DOJ and Google clash on opening day of high-stakes monopoly trial

The Justice Department said Tuesday in a Washington courtroom that Google (GOOG, GOOGL) illegally stifled competition in the world of online search, making the government's opening argument in an antitrust case that could set new limits on the power amassed by a US tech giant.

"For the past 12 years Google has abused a monopoly in search," Kenneth Dintzer, deputy director for the Justice Department's civil division, said in his opening statement.

"They knew this conduct crossed antitrust lines," Dintzer added, accusing Google of destroying documents to hide its practice of shutting out competition.

Dintzer said evidence will show that Google knowingly created and amended contracts to keep Google as the default search engine across desktop and mobile devices such as the iPhone, and restricted iPhone maker Apple (AAPL) from evolving as a search competitor.

The practice, he said, allowed Google to gobble up so much data that rivals couldn't fairly compete.

"Google's monopoly starts with defaults," he said.

Google’s defense attorney argued that consumers choose Google to scour the internet because of its quality search results and that users are free to download alternate search options on Apple and Android devices.

"Defaults can’t stop consumers from finding the apps they prefer," said John Schmidtlein, a partner at Williams & Connolly.

A test for both sides

The lawsuit against Google is a supreme test for the US government, which is trying to use a 133-year-old law to rein in several of the country’s most dominant tech companies. For Google, it is a threat to a core profit engine that sits at the heart of a trillion-dollar empire amassed over the last quarter century.

That drama will unfold over the coming weeks before federal district Judge Amit Mehta in the US District Court for the District of Columbia; he will decide whether Google broke the law and what any consequences might be for the company.

It could also involve testimony from Google CEO Sundar Pichai and other well-known tech executives.

The case closely resembles the government's attempts to rein in Microsoft (MSFT) during the late 1990s, when the US alleged that the tech giant boxed out rivals by making its browser the default on its dominant Windows operating system. It resulted in a settlement that opened the door to broader competition in the internet browser software market.

That 2001 pact — which required Microsoft to design its Windows operating system to interoperate with competing browsers — created an opportunity for Google, then a startup formed by Stanford students Sergey Brin and Larry Page, to begin its period of meteoric growth in the 2000s.

The government now argues Google broke the law as it became the dominant way most people searched for information on the web.

It faces a major hurdle: the presumption that lower, even free, prices are a consumer advantage and not necessarily anticompetitive. Consumers don't pay Google to search for information on the web.

Dintzer, the Justice Department lawyer, argued Tuesday that Google relaxed innovation, offered less quality and less privacy in search, and imposed higher prices on search advertisers.

"Google walks when it should run," Dintzer said about Google's efforts to improve the search market.

The company, according to prosecutors, restricted Apple from innovating or evolving as a search competitor by entering revenue sharing agreements for search ads generated through Apple's Safari browser. Apple is contractually required to default to Google search, meaning it can’t offer the default position to other companies.

“When you hobble your rivals, your product will always be good enough,” Dintzer said.

But Schmidtlein, Google’s defense attorney, said his side will show evidence that users "flock" to Google even when it is not the default search engine, specifically on personal computers where Microsoft’s Bing and Edge are preinstalled on a large majority of devices.

"Google is surely no gatekeeper on the internet," he said, "and the truth is neither is Microsoft."

'We should be careful about what we say'

One key exchange on Tuesday was when prosecutors called their first witness, Google’s chief economist Dr. Hal Varian, who was part of a team that assessed Microsoft’s planned entry into the search market.

They asked why he authored a 2003 internal economic analysis on default search placement. Varian said “we wanted to protect ourselves from Microsoft adopting this search capability.” At the time, Microsoft was developing its search engine, Bing.

Varian’s analysis warned at the time about antitrust concerns, too.

“We should be careful about what we say in both public and private,” Varian wrote in an internal slide deck about default search placement, warning that Google should avoid language that the DOJ seized upon in its 1998 antitrust case against Microsoft.

In a separate email exchange with then-Google colleague Marissa Mayer and Penny Chu of Google’s advertising technology team, Varian cautioned about using the phrase "market share" when exchanging communications about search.

Chu said she was aware of company policy and recalled from her company legal training not to use the word "market" and instead use the phrase "query share."

Varian said he didn’t recall whether he had received legal training to avoid using the phrase.

Cornerstone of the empire

Google's current dominance in search and search advertising is unquestioned. As of July 2023, Google's search engine was responsible for returning roughly 89% of all US general search engine queries across computer and mobile devices. Google was used on 95% of all US mobile device queries, according to Statista.

The next largest competitors, Microsoft’s Bing and Yahoo Search (an affiliate of Yahoo Finance), hold 6.4% and 2.3% shares, respectively. Rival DuckDuckGo, which has a distinctly different privacy-focused search business model that collects far less personal data than Google, holds less than 1%.

"Google has used its monopoly power to block meaningful competition in the search market by putting a stranglehold on major distribution points for more than a decade," said Kamyl Bazbaz, vice president of public affairs for DuckDuckGo.

Google’s search businesses — which prosecutors call the “cornerstone of its empire" — represent the company’s largest revenue stream.

Together its search and search advertising generated more than $160 billion in revenue in 2022, more than half of its $280 billion in total revenue.

Google and prosecutors disagree about the size of the search market. According to Google, the market for general search should include not just Yahoo, Bing, and DuckDuck Go, but also companies that don’t offer generalized search like Amazon, Spotify, and Expedia.

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