Google Stares Down Largest Tech Antitrust Ruling In 2 Decades — Is AT&T-Style Breakup Next?

Zinger Key Points
  • The Justice Department has compared its antitrust lawsuit against Google with a landmark decision by a U.S. Judge to break up AT&T in 1982.
  • Google could face several penalties if the judge finds it broke antitrust laws by paying competitors to maintain market share in search.

Closing arguments for the largest antitrust trial to date against Alphabet Inc GOOG GOOGL, also known as Google, wrapped up last week.

Now, it's up to Judge Amit Mehta to decide on a ruling that could change the fate of the company and others in the big tech space.

Mehta, of the U.S. District Court for the District of Columbia, is expected to come up with a decision before the end of the year. 

The case was put forth by the Justice Department in 2020, together with attorneys general from 11 states, who are arguing that Google has engaged in anti-competitive practices in order to maintain its dominance in the internet search space.

Specifically, they're looking at the billions of dollars Google pays monthly to other tech companies in order to secure its place as the default search engine in Apple Inc AAPL, Samsung, LG, Motorola owned by Lenovo Group Ltd LNVGY and other devices as well as in browsers like Mozilla Firefox and Opera. The plaintiffs argue that this practice prevents other companies from succeeding with their own search engine products, giving Google disproportionate market share in the search engine space.

Last week, court documents revealed that Google paid Apple $20 billion in 2022 to be the default search engine on Safari, the web browser used on iPhone, iPad and Mac devices. In 2021, the figure amounted to $26.3 billion when including other browsers like Firefox.

Google is estimated to account for about 90% of all internet searches, widely outpacing competitors like Microsoft Corp's MSFT Bing, Yahoo Search or DuckDuckGo, a search engine that is privately owned and focused on user privacy.

The final arguments from Google's attorneys as well as DOJ lawyer David Dahlquist followed a 10-week trial between September and November 2023.

Read also: Google Fights Fortnite Maker’s Play Store Changes Amid Antitrust Battle: What’s at Stake?

The case, however, was three years in the making for the Justice Department. The central argument of the lawsuit is that Google’s control of today’s internet is extensive enough to be considered a monopoly, and that it violated antitrust laws by paying competitor firms, cell phone manufacturers, and wireless internet providers to maintain its position as the default search engine.

The company then benefitted from the extra traffic via its ad business. 

For its part, Google has argued that its market dominance is merely a result of the superior quality of its products in a fair competition game. While the company has admitted to paying partners and competitors to give its search engine a prime position, it has argued (both in an open letter from September 2023 and in the trial) that web browser developers choose to showcase Google by their own will.

The company has also argued that competitors like Yahoo or Bing also pay browser developers to receive a preferential position in their software and that it's very easy for users to change the default search engine on any device.

The importance of the trial is hard to overstate. This case marks the first time the Federal Government has brought a big technology company to court on antitrust charges in over two decades, since a U.S. judge ruled that Microsoft had violated the nation’s antitrust laws in 2000, in a lawsuit initiated by the Justice Department and 19 states in 1998.

The consequences of the decision could also ripple across several other antitrust lawsuits currently shaking up Big Tech companies, including an ongoing antitrust probe by the Federal Trade Commission into Inc AMZN as well as a probe by the same agency into Meta Platforms Inc META, parent company of Facebook, Whatsapp and Instagram.

Google is also under fire in Europe, where the EU’s Court of Justice is fining it $2.6 billion over antitrust penalties.

What's At Stake For Google?

In a press release, the Justice Department has compared this lawsuit with other landmark antitrust actions including Microsoft in 1998 and AT&T Inc's T 1974 trial which eventually broke the Bell system into several companies nationwide in 1982.

By the end of last week's arguments, Mehta said he has not arrived at a decision yet. According to CNN, the judge proposed that in order to be able to compete with Google's dominant position, a hypothetical competitor would need to invest billions, not just in developing the complex search tool itself, but also in competing with Google on its billion-dollar exclusivity contracts with web browser developers and device manufacturers.

"I can't conceive of a world in which some other competitor, particularly a new competitor, could do that. Microsoft couldn't do it," Mehta said.

If Mehta rules in favor of the Justice Department, the trial would move to a second stage, wherein the court would determine which penalties Google should face. In these separate proceedings, plaintiffs and the company would present different ways in which Google should respond in order to relinquish some of its alleged monopolistic power.

Possible avenues would be to break up the company into several units, including a separate one for the Android operating system, which is currently owned by Google, according to Bloomberg. Another possible penalty would be forcing Google to disclose its search data to competitors in order to level the playing field, or forcing the company to give up its exclusivity agreements with other companies.

Bill Baer, a former head of the Justice Department's antitrust division told the New York Times that it's unlikely that DOJ. will seek some sort of breakup for the company.

"It's more likely there will be some sort of restrictions on Google's behavior going forward," he said.

Now read: Has Chrome Been Tracking You During ‘Incognito’ Mode? The Answer Is Yes, And Now Google Says It Will Delete The Data

Shutterstock image.

Market News and Data brought to you by Benzinga APIs
Posted In: Large CapNewsLegalTop StoriesMarketsTechGeneralAmit MehtaAntitrustmonoplyStories That Matter
Benzinga simplifies the market for smarter investing

Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about.

Join Now: Free!