Big Tech, Big Target: Google’s Dominance on Trial

With the internet’s proliferation and widespread adoption in the 1990s, very few could foresee the dominant force that Google would become. Google launched in 1998 among a crowded market of internet search engines, such as Excite, Yahoo, and Lycos. (Charles Rose, SEO Mechanic). Over the following twenty-six years, Google grew_ into one of the most preeminent U.S. companies, controlling approximately 90% of the global internet search engine market. (Statcounter). Google’s dominance in various markets has attracted the ire of state and federal governments, lawmakers, and regulators, leading them to pursue antitrust actions against Google. (U.S. Senate Judiciary Committee; Office of Public Affairs: DOJ). One of these actions recently came to a head on August 3, 2024, when the District Court for the District of Columbia (“Court”) ruled that Google illegally operated a monopoly in search engine services and text advertising. (Rohan Goswami et al., CNBC). The impact on Google and other stakeholders remains uncertain, but it has the potential to re-shape the streams of revenue for Google and other technology companies, as well as influence how consumers use technology. Regardless of the political environment, the government and regulators are likely to press ahead with efforts to curb the anti-competitive behavior of technology companies that has grown over the years. The following centers on the Court’s examination of the three principal issues and explores potential implications for Google, consumers and other technology companies.

The recently decided case is an amalgamation of cases against Google that were filed in 2020 — including one complaint filed by the Department of Justice (“DOJ”) on October 20, 2020, and another complaint filed by thirty-eight attorneys general on December 17, 2020. U.S. v. Google, No. 20-cv-3010 (APM), 2024 U.S. Dist. LEXIS 138798, at *31 (D.D.C. Aug. 5, 2024). Both the DOJ and the thirty-eight attorneys general (collectively, the “Government”) alleged that Google possessed monopoly power and engaged in exclusionary conduct to stifle competition and drive-up prices in its search services and advertising markets. (Complaint). These alleged actions violate Section 2 of the Sherman Antitrust Act (“Act”). Google, 2024 LEXIS 138798, at *32. The Court consolidated both cases on January 7, 2021, due to the similarities between them. Id. at *33. The Government’s complaints focused on multiple facets of Google’s business, but there are three key areas noted in the ruling: (1) general search services; (2) search advertising; and (3) general search text advertisements. It is helpful to understand each of these key areas to understand the potential impacts of the ruling.

First, the Court initially focused its analysis on what Google is best known for: general search services (“GSS”). GSS includes general search engines, which are “one-stop shops consumers use to search the internet for answers to a wide range of queries.” U.S. v. Google, 687 F. Supp. 3d 48, 56 (D.D.C., Aug. 3, 2023). The Government discussed Google's dominant market share, arguing that Google faces minimal competition due to the significant barriers of entry and resources needed to build a competitive search engine. Google, 2024 LEXIS 138798, at *228. The Government also extensively highlighted Google's distribution agreements, noting its exclusive contracts with Apple to ensure that Google’s search functionality is pre-loaded and broadly distributed across all Apple devices. (DOJ, Plaintiff’s Closing Statement). Google claimed that there is no market for GSS, but rather a broader, competitive market for query responses that lacks barriers to entry. Google, 2024 LEXIS 138798, at *228. Google pointed to the existence of other competitors (e.g., Meta, Amazon, and Wikipedia), new market entrants, and the growing use of artificial intelligence tools to rebut the Government’s allegations. Id. at *229, 267. Google further noted that its third-party agreements are non-exclusive, allowing companies to pursue agreements with other service providers. Id. at *323.

Ultimately, the Court found Google's arguments unpersuasive, concluding that the company maintained a monopoly by engaging in activity aimed at preserving its dominance. Id. at *272. The Court supported its conclusion with Google’s substantial market share in GSS and the company’s efforts to limit competition through exclusive distribution agreements Google spends billions to preserve. Id. at *175, 259, *262. Next, the Court shifted its focus to Google’s advertising services.

Within Google’s advertising market is a category known as the general search advertising (“GSA”) market. “The general search advertising market includes all advertisements sold ‘by a general search engine in connection with a general search query.’” Google, 687 F. Supp. 3d at 56. These search ads are unique and tailored to a user’s query because they respond to the user’s expressed intent in real-time. Google, 2024 LEXIS 138798, at *113, *281. The Government’s primary arguments centered on Google’s market share and its pricing power. Id. at *298. The Government asserted that Google holds approximately 74% of the GSA market, with significant barriers to entry to that market. Id. at *102, *298. The Government emphasized Google’s pricing trends for advertising, arguing that these trends explain Google’s ability to control pricing. Id. at *297-298. In contrast, Google pointed to new entrants to the GSA market and stated that advertisers are free to shift between advertising channels based on their estimated return on investment. Id. at *275.

Google’s arguments on this issue ultimately prevailed, and the Court ruled that Google was not a monopoly in the GSA market. Id. at *294. The Court supported this ruling by noting that the market for search ads is more fragmented and more accessible to competitors than the Government had claimed. Id. at *301. The Court highlighted the presence of multiple competitors in the space and disputed the Government's estimate of Google’s market share. Id. at *297.

Lastly, the Court addressed Google’s role in the text ads market. Text ads generally appear at the top of a search result “with a designation indicating that they are paid advertisements, " which is labeled as “Sponsored” ads on Google. Id. at *115. Text ads are available to anyone and offer advertisers greater control than ads focused purely on shopping or specific products. Id. at *119, *302-303. As a result, 92% of Google’s advertisers utilize text ads. Id. at *303. The Government estimated Google’s share of the text ad market to be around 88%, with minimal competition due to the high barriers of entry in maintaining a general search engine. (DOJ, Plaintiff’s Closing Statement). The Government highlighted the inelastic demand for Google's services, noting that the company can easily raise prices for text ads with little to no decrease in demand. Google, 2024 LEXIS 138798, at *307. Google claims that there are other channels available to advertisers and that the text ad pricing is based on a separate auction process. Id. at *310.

The Court sided with the Government’s arguments regarding text ads, ruling that Google does have a monopoly over the text ads market and engages in harmful pricing practices. Id. at *417-418. The Court also pointed to Google’s dominance in the text ad market, which is facilitated by its exclusive distribution agreements. Id. at *417. Additionally, the Court observed that, although Google auctions text ads rather than setting prices directly, it still exerts significant influence over the key factors that determine auction prices. Id. at *310. With the Court ruling that Google violated antitrust rules in two key areas, attention now turns to the next steps.

The Government must now outline how it intends to curtail Google’s antitrust activities in light of the Court’s findings. Where violations of the Sherman Antitrust Act have occurred, the next step is for the Government to propose remedies to address the monopolistic actions that Google undertook to discourage competition. (Richard Epstein, DOJ). Depending on the case, remedies may include damages, invalidation of contracts and agreements, and structural changes to the company, potentially even breaking it into smaller units. Id. There is no systematic approach in determining remedies as the process is highly fact-dependent. Id. What is consistent is the ultimate goal of the antitrust actions – to find solutions that promote competitiveness. (Erik Hovenkamp, ProMarket). Assistant Attorney General Jonathan Kanter, who represented the Government in its case, noted that the process for consideration of remedies will begin in September 2024. (Jonathan Kanter, Amanpur & Co.). Following the conclusion of the remedy phase, Google can appeal the recent Court decision, unless it is able to obtain special permission from the appellate court for an early appeal. (Matthew Barakat et al., AP News). The impact to the technology industry, stakeholders, and investors is likely to unfold gradually and may not be fully realized for years.

Although this case was considered a landmark antitrust ruling, the consequences and impacts are unlikely to be felt in the short-term. The appeals process may last for as long as five years, and any potential remedies may not be implemented until after Google has exhausted all legal options. Id. On the Government’s side, there are multiple factors to consider when determining remedies, which include, but are not limited to: the effectiveness of a potential remedy; a remedy that can “keep pace with the ever-changing dynamics of competition”; and minimizing unintended consequences. (Deborah Platt Majoras, DOJ). It is unlikely that the monopolistic activities that Google engaged in warrant structural changes to the company. (Shankar Parameshwaran, Knowledge at Wharton). The Government rarely pursues and successfully breaks up a company in a way that leaves consumers and competitors better off. (Scott Rosenberg, Axios) The Government’s goals of promoting competition, among other things, are likely to fail given the Government’s track record at breaking up monopolies. (Robert Crandall, Brookings Institute). Further, in an industry that is rapidly evolving, especially with the recent mainstream adoption of artificial intelligence, the landscape may look vastly different by the time a potential remedy is finalized. Breaking up Google may be a pipedream for the Government, so it is likely alternative remedies will be pursued.

The Government and many other stakeholders may desire structural changes to Google, but it is far more likely that the Government’s remedies will consist of damages, invalidation of certain agreements, or information sharing with other competitors. In its opinion, the Court dedicated nearly a quarter of its discussion to the exclusive agreements that Google maintains to secure distribution of its products and services on various platforms. (Court Opinion). Therefore, it is likely that the Court and Government will focus on these agreements and pursue remedies that address the provisions and compensatory arrangements. If the Government succeeds in forcing a restructuring of these agreements, the impact on consumers is likely to be negligible, but it could have a more significant effect on existing partners and others in the industry. At risk is approximately $26.3 billion Google paid in revenue share and exclusivity payments to partners to ensure its position as a default search engine on devices and platforms. Google, 2024 U.S. Dist. LEXIS 138798, at *368. However, all these impacts are likely to be negligible to the operations of Google and will have little to no impact to its market share among search engines and advertising.

The ruling in this case is unlikely to have an immediate impact on the technology industry. However, in the long-term, the Government is expected to continue addressing the dominance of companies in the technology sector, with increased scrutiny on other major players such as Apple, Meta, and Amazon. There are ongoing cases against these three companies, and this ruling will only add confidence to the Government, which is intent on fostering competition and innovation. (Cecilia Kang et al., New York Times). Regardless of the political environment in the coming months, these companies will remain targets of lawmakers and federal agencies. Opinions may vary on how best to tackle these antitrust issues, but we can all agree with the late Michael Jackson who once said, “the bigger the star, the bigger the target.”