U.S. District Court Judge Amit Mehta ruled in an Aug. 5 order that Google violated antitrust law by improperly maintaining a monopoly. The case focused on “general search engines” (GSEs) used for internet search, and the impropriety was the manner through which Google secured distribution in partnering with internet-browser developers, mobile-device manufacturers, and wireless carriers.
Most press on the decision leads with “Google is a monopolist.” Although that issue was contested, it is without direct consequences. As Judge Mehta acknowledged, “having a monopoly does not by itself violate” antitrust law. Judge Mehta also acknowledged that Google became a monopolist through brilliant thinking and Herculean effort.
Developing and operating a GSE is expensive, but internet search is a free service. The revenue to pay for it all comes from advertisers: GSEs return ads in response to about one-fifth of search queries. To make a profit, a GSE must have a substantial user base. As Judge Mehta observed: “More users mean more advertisers, and more advertisers mean more revenue.”
GSEs attract users through quality. Judge Mehta found that Google “has long been the best search engine, particularly on mobile devices” and rival GSEs “have not succeeded in part due to their inferior quality.” A generation ago, Microsoft had the market-leading GSE, but Judge Mehta found that “it was slow to recognize the importance of developing a search product for mobile, and it has been trying to catch up—unsuccessfully—ever since.”
GSEs also gain users by paying for distribution. Judge Mehta found that: “The most efficient channel of GSE distribution is, by far, placement as the preloaded, out-of-the-box default GSE.” Google employed the most efficient distribution channel, for example, by contracting to make its GSE the default in Safari, which is preloaded on all Apple mobile devices.
Browsers have always been preloaded with a default GSE, because developers found that best for users. And selling default status became a viable business model for browser developers when search advertising became a major source of revenue. Judge Mehta dismissed the fact that Firefox’s existence has long depended on selling default status to Google, asserting that its existence has only “marginal procompetitive benefits.”
Throughout the litigation, Google argued that it engaged in lawful competition on the merits—expanding its user base by offering partners higher-quality and more revenue than other GSEs. Judge Mehta rejected the argument on the basis that Google “has no true competitor” for distribution arrangements, but this riposte misses the fundamental point that antitrust law does not condemn success itself.
Judge Mehta also asserted that Google “thwarted true competition by foreclosing its rivals from the most effective channels of search distribution.” But his 277-page opinion lent little support. He suggested that Google should have contracted for a “non-exclusive default” status but did not explain how that would have worked.
Judge Mehta probably meant an arrangement under which Google’s partners would have gotten a revenue share only if they exercised an option to use Google as the default GSE. But the partners surely would have done that, because Google had “no true competitor.” Nothing in Judge Mehta’s opinion explains how the contractual terms that he condemned contributed to the maintenance of a monopoly.
Judge Mehta pigeonholed Google’s partnerships as exclusive dealing, but the case did not present the classic exclusive dealing scenario, which involves a distributor that would gain from carrying the products of multiple vendors but is bribed to deal exclusively in one manufacturer’s product. In this case, a single GSE was bound to be preferenced by each distributor, in part because doing so was lucrative.
Judge Mehta drew analogies to the Microsoft case, while neglecting a critical difference. The evidence showed that the Windows operating-system monopoly faced an existential threat from new technology, which Microsoft thwarted through every available means. But Google faced no such threat. And when regulators in Europe barred Google from making distribution deals on any terms, the company retained its dominant market position.
Judge Mehta’s opinion demonstrated great care on many factual and legal issues, but he paid insufficient attention to alternatives to the arrangements he condemned. He was vague about how “non-exclusive default” status was different and made no finding that Google’s monopoly would have been in the slightest danger had it employed different contractual terms.
