Google Pays $10 Billion a Year to Maintain Monopoly, US Says

Alphabet Inc.’s Google pays more than $10 billion a year to maintain its position as the default search engine on web browsers and mobile devices, stifling competition, the US Justice Department said Tuesday at the start of a high-stakes antitrust trial in Washington.

(Bloomberg) — Alphabet Inc.’s Google pays more than $10 billion a year to maintain its position as the default search engine on web browsers and mobile devices, stifling competition, the US Justice Department said Tuesday at the start of a high-stakes antitrust trial in Washington.

“This case is about the future of the internet and whether Google’s search engine will ever face meaningful competition,” Kenneth Dintzer, a government lawyer, said in his opening statement. “The evidence will show they demanded default exclusivity to block rivals.”

Dintzer said Google became a monopoly by at least 2010 and today controls more than 89% of the online search market. “The company pays billions for defaults because they are uniquely powerful,” he said. “For the last 12 years, Google has abused its monopoly in general search.”

The monopolization trial is the first pitting the federal government against a US technology company in more than two decades. The Justice Department and 52 attorneys general from states and US territories allege Google illegally maintained its monopoly by paying billions to tech rivals, smartphone makers and wireless providers in exchange for being set as the preselected option or default on mobile phones and web browsers.

Attorneys for Google, which has denied the government’s claims, will present their opening statements later Tuesday.

Read More: What’s at Stake in Google Trial on Antitrust Charges

‘Weaponized’ Search

This first phase of the trial will assess whether Google has illegally monopolized the online search market. US District Judge Amit Mehta, who is overseeing the trial, is expected to issue a decision next year on whether Google broke the law. If the Justice Department wins, it may seek remedies at the second phase of the trial to break off Alphabet’s search business from other products, like Android and Google Maps, which would mark the biggest forced breakup of a US company since AT&T was dismantled in 1984.

Dintzer said Google had “weaponized” the use of default agreements to discourage rivals and exercised its market power by blocking Apple Inc. from pursuing options that were better than Google as the default browser on its computers, phones and other devices.

Apple first licensed Google for use in its Safari search engine in 2002, and there was no money and no exclusivity required, Dintzer said. Three years later, Google approached Apple to propose the revenue share agreement, he said.

In 2007, Apple wanted to offer a choice screen that would have allowed users to pick between Google and Yahoo, according to Dintzer. But Google responded via email, “No default placement, no revenue share,” he said. “This is a monopolist flexing,” Dintzer said, adding that Apple had no choice but to cave to Google.

By 2020, Google was paying between $4 billion and $7 billion to Apple for the default on Safari, Dintzer said.

Read More: Google’s Ties With Apple Under Spotlight in Antitrust Trial

Google pays more than $1 billion to wireless carriers to be the default on Android smartphones under agreements intended to protect Google from rivals, Dintzer said. 

For example, Samsung Electronics Co. and AT&T Inc. partnered with a start-up called Branch Metrics Inc. to create a product that would allow a user to search for information across apps already downloaded on the phone, the government lawyer said. Google felt this was a “threat,” Dintzer said, and subsequently changed its agreements with AT&T and Samsung to prohibit it.

Google contends that it competes with a number of other online sites, including TikTok and Meta Platforms Inc.’s Facebook. But Dintzer said those services don’t offer “one-stop shopping” for what’s on the internet.

Ad-Revenue Boost

William Cavanaugh, a lawyer with Patterson Belknap Webb & Tyler LLP who is representing the states in the case, told the judge that Google’s monopoly power led to a surge in advertising revenue for the company, which was able to raise prices for online ads.

Google derives “the vast majority of its revenue” from text ads that appear at the top of a search results page, Cavanaugh said. That includes advertisers known as “vertical search” rivals — companies including Yelp Inc. or Expedia Group Inc. that offer information on a single topic — who spend billions of dollars to ensure consumers can find them when they search online via Google, he said.

“They put billions and billions of dollars into advertising on general search engines” to “attract people to their website,” Cavanaugh said. If Google was really the same as other websites like Amazon, “they wouldn’t need to do that,” he said.

Expedia’s spending on Google marketing has surged over the years, creating “an incentive to go somewhere else, but there was nowhere else to go,” Cavanaugh said. Google’s share of the search business on mobile devices was 98%, with Microsoft’s Bing at just 2%, he said.

Google has faced a number of probes related to the same conduct overseas including three EU cases, in which the company has racked up more than €8 billion ($8.6 billion) in fines, for abuses of dominance on its mobile operating system, its search business and its display advertising operations.

Dintzer said the government’s first witness at the trial will be Hal Varian, Google’s chief economist.

Kent Walker, Google’s chief legal officer, attended opening statements, seated in the front row behind the company’s lawyers. Assistant Attorney General for Antitrust Jonathan Kanter also attended on behalf of the Justice Department.

The case is: US v. Google, 20-cv-3010, US District Court, District of Columbia.

(Updates with statements from attorney for state attorneys general.)

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