D.C. District Court Finds Google Monopolized Markets for Online Search and Search Text Advertising

D.C. District Court Finds Google Monopolized Markets for Online Search and Search Text Advertising

August 9, 2024, Covington Alert

On August 5, 2024, Judge Amit Mehta of the U.S. District Court for the District of Columbia concluded that Google has monopolized markets for online searches and search text advertising and unlawfully engaged in exclusionary conduct in those markets. Specifically, the court found that Google used revenue sharing agreements with web browser developers, mobile device manufacturers, and wireless carriers to secure its status as the default search engine on most computers and cellphones across the United States. These agreements prevented rivals from competing for users, leaving Google to field around 90% of search queries and to sell the lion’s share of search text advertising. The court also determined that Google’s monopoly power permitted it to charge supracompetitive prices for search text ads. The court must next decide how to remedy Google’s conduct, a process that likely will extend well into next year.

The Decision:

The court’s decision follows a nine-week bench trial on liability. The court first concluded that Google has monopoly power in a market for general search services. The court held that Google controlled around 90% of the market and that barriers to entry protected its share. The court rejected Google’s effort to define the relevant market more broadly as query responses, which would have included other large retail and social media sites. Google also argued that the presence of new entrants and/or the introduction of artificial intelligence show that there are low barriers to enter the search engine market. The court similarly rejected this claim based on its finding that none of those developments appear likely to take significant business away from Google in the foreseeable future.

The court also found that Google has monopoly power in a market for general search text advertisements, which are text ads created by sellers and populated on a search results page. The court found that Google had nearly 90% of the market and that advertisers did not view any other platforms as viable substitutes for search text ads, even when Google increased the price for ads. Because only search engines can offer search text advertisements, the same barriers to entry that preserved Google monopoly power in the search engine market also protect its position over search text ads.

The court next turned to whether Google had preserved its monopoly power in those markets through exclusionary conduct. Here, the court determined that Google’s distribution agreements with web browsers, Android manufacturers, and wireless carriers had foreclosed rivals from competing by securing Google’s position as the default search engine for most web browsers and mobile devices in the United States. In effect, the court concluded that Google paid billions of dollars ($26.3 billion in 2021) to entrench its default search status, which enabled it to secure the vast majority of search text ad revenue at supracompetitive prices, which Google could then reinvest into revenue sharing agreements to preserve its default status and fund product development. In the court’s view, this “feedback loop” ensured that rivals “remained at a persistent competitive disadvantage, and new entrants cannot hope to achieve a scale that would allow them to compete with Google.”

The court largely rejected Google’s arguments to the contrary. The court was not persuaded by Google’s argument that the agreements were not technically exclusive because distributors could provide alternatives for users to switch the default search engine. Similarly, the court found unconvincing that some users are still able to reach rival search engines through other distribution avenues, since Google’s agreements still foreclosed a substantial percentage of the most efficient channels of distribution. Nor did the court find credible Google’s assertions that the exclusivity provisions were procompetitive. Finally, the court also rejected Google’s argument that it had not violated Section 2 because it had competed for and won competition for the default search engine status. While the court acknowledged that Google offered a superior search product, it determined that there was no genuine competition for the position of default search engine.

The opinion was not a complete win for the plaintiffs. The court found, for example, that search advertising—the broadest proposed advertiser-side market which includes all advertisements in response to a search query—was a viable antitrust market and that Google did not have monopoly power in it. The court also declined to find a relevant product market for the subcategory of “general search advertising.” And, the court rejected the state plaintiffs’ Section 2 claim based on Google’s decision not to enable Bing to integrate into Google’s SA360 advertising product, holding that Google did not have a duty to deal with its rival and that the plaintiffs failed to demonstrate anticompetitive harm.

What’s Next:

The decision did not address remedies for Google’s conduct. The court will turn to that issue next after the parties submit by September 4th a proposed schedule for remedies proceedings.

If you have any questions concerning the material discussed in this client alert, please contact members of our Antitrust/Competition practice.