same, citing Microsoft); City of Oakland v. Oakland Raiders, 20 F.4th 441, 460 (9th Cir. 2021) (same). Such an inference is appropriate “when exclusionary conduct is aimed at producers . . . of established substitutes.” Microsoft, 253 F.3d at 79.

Importantly, causation does not require but-for proof. The plaintiff is not required to show that but for the defendant’s exclusionary conduct the anticompetitive effects would not have followed. Such a standard would create substantial proof problems, as “neither plaintiffs nor the court can confidently reconstruct . . . a world absent the defendant’s exclusionary conduct.” Id. “To some degree, ‘the defendant is made to suffer the uncertain consequences of its own undesirable conduct.’” Id. (quoting Areeda (1996) ¶ 651c, at 78).

The key question then is this: Do Google’s exclusive distribution contracts reasonably appear capable of significantly contributing to maintaining Google’s monopoly power in the general search services market? The answer is “yes.” Google’s distribution agreements are exclusionary contracts that violate Section 2 because they ensure that half of all GSE users in the United States will receive Google as the preloaded default on all Apple and Android devices, as well as cause additional anticompetitive harm. The agreements “clearly have a significant effect in preserving [Google’s] monopoly.” Id. at 71.

The agreements have three primary anticompetitive effects: (1) market foreclosure, (2) preventing rivals from achieving scale, and (3) diminishing the incentives of rivals to invest and innovate in general search. Plaintiffs also contend that Google’s incentives to invest are diminished, but the evidence of that effect is weaker than the others.

1. The Exclusive Agreements Foreclose a Substantial Share of the Market.

An exclusive agreement violates the Sherman Act only when its “probable effect is to ‘foreclose competition in a substantial share of the line of commerce affected.’” Id. at 69 (quoting Tampa Elec., 365 U.S. at 328). “The share of the market foreclosed is important because, for the contract to have an adverse effect upon competition, ‘the opportunities for other traders to enter into or remain in that market must be significantly limited.’” Id. (quoting Tampa Elec., 365 U.S. at 328). “Substantial foreclosure allows the dominant firm to prevent potential rivals from ever reaching ‘the critical level necessary’ to pose a real threat to the defendant’s business.” ZF Meritor, 696 F.3d at 286 (quoting Dentsply, 399 F.3d at 191). Plaintiffs thus must “prove the degree of foreclosure” in the relevant markets because of the exclusive deals. Microsoft, 253 F.3d at 69.

a. Foreclosure Calculation

U.S. Plaintiffs’ expert, Dr. Whinston found that 50% of all queries in the United States are run through the default search access points covered by the challenged distribution agreements. FOF ¶ 62 (28% through the ISA, 19.4% through the MADAs and RSAs, and the remaining 2.3% through third-party browser agreements). This figure does not include the 20% of all queries in the United States that flow through Google on user-downloaded Chrome. FOF ¶ 63. Google does not dispute Dr. Whinston’s 50% computation. Instead, it challenges his very understanding of market foreclosure.

First, Google contends that the proper measure of foreclosure is not market coverage but the percentage of queries available to rivals in a “but-for world” in which the challenged contracts do not exist. In such a world, the foreclosure number would be far lower because users in large numbers still would use Google. Second, Google argues that, even if foreclosure is properly analyzed based on default coverage, Dr. Whinston fails to account for rivals’ ability to “compete even for those users who access search through” defaults. GTB at 41. The foreclosure number is thus zero, according to Google. Finally, assuming that query coverage is the correct measure, Google argues that the court should disaggregate the browser agreements, MADAs, and the RSAs when considering foreclosure figures, which when considered separately are not substantial and therefore not anticompetitive.

i. But-For World

Although Dr. Whinston testified that market foreclosure is “ideally” examined against a but-for world, Tr. at 6085:9-19 (Whinston), the law does not require it.

[T]o demand that bare inference be supported by evidence as to what would have happened but for the adoption of the practice that was in fact adopted or to require firm prediction of an increase of competition as a probable result of ordering the abandonment of the practice, would be a standard of proof if not virtually impossible to meet, at least most ill-suited for ascertainment by courts.

Standard Oil Co. of Cal. v. United States, 337 U.S. 293, 309–10 (1949). A plaintiff thus “is entitled to view the situation as it exists.” Mytinger & Casselberry, Inc. v. FTC, 301 F.2d 534, 538 (D.C. Cir. 1962). “To require that § 2 liability turn on a plaintiff’s ability or inability to reconstruct the hypothetical marketplace absent a defendant’s anticompetitive conduct would only encourage monopolists to take more and earlier anticompetitive action.” Microsoft, 253 F.3d at 79; see also ZF Meritor, 696 F.3d at 286 (basing foreclosure on the percentage “of the market remaining open,” that is, not presently covered by mandatory purchase requirement agreements); LePage’s, 324 F.3d at 159 (describing market foreclosure based only on real-world effects of discount practices).

Google relies on the D.C. Circuit’s decision in Rambus Inc. v. FTC to support the need for a but-for world showing. See 522 F.3d 456 (D.C. Cir. 2008). In that case, the FTC concluded that Rambus had secured its monopoly by making misrepresentations to a standards-setting body about its patent interests, in violation of Section 2. Id. at 461. The body developed standards that incorporated Rambus’s intellectual property. Id. at 460. The D.C. Circuit reversed the agency’s determination. The court explained that if the standards-setting body, “in the world that would have existed but for Rambus’s deception, would have standardized the very same technologies, Rambus’s alleged deception cannot be said to have had an effect on competition in violation of the antitrust laws.” Id. at 466–67. Put differently, the FTC’s claim failed because it had not shown that the standards-setting body would have adopted the standard in question but for Rambus’s deception. Id.

Rambus does not establish a categorical rule that the anticompetitive effects of an exclusive agreement must be measured against a but-for world. That case involved deception to a standard-ssetting organization, a form of exclusionary conduct particularly susceptible to a finding of materiality. See id. at 466 (“[A]n antitrust plaintiff must establish that the standard-setting organization would not have adopted the standard in question but for the misrepresentation or omission.”) (quoting 2 Hovenkamp et al., IP & Antitrust § 35.5 (Supp. 2008)). Indeed, the FTC itself had left open the possibility that the standards-setting organization “would have standardized Rambus’s technologies even if Rambus had disclosed its intellectual property.” Id. at 466. In such circumstances, the D.C. Circuit deemed it appropriate to demand proof that Rambus’s deception in fact resulted in competitive harm. See id. at 466–67. Nowhere, however, did the court suggest that such a strict standard of proof was required to demonstrate anticompetitive effects for other forms of exclusionary conduct, particularly exclusive dealing arrangements. Such a holding would be contrary to Microsoft, and the court in Rambus nowhere questioned that precedent. Rambus therefore does not require Plaintiffs to prove substantial foreclosure against a but-for world.

Consequently, the court does not rely on Dr. Whinston’s but-for world “Super Duck” analysis or determine foreclosure against a hypothetical world in which users are offered a GSE “choice screen” out of the box. See GTB at 44 (arguing that “Plaintiffs did not attempt to calculate the degree of alleged foreclosure if all browser developers offered a choice screen instead of setting Google as the default”). Proving substantial foreclosure does not require such thought experiments.

ii. Zero Foreclosure

Next, Google says that there is no foreclosure at all because the distribution agreements still permit rivals to compete for queries. According to Google, “because rivals can compete even for those users who access search through the browser default, there is no foreclosure” arising from the browser agreements. GTB at 41. Similarly, as to the Android agreements, Google contends that “[r]ival search engines can compete for incremental promotion on MADA devices, and the device-by-device nature of the RSAs allows rivals to compete for preinstallation on any of the OEM’s or carrier’s devices.” GTB at 80.^[1]

As support, Google relies on Eisai, Inc. v. Sanofi Aventis U.S., LLC, in which the Third Circuit observed that, when analyzing foreclosure, the court’s concern should “not [be] about which products a consumer chooses to purchase, but about which products are reasonably available to that consumer. For example, if customers are free to switch to a different product in the marketplace but choose not to do so, competition has not been thwarted—even if a competitor remains unable to increase its market share.” 821 F.3d 394, 403 (3d Cir. 2016) (citation omitted); see also Allied Orthopedic Appliances Inc. v. Tyco Health Care Grp. LP, 592 F.3d 991, 997 (9th Cir. 2010) (“If competitors can reach the ultimate consumers of the product by employing existing or potential alternative channels of distribution, it is unclear whether such restrictions foreclose from competition any part of the relevant market.”) (citation omitted). Because users are “free to switch to a different product,” Google contends, the foreclosure number is zero. GTB at 41.

But neither Eisai nor Allied Orthopedic stand for the broad proposition that there is no market foreclosure when a dominant firm leaves some alternative ways for customers to access rivals. Microsoft rejected that very proposition. For instance, it treated as exclusive Microsoft’s agreement with AOL, even though it permitted AOL to distribute Netscape if customers requested it. 253 F.3d at 68. It did the same as to the OEM agreements, which left open internet downloads and mailings as a means for users to reach Netscape. Id. at 64, 70; see Microsoft, 87 F. Supp. 2d at 53. The court in Microsoft did not say that these contracts caused zero market foreclosure merely because Internet Explorer had other, less-efficient means of reaching users.

The same holds true here. The court already has found that preloaded default placements are the most efficient channel for reaching search consumers, and Google has secured all the major ones (except the default on the Edge browser preloaded on Windows devices). FOF ¶ 61. Sure, users can access Google’s rivals by switching the default search access point or by downloading a rival search app or browser. But the market reality is that users rarely do so. The fact that exclusive agreements allow users to reach rivals through other means does not make the foreclosure number zero.

iii. Aggregation

Finally, Google argues that the court should consider the impact of each type of agreement (e.g., ISA, MADA, RSA) separately when assessing the magnitude of foreclosure. GTB at 80–82. That is not how foreclosure is measured under Microsoft.

The court largely addressed this argument at summary judgment when it explained that the Microsoft court “aggregate[d] foreclosure in the exclusive dealing context,” considering smaller channels of distribution alongside larger ones in arriving at its conclusion that the market had been substantially foreclosed. Google, 687 F. Supp. 3d at 68 (citing 253 F.3d at 72) (“Although the ISVs [(Independent Software Vendors)] are a relatively small channel for browser distribution, they take on greater significance because, as discussed above, Microsoft had largely foreclosed the two primary channels to its rivals. In that light, one can tell from the record that by affecting the applications used by ‘millions’ of consumers, Microsoft’s exclusive deals with the ISVs had a substantial effect in further foreclosing rival browsers from the market.”); see also FTC v. Motion Picture Advert. Serv. Co., 334 U.S. 392, 395 (1953) (aggregating foreclosure caused by three contested agreements and concluding that “respondent and the three other major companies have foreclosed to competitors 75 percent of all available outlets for this business throughout the United States”).

Aggregating the foreclosure effects of the browser and Android agreements is an appropriate way to understand the overall effect of Google’s exclusive dealing in the relevant markets. Google’s authority, which largely deals with aggregating challenged and lawful conduct, GTB at 82, is inapposite.^[2]

***

The court thus finds that as to the general search services market Plaintiffs have proven that Google’s exclusive distribution agreements foreclose 50% of the general search services market by query volume.

b. Significant Foreclosure

To be considered anticompetitive, the market foreclosure must be “significant.” Microsoft, 253 F.3d at 70–71. The 50% figure meets that threshold. See id. (stating that “a monopolist’s use of exclusive contracts, in certain circumstances, may give rise to a § 2 violation even though the contracts foreclose less than roughly 40% or 50% share usually required to establish a § 1 violation”) (emphasis added); Areeda ¶ 1821c (“Percentages higher than 50 percent are routinely condemned when the practice is complete exclusion by a contract of fairly long duration[.]”).

Courts also look to certain qualitative conditions when assessing a foreclosure percentage’s significance. See Stop & Shop Supermarket Co. v. Blue Cross & Blue Shield of R.I., 373 F.3d 57, 68 (1st Cir. 2004) (“But while low [foreclosure] numbers make dismissal easy, high numbers do not automatically condemn, but only encourage closer scrutiny[.]”); Areeda ¶ 1821c (stating that “even relatively high percentages are not necessarily illegal, for there is no ‘per se’ rule condemning any specific [foreclosure] percentage”) (collecting cases). Such qualitative conditions include the duration of the exclusive agreements, their ease of terminability, the height of barriers to entry, the availability of alternative methods of distribution, and the willingness of consumers to comparison shop. See, e.g., Concord Boat Corp. v. Brunswick Corp., 207 F.3d 1039, 1059 (8th Cir. 2000); Omega Env’t, Inc. v. Gilbarco, Inc., 127 F.3d 1157, 1163–64 (9th Cir. 1997); Ryko Mfg. Co. v. Eden Servs., 823 F.2d 1215, 1234 (8th Cir. 1987). These factors can be thought of as a test of the durability of market foreclosure at a given time. See Areeda ¶ 1821 (noting that courts analyze “the existence of other factors that give significance to a given foreclosure percentage”). Each favors a finding of significant market foreclosure in this case.

Duration of Contracts. “[S]hort-term” exclusive agreements “present little threat to competition.” ZF Meritor, 696 F.3d at 286; see also In re EpiPen, 44 F.4th at 988 (“It is axiomatic that short, easily terminable exclusive agreements are of little antitrust concern; a competitor can simply wait for the contracts to expire or make alluring offers to initiate termination.”). Here, the challenged contracts vary in term, but all are above the one year that courts have presumed reasonable under related antitrust provisions. See, e.g., Roland Mach. Co. v. Dresser Indus., Inc., 749 F.2d 380, 395 (7th Cir. 1984) (“Exclusive-dealing contracts terminable in less than a year are presumptively lawful under section 3.”).

The 2016 ISA, renegotiated in 2021, consists of a base five-year term with extension options for an additional five years. Apple can unilaterally exercise a two-year extension, and then the parties can mutually agree to an additional three-year extension. FOF ¶ 291. That duration amplifies the significance of the ISA’s market foreclosure. See Twin City Sportservice, Inc. v. Charles O. Finley & Co., 676 F.2d 1291, 1301–02 (9th Cir. 1982) (finding a violation of Section 1 based on exclusive dealing where 10-year contracts foreclosed 24% of the market); ZF Meritor, 696 F.3d at 286–87 (condemning exclusive contracts, five and seven years in duration, which locked up 85% of the market).

The Mozilla RSA and the Android agreements are shorter, varying in terms of either two or three years, with opportunities for renewal. See JX31 at 628–29 (Mozilla RSA); UPFOF ¶¶ 250, 255 (summarizing terms of MADAs and RSAs). Such durations, depending on the circumstances, can raise antitrust concerns. See Motion Picture Adver. Serv. Co., 344 U.S. at 393–96 (in a Section 5 case under the FTC Act, upholding contracts of one year or less, but condemning contract terms ranging from two to five years). In this case, the Android agreements do raise such concerns because they foreclose 19.4% of the market and, as discussed below, they are not easily terminable. FOF ¶ 62; see ZF Meritor, 696 F.3d at 287 (stating that “[t]he significance of any particular contract duration is a function of both the number of such contracts and market share covered by the exclusive-dealing contracts”) (citation omitted); cf. In re Epipen, 44 F.4th at 988–91, 1006 (holding that two- and three-year exclusive agreements were not anticompetitive where they could be terminated at will and without cause on 90-day written notice or less). As for the Mozilla RSA, although it forecloses a far smaller percentage of the search market, its effect is amplified by the significant foreclosure of larger channels. See Microsoft, 253 F.3d at 72.

The absence of meaningful rebidding further aggravates the foreclosure effects. “Even an exclusive-dealing contract covering a dominant share of a relevant market need have no adverse consequences if the contract is let out for frequent rebidding.” In re EpiPen, 44 F.4th at 988 (quoting Areeda ¶ 1802g2). Google’s partners track rival GSEs’ quality and occasionally have engaged with them, FOF ¶¶ 333, 340–344, but the record reflects no meaningful competitive rebidding of the agreements. The more common story is Google’s partners renewing the agreements without genuine consideration of an alternative. See supra Section IV.A.

Ease of Terminability. An exclusive contract that is easily terminable can “negate substantially [its] potential to foreclose competition.” Omega Env’t, 127 F.3d at 1163; Balaklaw v. Lovell, 14 F.3d 793, 799 (2d Cir. 1994) (stating that “opportunities for competition remain” where the contract’s term was three years but it “[could] be cancelled without cause upon six-months’ notice”). Google’s partners cannot easily exit the agreements. Neither Apple nor Mozilla have a unilateral right to terminate without cause, FOF ¶¶ 291, 336, and the RSAs and MADAs can be terminated only upon breach, FOF ¶¶ 349, 364. There is an added disincentive with the MADA, where termination would result in loss of the GMS license, including the essential Play Store. See, e.g., JX49 at 878 (“[O]n expiration or termination of this Agreement . . . all rights and licenses granted hereunder will immediately cease” and the signatory must “immediately cease reproducing, offering, or distributing” the GMS apps). The lack of flexibility for partners to exit the distribution agreements reinforces their foreclosure effect.

Barriers to Entry. As already discussed, supra Section II.C.3, there are significant barriers to entry to the market for general search services. This means that new entrants are unlikely to emerge to meaningfully reduce the share of the market foreclosed by the distribution agreements.

Willingness to Comparison Shop. There is no evidence on this record that consumers are apt to comparison shop among GSEs, likely in part due to the friction associated with switching the default or accessing a different search access point. FOF ¶¶ 69–74; Tr. at 8728:23-24 (Israel) (There is “relatively limited [user] overlap between the general search engines.”).

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These factors all demonstrate that Google’s distribution agreements foreclose a substantial portion of the general search services market and impair rivals’ opportunities to compete. This is not a market where “a competitor can simply wait for contracts to expire or make alluring offers to initiate termination.” In re EpiPen, 44 F.4th at 988.

2. The Exclusive Agreements Have Deprived Rivals of Scale.

Google’s exclusive agreements have a second important anticompetitive effect: They deny rivals access to user queries, or scale, needed to effectively compete. Scale is the essential raw material for building, improving, and sustaining a GSE. FOF ¶¶ 86–106. For more than a decade, the challenged distribution agreements have given Google access to scale that its rivals cannot match. FOF ¶¶ 87–89. Google has used that scale to improve its search product and ad monetization. FOF ¶¶ 90–94, 103–105. Meanwhile, without access to scale, other GSEs have remained at a persistent competitive disadvantage, and new entrants cannot hope to achieve a scale that would allow them to compete with Google. FOF ¶¶ 76, 87–89, 106. Naturally then, GSE distributors prefer Google because of its search quality and because it would be economically irrational to sacrifice the high revenue share. They thus routinely renew the distribution deals with their exclusive terms. In this feedback loop, the revenue share payments “effectively make the ecosystem exceptionally resistan[t] to change” and “basically freeze the ecosystem in place[.]” Tr. at 3797:24–3798:21 (Ramaswamy); see id. at 3513:1-3 (Nadella) (“[T]his vicious cycle that [Microsoft is] trapped in can [] become even more vicious because the defaults get reinforced.”). That is the antithesis of a competitive market. See Berkey Photo, 603 F.2d at 274–75 (While “[a] firm that has lawfully acquired a monopoly position is not barred from taking advantage of scale economies,” a “classic illustration” of anticompetitive conduct “is an insistence that those who wish to secure a firm’s services cease dealing with its competitors.”).

Google acknowledges that a “search engine in the default position receives additional search volume beyond what it would otherwise receive.” GRFOF ¶ 85. It also concedes that “user interaction data has some utility for search quality[.]” Id. ¶ 139. But it otherwise disputes that the default access points have afforded it a volume of query data that prevents others from competing for search users. It contends that Plaintiffs have failed to establish a link between the agreements, the denial of sufficient scale to rivals, and anticompetitive effects in the market in two ways. First, it maintains that the agreements’ default effects are not so strong as to deny rivals’ meaningful scale to compete. Second, Google asserts that the role of scale in GSE product quality and monetization is overstated, such that others can compete with less scale if only they were as innovative as Google. The record does not support either position.

a. The Power of Defaults

Numbers help explain the power of the search default settings. Half of all GSE queries in the United States are initiated through the default search access points covered by the distribution agreements. See supra Section V.A.1. An additional 20% of all searches nationwide are derived from user-downloaded Chrome, a market reality that compounds the effect of the default search agreements. FOF ¶ 63. That means only 30% of all GSE queries in the United States come through a search access point that is not preloaded with Google. Additionally, default placements drive significant traffic to Google. Over 65% of searches on all Apple devices go through the Safari default. FOF ¶ 296. On Android, 80% of all queries flow through a search access point that defaults to Google. FOF ¶ 74.

All of this makes the defaults extremely valuable. In 2021, Google spent $26.3 billion in traffic acquisition costs—the revenue share paid to its partners—which is four times more than the company’s other search-related costs combined, including research and development. FOF ¶ 289. The true value of the defaults is undoubtedly far greater. Tr. at 9786:6-8 (Murphy) (stating “there’s a lot of headroom” between Google’s revenues and the price of the distribution agreements).

Google, of course, recognizes that losing defaults would dramatically impact its bottom line. For instance, Google has projected that losing the Safari default would result in a significant drop in queries and billions of dollars in lost revenues. FOF ¶¶ 72, 75. The same would occur if Google were to lose the Android defaults. Over 50% of all search revenue on Android devices flows through the Google Search Widget alone. FOF ¶ 74; see also FOF ¶ 75 (the Widget and Chrome make up 80% of search revenue on Samsung devices). The defaults are more than just “incremental promotion.” GRFOF ¶ 96. They supply Google with unequalled query volume that is effectively unavailable to rivals.

Against this backdrop, Google disputes the power of the default to drive query volume. It once again points out that users do not seem to have trouble switching to Google when a rival occupies the default. For instance, when Mozilla changed the Firefox default from Google to Yahoo in 2014, most users “switched back” to Google by changing the default, navigating directly to google.com or searching through Chrome. GTB at 38. Google also points to its status on Windows devices. Id. at 39. There, Google is the dominant GSE, even though Windows devices come preinstalled with Microsoft’s Edge browser, which defaults to Bing. FOF ¶¶ 82–84. But these examples confirm that the default effect is weaker when the alternative is a dominant firm with high brand recognition backed by a quality product. FOF ¶ 70; supra Section II.C.3.c. Otherwise, as Dr. Rangel convincingly explained, the combination of user habit, Google’s brand, and choice friction creates a powerful default effect that drives most consumers to use the default search access points occupied by Google. FOF ¶¶ 65–74.

Google’s discounting of the default also cannot be squared with Bing’s success on the Edge browser on Windows desktops, where Bing is the default GSE. Of the users that remain on Edge, 80% of their searches are conducted using Bing. FOF ¶¶ 83–84. Even if some of that rate is attributable to users who prefer Microsoft products, and therefore consciously do not switch, the default effect no doubt materially contributes to the uniquely high percentage of Bing users on Edge. That added search volume has allowed Microsoft to improve its search quality on desktop devices, to the extent that it is now nearly on par with Google. FOF ¶ 127.

Finally, Google’s position on defaults is at odds with many internal records that recognize, from a behavioral standpoint, the power of the default. FOF ¶¶ 66–68, 72–73, 75. It also is contrary to Google’s well-documented early recognition of defaults as critical to driving query volume. FOF ¶¶ 67, 73.

b. The Impact of Scale

Having established that Google gets substantially more queries than its rivals as a result of the defaults, the question becomes how, if at all, that advantage impacts competition. The answer to that question turns on the relationship between scale and a GSE’s quality.

The sheer magnitude of Google’s query volume, or scale, compared to rivals is startling: Users enter nine times more queries on Google than on all rivals combined. On mobile devices, that multiplier balloons to 19 times. FOF ¶ 87. NavBoost, one of Google’s core ranking models, runs on 13 months of Google click-and-query data. FOF ¶¶ 96, 102–103. That is the equivalent of over 17.5 years of Bing data. FOF ¶ 96; see also FOF ¶¶ 90–94. This wealth of data gives Google greater insight into search behavior in part because it simply sees more queries than other GSEs. See, e.g., FOF ¶ 89 (98.4% of unique phrases seen only by Google, 1% by Bing & 99.8% of tail queries on Google not seen at all by Bing).

Armed with its scale advantage, Google continues to use that data to improve search quality. Google deploys user data to, among other things, crawl additional websites, expand the index, re-rank the SERP, and improve the “freshness” of results (i.e., bring them up to date). FOF ¶¶ 90–94, 103. Click-and-query data also is used to build and train models that algorithmically improve results’ relevance and ranking, as well as to run large-format experiments to develop new features. FOF ¶¶ 90–94, 98, 103, 106. Scale also improves search ads monetization. This is intuitive: Understanding which advertisements users click on (or scroll past) enables Google to evaluate ad quality and serve more relevant ads in the future. FOF ¶¶ 105–106. The more precisely targeted an ad, the greater likelihood that it will be clicked, which translates into higher revenues that Google uses to make larger revenue share payments.

The market for GSEs is thus characterized by a type of network effect. Cf. Microsoft, 253 F.3d at 49 (discussing network effects in phone services). (1) More user data allows a GSE to improve search quality, (2) better search quality attracts more users and improves monetization, (3) more users and better monetization attract more advertisers, (4) more advertisers mean higher ad revenue, and (5) more ad revenue enables a GSE to expend more resources on traffic acquisition costs (i.e., revenue-share payments) and investments, which enable the continued acquisition of scale. See Tr. at 3492:8-25 (Nadella) (describing “network effects” in the market for search); Øverby & Audestad, supra, § 9.3 (Data network effects are those “in which data collected about users or user behavior is used to improve digital services. Google Search is an example of data network effects since each search query contributes to refining the Google Search algorithm.”). The network effects are captured in the illustration below, taken from a Microsoft document.

A non-free image has been removed from this page.

UPX270 at .001; see Tr. at 2646:15-19 (Parakhin) (“Relative traffic, if I have more traffic than my competitors, that participates in multiple feedback loops driving quality and driving index completeness, which in effect is driving quality . . . [I]t is very impactful for revenue.”).

Google contends that these effects are dramatically overstated. It argues that newer ranking models rely on less data, with some driven entirely by AI, such that today’s GSEs depend less on user data to improve quality and compete. GFOF ¶¶ 305–332. But the evidence shows otherwise. True, developments in search technology, including greater reliance on large-language models, or LLMs, for ranking, has reduced the need for user data. FOF ¶¶ 97, 99–101. Google, however, continues to rely on large volumes of user data at every step of the search journey, and no witness, even from Google, testified that LLMs had sufficiently advanced to supplant user data. FOF ¶¶ 101, 105, 114–115. There is a reason that Google still retains 18-months of a user’s data: It is still highly valuable to Google.

Google also maintains that the quantity of user data is less important than how it is used, and if its rivals had Google’s business foresight and drive to innovate, they too could win default distribution. GTB at 50. But that position blinks reality. Apple’s flirtation with Microsoft best illustrates this point. Microsoft has invested $100 billion in search in the last two decades and its quality now matches Google’s on desktop search. FOF ¶¶ 10, 127. Yet, Microsoft’s failure to anticipate the emergence of mobile search caused it to fall behind, and with Google guaranteed default placement on all mobile devices, Microsoft has never achieved the mobile distribution that it needs to improve on that platform. FOF ¶¶ 24–25. This perpetual scale and quality deficit means that Microsoft has no genuine hope of displacing Google as the default GSE on Safari. FOF ¶¶ 321–329. As Apple’s Eddy Cue testified, there was “no price that Microsoft could ever offer [Apple]” to prompt a switch to Bing, because it lacks Google’s quality. FOF ¶¶ 323, 326. Google’s massive scale advantage thus is a key reason why Google is effectively the only genuine choice as a default GSE.^[3]

That barrier is reinforced by the size of Google’s revenue share payments. Consider the following thought experiment. What would it take for a new market entrant to convince Mozilla—a small distribution channel—to walk away from Google as the default? The following would have to happen. First, the new entrant would have to surmount the entry barriers to create a GSE of comparable quality to Google. Second, it would have to build an ads platform that could monetize search on par with Google. Third, it would have to promise to offset any revenue shortfall that might arise either from reduced query volume (because some users would elect to stay with Google) or from inferior ad monetization (because fewer users could mean fewer advertisers and less profitable ad auctions, notwithstanding the quality of its delivery of ads). A new entrant would need billions of dollars to meet these three conditions. And notably, it would have to accomplish this trifecta either by acquiring enough user data through non-default distribution channels (which is improbable) or by developing a technology that would make the need for user data far less important (which is unlikely to happen anytime soon, FOF ¶¶ 102–104, 114–115). The truth is, no new entrant could hope to compete with Google for the default on Firefox or any other browser. Google’s query and quality advantage and high revenue share payments are strong incentives simply to stay put.

The end result here is not dissimilar from the Microsoft court’s conclusion as to the browser market. Just as the agreements in that case “help[ed] keep usage of Navigator below the critical level necessary for Navigator or any other rival to pose a real threat to Microsoft’s monopoly,” Google’s distribution agreements have constrained the query volumes of its rivals, thereby inoculating Google against any genuine competitive threat. Microsoft, 253 F.3d at 71; Dentsply, 399 F.3d at 191 (condemning the defendant’s exclusionary conduct, which “helps keep sales of competing teeth below the critical level necessary for any rival to pose a real threat to Dentsply’s market share”).

When “a monopolist’s actions are designed to prevent one or more new or potential competitors from gaining a foothold in the market by exclusionary . . . conduct, its success in that goal is not only injurious to the potential competitor but also to competition in general.” LePage’s, 324 F.3d at 159. No current rival or nascent competitor can hope to compete against Google in the wider marketplace without access to meaningful scale, especially on mobile. The exclusive distribution agreements have substantially contributed to these anticompetitive market conditions.

c. Diminishing Returns of Scale

Finally, Google uses a data experiment to challenge the proposition that Microsoft lacks sufficient scale to compete. It contends that Microsoft has reached the point of diminishing returns on scale, and that factors other than scale explain the quality differences between the two GSEs. See GRFOF ¶ 139; GFOF ¶¶ 256 (collecting testimony); GTB at 67–69.

For these propositions, Google relies upon a data reduction experiment (DRE) performed by its computer science expert, Dr. Edward Fox. See GFOF ¶¶ 344–406.^[4] The DRE retrained various Google ranking signals (including NavBoost, QBST, Term Weighting, RankBrain, DeepRank, and RankEmbedBert) on an estimate of Bing’s quantity of user data. Id. ¶¶ 352–353, 357–370. It then applied those adjusted models to a sample of Google mobile queries to yield search results. Id. ¶¶ 354–356, 371–376. Those results were scored by human raters. Id. ¶¶ 377–379. Dr. Fox concluded that only 2.9% of the quality gap between Google and Bing was attributable to their respective volumes of user interaction data. Tr. at 7848:18-24 (Fox) (discussing DXD26 at 10); see GFOF ¶¶ 382–386, 349.

The court found Dr. Fox’s experiment to be an interesting exercise but ultimately is unpersuaded by it. If Dr. Fox is right that Google could operate a search engine of equal quality using the amount of data possessed by Bing, one would expect Google to have used the experiment beyond just litigation. If the DRE’s conclusions are correct, Google would not need to collect and store the incredible volumes of user data it retains to maintain its quality advantage over Bing. Less need for user data would translate into reduced costs and, possibly, greater privacy protections. FOF ¶¶ 105, 120–125. Yet, Google made no effort to run further experiments to verify Dr. Fox’s study, and further, key Google employees were completely unaware of it. See Tr. at 1827:5-19 (Lehman); id. at 7534:21–7535:18 (Raghavan). If Dr. Fox’s results are as powerful as Google suggests, it is odd that Google has done nothing more than present them in this lawsuit.

In any event, Dr. Fox’s study in one sense only reinforces the importance of user interaction data. Microsoft has had a search engine since 2005. FOF ¶ 10. In 2009, it struck a deal with Yahoo to, among other things, aggregate the amount of user data available to Bing. FOF ¶ 13. If Dr. Fox is right that Bing’s scale has passed the point of diminishing returns, it has taken decades and a substantial acquisition of Yahoo’s data to get there. Still, Bing remains well behind Google in absolute scale. That leaves little hope that a smaller firm like DDG or a nascent one can compete with Google. In fact, for Neeva, the inability to attract and retain users, and thus build scale, was a key reason for its demise. FOF ¶ 76.

Finally, Dr. Fox’s study does not account for the years of product development made possible by Google’s scale. Even if Google’s modern data-based signals yield identical results when trained on a fraction of their scale, Google’s ability to design and engineer those signals relied on volumes of user data that Bing (nor anyone else) has never had. FOF ¶¶ 98, 105; Tr. at 10318:9-24 (Oard) (“[T]hat’s the way Google does it is based in part on Google seeing what works and trying out new ideas, and user-side data is just all over that process. And so that if you have access to more and better user-side data, then you have opportunities to do things here you might not otherwise have. And that’s simply not measured in the experiment, right. That experiment of this general design couldn’t possibly measure that effect. I mean, you’d have to replay 20 years of search engine development.”).

In the end, Google’s dismissal of the importance of scale is inconsistent with market realities. Google often warns that competition is “only a click away.” However, “[t]he paltry penetration in the market by competitors over the years has been a refutation of [that] theory by tangible and measurable results in the real world.” Dentsply, 399 F.3d at 194; Tr. at 3796:19-23 (Ramaswamy) (defaults are “enormously powerful,” notwithstanding “pious prose around ‘competition being a click away’”).

3. The Exclusive Agreements Have Reduced Incentives to Invest and Innovate.

The distribution agreements have caused a third key anticompetitive effect: They have reduced the incentive to invest and innovate in search. See 1-800 Contacts, Inc. v. FTC, 1 F.4th 102, 118 (2d Cir. 2021) (stating that anticompetitive effects can “include evidence of [slowed down] innovation”) (internal quotation marks omitted); McWane, 783 F.3d at 827 (observing that “slow innovation” can be a consequence of exclusive dealing arrangements) (internal quotation marks and citation omitted).

For more than a decade, the market for general search services has presented the opportunity to earn outsized profits. Google certainly has reaped the rewards. FOF ¶ 8 (Google Search’s 2022 booked revenue was over $162 billion). Yet the general search services market has remained static for at least the last 15 years, with investments largely coming from established players. Only Google and Microsoft have made the sizeable capital investments needed to build a self-sustaining GSE. FOF ¶¶ 10, 55. Smaller competitors do even not compete as fully integrated search engines. Yahoo, once the market leader, no longer crawls the web and instead relies on Microsoft for web results. FOF ¶ 13. DDG operates in the same way. FOF ¶ 12.

Nor has venture capital money rushed in. As Apple’s John Giannandrea wrote in 2018: “[T]he reason a better search engine has not appeared is that it’s not a VC fundable proposition even though it’s a lucrative business.” UPX240 at 507; see also Tr. at 3510:24–3512:7 (Nadella) (describing Silicon Valley venture funding in search as a “no fly zone”). As a result, DDG and Neeva are the only two notable market entrants in the last 15 years. Each attempted to innovate—DDG on privacy and Neeva through a subscription-based model—but found only limited success (DDG) or left the market altogether (Neeva). FOF ¶¶ 14, 25, 76.

The foreclosure of efficient channels of distribution has contributed significantly to the lack of new investment. Neeva is a case in point. It could not gain a foothold in the market in part because it was relegated to less efficient means of distribution, such as app downloads. Tr. at 3689:15–3694:21 (Ramaswamy). Neeva was unable to gain a position as an alternative default GSE on any mobile device. FOF ¶ 76. Ultimately, Neeva’s inability to retain and attract users—and thus acquire scale—was a primary reason for its withdrawal from the market. Id. The loss of nascent competitors is a clear anticompetitive effect. See Areeda ¶ 1802d5 (observing that exclusive dealing arrangements that deny smaller firms access to retailers may “impair their ability to expand, thus becoming more effective competitors with the dominant firm. Indeed, the smaller [firms] may decline and even be forced to exit from the market”).

Plaintiffs offer other examples of how the distribution agreements disincentivize investment and innovation in general search: (1) Google’s main rival, Microsoft, has limited its investment due to its limited distribution on mobile; (2) Apple, a fierce potential competitor, remains on the sidelines due to the large revenue share payments it receives from Google; (3) nascent competitors, like Branch, are unable to obtain distribution; and (4) knowing that stagnation will engender no consequences, Google lacks incentives to innovate. The court addresses each in turn.

a. Microsoft

Everyone agrees that Google’s distribution agreements did not cause Microsoft’s past underinvestment in search. Microsoft “missed” the mobile revolution and was unable to improve its browser, Internet Explorer, until it used Google’s rendering engine, Chromium. See generally Tr. at 3585–3590 (Nadella). Some of Microsoft’s quality issues also were attributable to its poor index. See DX429 at .021 (Bing is 25 times worse than Google regarding not-in-index issues). By 2007, Microsoft understood that it was three to five years behind in search and increased investment was needed. DX424 at .005. Ultimately, Microsoft committed significant capital to search. FOF ¶ 10; see Tr. at 3510:3-7 (Nadella) (“As per capita to our revenue . . . we’ve invested a lot, more so than Google has invested, in search. . . . [W]e’re the only player other than Google that has continued to invest in search.”). That investment (combined with secured distribution on Windows devices) has allowed Bing to achieve quality parity with Google on Windows desktop devices. FOF ¶ 127.

Today, Microsoft could invest more money in search but chooses not to without assurances of additional distribution on mobile. See Tr. at 3510:13-15 (Nadella) (“Can we invest more? Of course, any day, you know, everybody wants to invest more. And in order to invest more, please give me some mobile share and I’ll invest more.”). That withholding of additional investment is in part attributable to Google’s exclusive search distribution agreements. As Microsoft’s former CEO of Advertising and Web Services, Mikhail Parakhin, testified, “fundamentally it boils down to what kind of a long-term revenue we can achieve. . . . If you don’t have [the] ability to effectively distribute [through defaults], it’s almost meaningless to invest in the area.” Id. at 2643:1-23 (Parakhin).

Google responds that Microsoft’s current investment strategy is not evidence of an anticompetitive effect because market actors must take financial risks to compete and Microsoft’s unwillingness to take such risks is not an antitrust problem. See GTB at 4, 68 (“Microsoft should not be heard to complain that Google has been too successful or that Microsoft simply cannot invest to improve its search quality until Apple replaces Google with Bing as the Safari default.”).

What Google says has intuitive appeal, but it does not reflect market realities. Microsoft stood no realistic chance of beating Google for the Apple default, and there is no evidence of any serious negotiations for Android placements. No profit-driven firm in Microsoft’s position would invest the substantial sums required to enhance its search product when there is little to no genuine opportunity for a default distribution deal. See Areeda ¶ 725a (“To say that a business firm acts ‘rationally’ means that it seeks to maximize its profits or its value. Such a firm does not invest its resources unless it anticipates that the investment will be more profitable than available alternative investments.”). Google’s distribution agreements thus appear reasonably capable of having significantly contributed to disincentivizing Microsoft from enlarging its investment in search.

Plaintiff States advance a different theory of anticompetitive harm involving Microsoft. They contend that Bing’s limited distribution restricts Microsoft’s ability to enter into data-for-traffic agreements with SVPs to secure structured data for use in Bing’s vertical offerings. See PSTB at 32–33. Plaintiff States argue that Bing’s reduced scale means that it must either forego this data or pay for the data itself. Id. Google, on the other hand, can simply offer those partners traffic, due to its extraordinary scale. Id.

But the record does not support this theory. As of 2020, Microsoft had entered into hundreds of partnerships to obtain structured data. FOF ¶ 47. Bing has had some partnership challenges but none that could be fairly characterized as an anticompetitive effect. In one instance, Bing understood that a travel SVP refused to partner with it explicitly due to Bing’s lack of query volume. FOF ¶ 48. But Bing partners with much larger SVPs in the same vertical, like Expedia and Booking.com. Id. On another occasion, Bing’s partnership with   broke down when   sought a financial commitment (rather than traffic). Id. But it was not that   was unwilling to work with Bing; it was Bing who made a business judgment to forgo the partnership given self-imposed budget limitations and its strong relationship with another   Id. These isolated instances do not demonstrate that Google’s contracts have substantially hampered Microsoft’s ability to obtain structured data to improve Bing.

b. Apple

Plaintiffs contend that the billions of dollars that Apple receives in revenue share are, in effect, a payoff to keep Apple on the sidelines of search. Plaintiffs also maintain that the ISA limits Apple’s ability to expand search through its Suggestions feature and prevents Apple from running ads on its Spotlight product. See UPTB at 33–34, 55. The evidence relating to Apple cannot be cast in such absolute terms and calls for more nuance.

Entering Search. Apple has the financial, technological, and human resources to develop or acquire a competing GSE. In 2018, Apple hired the former head of Google Search, John Giannandrea. Tr. at 2164:18–2165:12 (Giannandrea). Since then, Apple has been “investing quite a lot in” search by “building all of the technology [it] would need to build a general-purpose search engine.” Id. at 2245:2-6 (Giannandrea); id. at 2247:14-16 (Giannandrea); FOF ¶ 301 (describing dollars and manpower dedicated to search at Apple). Both Apple and Google understand that Apple could develop its own GSE to replace Google as the default in Safari. FOF ¶¶ 300–301. Apple has decided not to do so thus far. FOF ¶ 302.

The ISA revenue share is an important factor in Apple’s calculus. In return for exclusive and non-exclusive default placements (i.e., user-downloaded Chrome and Safari default bookmarks), Google pays Apple  % of its net ad revenue, which amounted to $20 billion in 2022. FOF ¶¶ 298–299. This is almost double the payment Google made in 2020, which was at that time 17.5% of Apple’s operating profit. Id. Google pays Apple more in revenue share than it pays all other partners combined. FOF ¶ 299. If Apple were at all inclined to enter the market for general search, it would have to be prepared to lose these large revenue share payments. FOF ¶¶ 302–326.

But the loss of revenue share is not the only reason Apple has not entered the market. There are other costs and risks. Although Apple has built an infrastructure to deliver some search results to its users, it would have to commit billions more to build and maintain a fully functioning GSE. FOF ¶ 302. It also would need to develop an ad platform to monetize searches. Critically, Apple would have to be willing to put its brand reputation—and possibly device sales—at stake if it were to produce an inferior or unpopular product. See id. The required investment also would divert capital from other possibly profitable ventures. Id. Even if all went well, Apple’s own projections estimate that it would lose over $12 billion in revenue during the first five years following a potential separation from Google. Id.

Still, the ultimate question is whether the ISA reasonably appears capable of significantly contributing to keeping Apple on the sidelines of search, thus allowing Google to maintain its monopoly. See Microsoft, 253 F.3d at 79. The revenue share payments unquestionably have that effect. The prospect of losing tens of billions in guaranteed revenue from Google—which presently come at little to no cost to Apple—disincentivizes Apple from launching its own search engine when it otherwise has built the capacity to do so. The payments need not be Apple’s sole reason for staying out of search to constitute an anticompetitive effect. Plaintiffs are not required to prove that Google’s “continued monopoly power is precisely attributable to” the ISA. Id.^[5]

“Substantially Similar” Clause. Plaintiffs’ other theories of anticompetitive harm do not fare as well. According to Plaintiffs, Google insisted on modifying the terms of the ISA to constrain Apple from intercepting increasing volumes of commercial queries through its Suggestions feature. UPTB at 33–34. When a user types a query in the Safari search bar, sometimes Safari will “suggest” a relevant link to the user that, if clicked, allows the user to avoid Google entirely. FOF ¶ 303. By 2016, Google viewed Apple’s increased use of Suggestions as a threat, because more diversions could translate to fewer revenue-generating search queries. FOF ¶ 304. So, when the parties renegotiated the ISA in 2016, Google insisted on inserting a term in which Apple promised that its use of Google Search as the default in Safari “will remain substantially similar to its use” in 2016. FOF ¶ 305. This has been termed the “substantially similar” clause.

Google denies that the clause’s purpose is to limit Apple’s ability to innovate its products. See GRFOF ¶¶ 171–172. Rather, it was meant to ensure that Apple would not divert queries to an SVP, like Amazon, thus leaving Google with a greater proportion of less profitable, noncommercial queries. See GFOF ¶ 1270.

Regardless of its purpose, Plaintiffs have not shown that the “substantially similar” clause has led to any actual competitive harm or threat of such harm. Both Apple witnesses, Cue and Giannandrea, testified that Apple does not view the “substantially similar” clause as limiting Apple at all on Suggestions, and that Apple has not been restrained by it. FOF ¶¶ 305, 307. Nor have Plaintiffs produced any evidence that would suggest that, since 2016, Apple has purposely reduced or limited the number of “suggestions” it offers users. Plaintiffs thus have not shown that the “substantially similar” clause “indeed” had an anticompetitive effect in the relevant market. Microsoft, 253 F.3d at 58–59.

Advertising on Spotlight. Plaintiffs’ related theory that the ISA restricts Apple’s ability to monetize its on-device search, Spotlight, is also not supported by the record. Spotlight is primarily an on-device search feature on Apple devices, though it has the capacity to run searches through Safari. FOF ¶ 308. Under the ISA, Apple must grant Google the opportunity to deliver search advertisements for on-device searches on Spotlight before it does so itself. FOF ¶ 309. This “right of first refusal” in theory prevents Apple from siphoning off advertising dollars from Google. According to Plaintiffs, this provision depresses competition by restricting Apple from expanding its search ads offerings. UPTB at 34.

But the evidence that the “right of first refusal” has an anticompetitive effect—in any market—is thin. Apple presently does not place ads on Spotlight. Nor has it expressed any intention to do so. Tr. at 2497:11-25 (Cue) (stating that Apple had “no intentions or plans to put ads on Siri or Spotlight,” and “today, we have no intentions to put ads on Siri or Spotlight”). If Apple seeks to monetize Spotlight in the future, and Google insists on enforcing the clause, then that would be an anticompetitive effect. But there is no evidence in the record that the “right of first refusal” clause is one today. Plaintiffs thus have not shown the “requisite anticompetitive effect.” Microsoft, 253 F.3d at 58–59.

c. Branch

Plaintiffs also contend that the distribution agreements prevent the emergence of innovative search-adjacent technologies. The example they cite is Branch. UPTB at 34–35. Branch is not a GSE. It develops a product that, as presently deployed, uses “deep linking” technology to search content within on-device applications, like Yelp. FOF ¶ 15. Plaintiffs do not contend that greater adoption of Branch’s technology would either facilitate competition among GSEs or lower entry barriers to the general search market. Instead, Plaintiffs’ theory is that Branch’s tool, as originally designed, uses the web to provide limited results, UPTB at 35, and thus could one day serve as a competitor to Google as a provider of web information retrieval, U.S. Pls.’ Resp. Proposed Findings of Fact, ECF No. 907, ¶¶ 2452–2453 [hereinafter UPRFOF].

According to Plaintiffs, the RSAs’ restriction on preinstalling an “alternative search service” caused potential distribution partners to balk at integrating Branch with full functionality. UPTB at 34–35. For instance, in 2019, Samsung, which was a primary investor in Branch, worked to integrate Branch into its devices but grew concerned about whether doing so would affect its relationship with Google. FOF ¶¶ 391–393. Samsung ultimately did preinstall Branch but only at a reduced functionality (fewer searchable apps and no direct linking to mobile websites). Id. In 2020, the amended Google-Samsung RSA contained a modified clause that more squarely limited Samsung’s ability to preload on-device search. FOF ¶ 394. In addition, when another potential partner, AT&T, requested that Google clarify whether Branch could be preloaded on an RSA-compliant device, Google responded simply by citing the “alternative search services” term. FOF ¶¶ 395–396. AT&T decided not to partner with Branch given the uncertainty and the financial risk of losing revenue share if Google viewed integrating Branch as a breach of the RSA. Id.

Google has a different take on the evidence concerning Branch. It claims that the RSAs do not preclude the preloading of Branch, which is available on some RSA-compliant devices. GTB at 93. It also maintains that it never told any partner that integrating Branch would violate the RSA, and that partners declined to preload Branch for reasons other than the RSAs, including quality and data privacy issues. GRFOF ¶¶ 277–280.

Because Plaintiffs claim is that Google’s conduct blocked a nascent competitor, the question is not whether the technology “would actually have developed into [a] viable platform substitute[],” but whether such technology has “showed potential” to do so. Microsoft, 253 F.3d at 79; see also id. (explaining that “nascent threats are merely potential substitutes”). In Microsoft, for instance, middleware technologies Java and Navigator were deemed nascent threats to Windows because such products, although not then substitutes, had the potential to “take over some or all of Window’s valuable platform functions[.]” Id. at 53.

The record does not support the conclusion that Branch’s technology has shown potential to become a viable platform substitute for Google. Branch’s founder and former CEO, Alex Austin, testified that Branch’s technology does not “conflict with or overlap with web search[.]” Tr. at 2961:3-4 (Austin). Branch also externally described its “search use case [a]s totally different and distinct from Google search, and there is zero impact on Google search traffic after implementing Branch.” PSX65 at 531; see also id. at 532 (outlining significant differences between general web search and Branch). Although Austin stated that Branch “had hopes that over time, as people found they could do more in apps, that eventually some of that web search traffic would actually start to migrate over to this new app search engine and just create more competition in web search overall,” he admittedly “didn’t have any data, like an experiment data that suggested the impact.” Tr. at 2960:13-22 (Austin).

Thus, while there is some evidence that Branch aspired to compete with Google in general search, the nascent-threat evidence here is far weaker than in Microsoft. The trial court there “made ample findings that both Navigator and Java showed potential” as nascent threats. 253 F.3d at 879. This court cannot do the same about Branch.

That said, the record evidence does show that the RSAs’ “alternative search services” term had some chilling effect on distribution partners’ consideration of Branch. Samsung ultimately preloaded a scaled-back version of Branch, and AT&T declined the opportunity to partner with Branch because of the possibility of putting revenue share at risk. FOF ¶¶ 395–396. That chilling effect just did not occur in the general search services market.

d. Google

Finally, Plaintiffs argue that the absence of genuine competition for general search queries has reduced Google’s incentives to innovate its search product, thereby harming consumers. They note that Google spends seven times more on securing defaults than on R&D, FOF ¶ 289, and point to some evidence that its search expenses have declined over the years, see UPX249 at 556; UPX260 at 681 (Apple noting that “in recent years, Google has . . . under invest[ed] on desktop”). Plaintiffs also identify instances where Google has reacted to rare competitive pressure by rapidly investing in product improvements or launches. For example, Plaintiffs point to Google’s “Go Big in Europe” campaign, launched in response to the advent of a search engine choice screen on Android devices required by European Union regulators. UPFOF ¶¶ 1088–1090. Plaintiffs also cite to some isolated examples of degraded search engine quality, such as a period of stagnation and decline in Google’s index size, declining latency, and anecdotal evidence from complaining employees. Id. ¶¶ 1083–1086.

The court is not persuaded. Google has not sat still despite its dominant market share. Search has changed dramatically over the last 15 years, largely because of Google. FOF ¶ 128. Its SERP, for example, is different today than it was even five years ago. Id. Moreover, the evidence that Google has left innovative technologies on the shelf, or that its investments in R&D and human capital have fallen behind others in the industry, is sparse. “Go Big in Europe” is a one-time, discrete episode that is far from robust evidence that Google remains inert absent competition. In truth, Google’s penchant for innovation is consistent with the behavior of a monopolist. Microsoft, 253 F.3d at 57 (“[M]onopolists have reason to invest in R&D,” as “innovation can increase an already dominant market share and further delay the emergence of competition[.]”).

There is one notable exception, however. That is Google’s launch of its generative AI chatbot Bard (now Gemini) in direct response to Microsoft’s announcement of BingChat (now Copilot), which integrates Bing and ChatGPT’s AI technology. FOF ¶¶ 111–112. This is a clear example of Google responding to competition.

In any event, based on the record as a whole, the court cannot find that the distribution agreements have had an anticompetitive effect by deterring Google from innovating in search.

***

Plaintiffs have made the required showing of anticompetitive effects in the general search services market, satisfying their prima facie case. The burden now shifts to Google to proffer a “procompetitive justification” for the exclusive distribution agreements. Microsoft, 253 F.3d at 59.

1. To the extent that Google argues that there is no foreclosure because rivals can compete to win the default, see GTB at 42 (“[R]ivals can compete for 100% of all queries . . . first by competing to be the default[.]”), that contention misconstrues the foreclosure analysis. “The central question is whether after the Exclusive Agreements were signed [Google’s] competitors were able to meaningfully compete or whether they were foreclosed from the market.” In re Lorazepam Antitrust Litig., 467 F. Supp. 2d 74, 82 (D.D.C. 2006) (emphasis added).
2. The parties also disagree as to whether the court can permissibly aggregate the challenged conduct (i.e., the distribution agreements) together with unchallenged conduct (e.g., the placement of Google as the default GSE on user-downloaded Chrome). See GTB at 82; U.S. Pls.’ Resp. Proposed Conclusions of Law, ECF No. 899 [hereinafter UPRCL], at 14. Because the court finds that the foreclosure figures—which do not include unchallenged conduct—are sufficient to establish significant foreclosure, infra Section V.A.1.b, the court need not resolve this dispute.
3. To be clear, the court is by no means suggesting that query volume alone would make a rival GSE more competitive. It still must develop a quality product that satisfies users’ needs.
4. Dr. Fox’s experiment and testimony are subject to a Daubert motion, ECF No. 443. Because the court has considered that evidence, but ultimately gives it little weight, the court denies the Daubert motion.
5. In its discussion of Apple, Google references the principle that a firm’s “make or buy” decision typically does not offend antitrust law. GRCL ¶ 40 (citing Jack Walters & Sons Corp. v. Morton Bldg., Inc., 737 F.2d 698, 709–10 (7th Cir. 1984) (holding that a firm’s decision to vertically integrate—the decision to “make or buy” a good or service—typically does not offend antitrust law)); see also Tr. at 8698:25–8699:9 (Israel). But that principle has no application here because the question is not whether Apple’s decision to remain out of search is exclusionary, but whether the exclusivity of ISA has an anticompetitive effect by influencing that decision.