Key highlights from D.C. District Court's ruling on Google's monopoly case

On Aug. 5, 2024, Judge Amit Mehta of the U.S. District Court for the District of Columbia held that Google is liable for monopolizing two markets that he defined as general search engines and general search text advertising and that Google charged supracompetitive prices for such text ads. The Court concluded that Google used revenue-sharing agreements with web browser developers, mobile device manufacturers, and wireless carriers to secure its status as the default general search engine on most computers and cellphones across the United States. While the Court acknowledged that Google has continued to innovate and improve its products, it found that securing the default status was sufficiently exclusionary across a large enough portion of the distribution options to violate Section 2 of the Sherman Act given Google's approximately 90% share of general search queries and general search text advertisement spending.

The ruling is likely to have reverberations for years to come, and not just in high tech industries. And, there is more to come: The Court's decision addresses only the liability determination, and it will now turn to addressing remedies for the violations that it found. As we await this next stage, we highlight below just a few of the key aspects of this decision.

Defining barriers to entry: the past, present, and "foreseeable future"

To determine if Google had a monopoly in the general search engine market, Judge Mehta first considered whether Google had durable market power, which the Court inferred from "a firm's possession of a dominant share of a relevant market that is protected by entry barriers." The "dominant share" requirement was not in dispute: although Google argued in favor of a broader, "query response product market," it did not contest that it has a share of nearly 90% of general search queries and nearly 95% of general searches on mobile devices. The Court next found that the high capital costs to build a general search engine, Google's control over key distribution channels, Google's overwhelming brand recognition ("google it" having emerged as a verb in the vernacular), and the benefits of scale for providing quality search results all impeded new entrants from competing in the general search engine market.  In sum, the Court found that Google had a "dominant position" that has been well-insulated by the realities of the search engine market. And because it found that only general search engines can offer general search text advertising, the Court concluded that the same barriers to entry also preserved Google's power in the general search text ad market.

Google contested this conclusion by looking to the past and future. Google offered its own origin story--a scrappy start-up that dethroned Yahoo--as evidence that the general search engine market was not guarded by high barriers to entry. The Court was unmoved and insisted that Google's ascent years ago "says nothing about the barriers to entry as they exist today." (emphasis in original). The Court was similarly unconvinced by Google's invocation of Neeva and DuckDuckGo as examples of successful entrants in the market; the Court highlighted that Neeva is now defunct and DuckDuckGo has achieved, at most, low single-digit market share and that it is powered, in part, by another general search engine.

Turning to the future, Google claimed that the rise of artificial intelligence would erode barriers to entry. The Court acknowledged that "technologies may lower, or even demolish, barriers to entry," but concluded that AI was not likely to do so quickly enough to support Google's defense. Because AI cannot now replace the fundamental requirements of a general search engine, namely web crawling and indexing, the Court determined that the high capital costs to build a general search engine would remain a significant barrier for potential entrants. The Court acknowledge that AI may eventually change the general search engine industry, but not in the "foreseeable future."

The Court's finding that AI is unlikely to influence the search market in the "foreseeable future" highlights a challenge for both parties and courts in assessing relevant markets in antitrust cases where potentially disruptive new technologies are proliferating at warp speed.

Exclusivity contracts: function over formality

After concluding that Google had monopoly power in both the general search engine and general search text advertisement markets, the Court examined whether Google had preserved that power through anticompetitive, exclusionary acts. Applying the analytical framework from the Microsoft case, the Court determined that Google's distribution agreements had foreclosed rivals from competing by securing Google's position as the default general search engine for most web browsers and mobile devices. Specifically, Judge Mehta determined that Google's revenue sharing and app distribution arrangements with web browsers, device manufacturers, and wireless carriers functioned as exclusive contracts that largely foreclosed rivals from the most efficient channels of distribution.

Google asserted that its revenue sharing agreements were not exclusive contracts because web browsers and device manufacturers were not prohibited from including options for users to switch search engines or from pre-loading additional search applications onto the devices they sell. Further, Google argued that its contracts were not exclusive because they do not restrict the user's ability to use a rival search engine or set it as their default. In short, at least in form, Google argued that these contracts were distinct from the classic "You will sell our product and only our product" style of exclusive contract.

The Court was not persuaded. It held that Google's agreements were exclusive in practice, even if they did not formally require exclusivity. In doing so, the Court looked to "market realities" to determine if the contracts foreclosed rivals from "a substantial percentage of the available opportunities for distribution." For example, the Court was unpersuaded by Google's argument that mobile device manufacturers could simply pre-install additional search apps because the evidence showed that manufacturers avoided excessive preinstallation of applications. Although device manufacturers could technically pre-load other search access points on a device, "market realities make such configurations unrealistic."

In finding against Google on this issue, the Court held that "exclusivity need be neither express nor complete to render an agreement 'exclusive' for Section 2 purposes."

No duty to deal in this case

Separate from the claim that Google used default status distribution agreements to exclude its competitors, the State Plaintiffs also asserted that Google had acted unlawfully in failing to integrate Bing into Google's proprietary search engine management tool, SA 360. The plaintiffs alleged that Google had "slow-rolled the development and launch of various features" that would bring Bing's integration with SA 360 into parity with Google's own ad platform.

The Court rejected this claim based on the "settled principle that firms have 'no duty to deal' with a rival," except under limited circumstances not applicable to this case. Citing the seminal cases of Verizon Communications v. Trinko and Aspen Skiing v. Aspen Highlands Skiing, the Court held that a company's obligation to deal with a competitor can arise only if at least the following two conditions are met: (1) "before the defendant refused its competitors access[,] the defendant 'voluntarily engaged in a course of dealing with its rivals.'" and (2) "the defendant's 'unilateral termination of a voluntary (and thus presumably profitable) course of dealing suggested a willingness to forsake short-term profits to achieve an anticompetitive end.'" The Court also referenced a potential third element based on an appellate court decision authored by then-Judge Gorsuch: "a showing that the monopolist's refusal to deal was part of a larger anticompetitive enterprise, such as... seeking to drive a rival from the market or discipline it for daring to compete on price."

The Court rejected the argument by the Plaintiff States that the "no duty to deal" doctrine does not apply to the Google case because, they argued, the doctrine applies only "when (i) the business relationship was government mandated, (ii) there was no prior dealing at all, or (iii) any prior dealing had ended." The Court disagreed and opined that "[t]he concerns that animate the no-duty-to-deal principle are equally applicable here. Primarily, adjudicating Plaintiff States' claim would require the court to act as a 'central planner' that endeavors to identify the proper 'terms of dealing.'" 

Turning to the merits and applying Trinko, the Court held that the Plaintiffs States "failed to meet their burden of proof" on each of the three elements of a duty-to-deal claim described above.

Other issue

The Court addressed two other issues raised by the plaintiffs.

First, the plaintiffs had requested that the Court find that Google acted with "anticompetitive intent." The Court declined to do so on the grounds that "[a] finding of anticompetitive intent is not an element of a Section 2 violation." It quoted from the Microsoft decision in holding that "[e]vidence of intent. . . is relevant only to the extent it helps [a court] understand the likely effect of the monopolist's conduct." Because the Court "already has concluded that Google's exclusive dealing agreements have anticompetitive effects in two relevant markets. . . it is unnecessary to consider intent evidence to further 'understand' that conduct."

Second, the plaintiffs asked the Court to sanction Google for a "failure to preserve chat messages." The Court found it unnecessary to decide this issue and declined to impose sanctions because "[a]n adverse evidentiary inference would not change the court's finding[s]" regarding the issues on which the plaintiffs did not prevail. 

Next steps

Importantly, the Court had bifurcated the liability and remedy determinations, so the trial and this decision addressed only liability issues. The Court will now turn to addressing remedies for the violations that it found and has set a status conference for September 6 to begin that process.