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Google pays billions of dollars each year to distributors, including device manufacturers such as Apple and Samsung (Bloomberg)
Google pays billions of dollars each year to distributors, including device manufacturers such as Apple and Samsung (Bloomberg)

The thick alphabet soup that Google has found itself in

Its growth may have been fair but deals that give its search tool default-use status are now under scrutiny

On Tuesday, 20 October, the US department of justice (DOJ) under attorney general William Barr filed a suit against Google, alleging anti-competitive behaviour under section 2 of America’s Sherman Antitrust Act.

Some observers point to the timing of this lawsuit, claiming that a decision to frame charges now is actually a politically-motivated move by Barr. In my view, Barr has made his politics apparent in many other fora and didn’t need this lawsuit to prove his fealty to US President Donald Trump. The specifics of the DOJ’s suit have been in the making for a long time. It’s no surprise that Google’s stock price has held up.

That said, it is important to understand the DOJ’s suit. Google dominates many areas of technology and regulators have fined it billions of dollars before. A lay observer of events may think this is yet another repeat of the suits that have been filed in Europe, Australia, and even by America’s 50 individual states.

But the old cases focus mainly on two facets of Google’s operations. One, its Search Engine Results Pages (SERP), and the other its advertising business. The SERP case was investigated by the European Union. In 2017, the European Commission levied a record €2.42 billion fine on Google for having “abused its market dominance as a search engine by giving an illegal advantage to another Google product, its comparison-shopping service". The still-ongoing suit by America’s 50 states is focused on Google’s advertising business.

In response to the new federal lawsuit, Google is likely to make a case that it has reached this level of market dominance simply by building a better product than others. It will point to one of the fallouts of an earlier case the DOJ filed and won against Microsoft Inc in the 1990s. This was around Microsoft bundling its own Explorer web browser (at the cost of Netscape’s Navigator) along with its Windows operating system, which at the time was near ubiquitous. The actual result of the lawsuit, however, didn’t change the status quo much. People continued to use Explorer until a better alternative came along, in this case Google’s Chrome browser.

Past fines by the European Union, Australia and other jurisdictions have hardly touched the behemoth—it maintains a $120 billion cash hoard and is more than prepared to take on the DOJ. Google will vigorously defend itself in the present case and has access to a battery of lawyers that its outsized cash balance can easily hire. A central tenet of its argument will be that the services that it provides users like you and me are free, and that users have benefited enormously from them. It will also claim that its market dominance is a “virtuous cycle" of ever-improving consumer experiences, and is, therefore, not a monopoly.

But this response would be a smokescreen. This time, the DOJ’s focus is narrow: Google may have earned its position honestly, but it is maintaining it illegally, in large part by paying off distributors. The DOJ says: “For a general search engine, by far the most effective means of distribution is to be the preset default general search engine for mobile and computer search access points. Even where users can change the default, they rarely do. This leaves the preset default general search engine with de facto exclusivity. As Google itself has recognized, this is particularly true on mobile devices, where defaults are especially sticky."

For years, Google has struck exclusionary agreements and engaged in what clearly looks like anticompetitive conduct to lock up distribution channels and block its rivals.

Google pays billions of dollars each year to distributors, including device manufacturers such as Apple and Samsung, major US wireless carriers such as AT&T, T-Mobile, and Verizon, and browser developers such as Mozilla and Opera. This secures default status for its general search engine, and, in many cases, specifically prohibits these companies from dealing with Google’s competitors. Some of these agreements also require distributors to accept a bundle of Google apps and feature them on devices in prime positions where consumers are most likely to start their internet searches.

For those of us who use Android devices, such ubiquity is normal. Some of us naively think that we have cut off Google by moving to a Mozilla or Opera browser. Well, we haven’t. And if you think you have escaped Google’s tight embrace by buying an Apple device, think again. Google pays Apple billions to be the off-the-shelf embedded search engine in Safari, the iPhone’s web browser. To shift, one has to go deep into Safari’s settings and then switch to another one like Duck-Duck Go (which I recommend) or Microsoft’s Bing. On an Android device, we would need to download Duck-Duck Go or Bing from Google’s Play Store, and then consciously avoid the big Google search bar each time we use our device.

Google’s anticompetitive practices seem especially destructive because they deny rivals the scale they need to compete effectively. By using distribution agreements to lock up scale for itself and deny it to others, Google unlawfully maintains its monopolies. This is the key nuance that the DOJ suit points out and is going after Google for.

Given that America’s current law does not cover the true nature of digital monopolies, Google may even win in court. But this will hopefully lead to more nuanced regulation in the future. Here’s looking at you, America.

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