Google engaged in a monopolistic feedback loop to maintain search dominance, DOJ alleges in first day of trial
Jonathan Kanter, Assistant Attorney General for the Antitrust Division at the Department of Justice, arrives at federal court on September 12, 2023 in Washington, DC.
Kevin Dietsch | Getty Images
Google pays billions of dollars to make sure its search engine runs by default on internet browsers and phones, feeding a cycle that pumps its own monopoly profits while making it harder for rivals to gain significant market share in search, the government alleged in opening arguments Tuesday at the biggest tech antitrust trial in decades.
Lawyers for the Department of Justice and a coalition of state attorneys general led by Colorado faced Google on Tuesday, as the 10-week trial kicked off in Washington, D.C. District Court. Day one of the trial set the stage for how the government and Google would argue their opposing views of how the company has maintained a large slice of the search market for years.
The government’s case is that Google has kept its share of the general search market by creating strong barriers to entry and a feedback loop that sustained its dominance.
Google says it’s simply been the preferred choice of consumers. That popularity, the company says, is why browser and phone makers have chosen Google as their default search engine through revenue sharing agreements.
The opening statements also previewed who each side will lean on to help make their arguments. In addition to economic experts that will speak to Google’s level of dominance and behavior, Google said the court would hear from several of its own executives and those from other businesses.
The court will hear from the company’s CEO Sundar Pichai, who the DOJ’s lawyer said Google intends to call. It will also hear from Apple’s Senior Vice President of Services Eddy Cue and Mozilla CEO Mitchell Baker, Google’s lawyer said. Several other Google executives, including those who oversee advertising services and search products, are also expected to be witnesses, the lawyer added.
Additionally, the court will hear from Sridhar Ramaswamy, a former senior advertising executive for Google who later co-founded a competitor search engine, Neeva, the DOJ said. The privacy-focused search engine founded in 2019 announced in May that it would shut down the consumer product and instead focus on artificial intelligence use cases. Neeva agreed that month to be acquired by Snowflake.
Following opening statements, the DOJ lawyer questioned its first witness, as it begins what’s known as its “case-in-chief.” The judge has allotted about four weeks for the DOJ to present its case, after which the coalition of state AGs led by Colorado will do so, followed by Google.
Hal Varian, chief economist at Google Inc., arrives to federal court in Washington, DC, US, on Tuesday, Sept. 12, 2023.
Ting Shen | Bloomberg | Getty Images
The DOJ’s lawyer walked Google’s Chief Economist Hal Varian through a series of documents, beginning with a 2003 memo he wrote called “Thoughts on Google v Microsoft.” At the time he wrote the memo, Varian said he was reporting to a boss who reported directly to the CEO.
In the memo, Varian had raised antitrust concerns with Google leaders, urging them to “be careful about what we say in both public and private” on the subject. Varian wrote, “we should also consider entry barriers, switching costs and intellectual property when prioritizing products.” During his testimony, Varian said the best entry barrier is a superior product.
DOJ and states’ arguments
“This case is about the future of the internet and whether Google’s search engine will ever face meaningful competition,” the DOJ’s lawyer, Kenneth Dintzer, told the court in his opening statements.
Dintzer alleged Google has more than 89% of the market for general search, citing an economic expert witness. General search is used by consumers as an “onramp to the internet,” Ditzner said, making it distinct from more specialized search engines. Unlike with a specialized search service, users seek out a general search engine when they don’t know the best website for an answer to their question.
“There are no substitutes for general search,” Ditzner said.
Google maintains its monopoly through a feedback loop that serves to strengthen its hold on the market while making it harder for rivals to enter. Google pays for defaults, which allow it to get more search queries. More queries means more data, which can be used to improve search quality, helping Google make more money. That gives Google more resources to pay for default status.
Since the Federal Trade Commission declined to bring an antitrust case against Google nearly 10 years ago, Patterson Belknap Webb & Tyler’s William Cavanaugh, who represents the states, said “Google has doubled down on its efforts to use defaults in its distribution agreements.”
Google itself recognizes the immense value of defaults. The company pays more than $10 billion per year to maintain default status across browsers and devices, the DOJ alleged. And the company once called the idea of losing its default placement with Apple “a code red situation,” Ditzner said.
At the same time, Google sought to “limit Apple’s ability to design products that compete with Google,” given it has the resources and foundation to build a powerful rival, Ditzner said.
In 2013, Ditzner told the court, Apple adopted its own suggestions in its browser when users begin a search. The feature “concerned” Google, Joan Braddi vice president of product partnerships at Google, later said in an email Ditzner referenced.
In turn, Google added to the revenue sharing agreement with Apple a stipulation that it could not “expand farther than what they were doing in Sept 2016 (as we did not wish for them to bleed off traffic),” Braddi wrote. “Also, they can only offer a ‘Siri’ suggestion exclusively for quality and not because they want to drive traffic to Siri.”
While Google argued browser and device makers freely enter agreements to make its search engine the default, the DOJ said Google has the upper hand in getting device manufacturers to sign its agreements. For example, manufacturers consider the Play Store a “must-have app” for Android phones, Ditzner said, but the only way to get it is by signing the exclusivity agreements.
The evidence will show device manufacturers and carriers accepted the exclusivity and revenuesharing agreements “because that was the only option,” Ditzner said.
In 2020, Samsung and AT&T were interested in partnering with Branch Metrics, which had a search engine that could answer questions by searching apps on a phone, the DOJ said. But Google told AT&T and Branch they couldn’t do the deal. Google’s lawyer later said there’s no evidence the company told carriers they couldn’t use Branch. Google’s lawyer added that Branch’s CEO would testify that it doesnn’t compete with Google.
The states also touched on their claims that Google used what was supposed to be a neutral ad buying tool to thwart rival Microsoft. Google will say it had no duty to deal with Microsoft, Cavanaugh said, but that doesn’t apply here because “they have chosen to deal.”
Finally, the government said the court would hear more about Google’s alleged document destruction, saying that it taught employees to hide evidence through its “Communicate With Care” program. Google told employees to include legal on “any written communication” about revenue share agreements, the government alleged. The DOJ also shared a 2021 message from Pichai in which he asked if he and a colleague could “change the setting of this group to history off,” before deleting the request.
Google’s argument
Kent Walker, President of Global Affairs and Chief legal officer of Alphabet Inc., arrives at federal court on September 12, 2023 in Washington, DC.
Kevin Dietsch | Getty Images
Google said it faces fierce competition and that the popularity of its search engine is due to its continued innovation, rather than efforts to thwart rivals.
In a world where search queries are increasingly entered across many different apps and websites, Google’s lawyer, Williams & Connolly’s John Schmidtlein said, “that competition has never been more real.”
Comparing the case to the DOJ’s 1990s allegations against Microsoft is misguided, Schmidtlein said. While the government accused Microsoft in that case of forcing PC manufacturers to preload its own browser over one that was preferred by consumers, here Google competed for default status, Schmidtlein said.
To the government, Microsoft is the supposed “victim” in this case, Schmidtlein said. But Microsoft failed to advance its position in search because it did not invest or innovate in it for a long time, Schmidtlein argued, focusing instead on its Windows desktop product.
Google also had no duty to deal with Microsoft, a rival, on its preferred terms with its search ad tool. Schmidtlein said Google had fulfilled four out of five of Microsoft’s feature requests for the tool. The one outstanding feature, real-time bidding for ads, took years for Google to build for its own product, and a version compatible with Microsoft’s tools is now being tested, he said.
Google also contended that advertisers are motivated by return on their investment and are very willing to switch platforms if they think they’ll get a better deal elsewhere.
Browser and device makers actually like having default features for many reasons, Google’s lawyer argued. For browsers, search engines are a reason for consumers to use their interface, and accepting a revenue sharing agreement for a default search provider is a good way for browsers to make money, given they are usually free to consumers.
But it’s important browsers pick the right search default, Schmidtlein said, as Mozilla learned when it switched its default from Google to Yahoo in 2014. By 2017, Mozilla terminated what was supposed to be a five-year deal, with its Chief Business and Legal Officer Denelle Dixon saying in a statement that the company “exercised our contractual right to terminate our agreement with Yahoo! based on a number of factors including doing what’s best for our brand, our effort to provide quality web search, and the broader content experience for our users,” TechCrunch reported at the time.
Similarly, Apple has touted that Google is the default search engine on its browser.
“Apple repeatedly chose Google as the default because Apple believed it was the best experience for its users,” Schmidtlein said.
On the phone manufacturing side, Google argued that its revenue sharing agreements have the effect of “enhancing competition between Apple and Android, causing those two mobile platforms to invest, to develop better devices.”
WATCH: DOJ takes on Google in antitrust lawsuit over Google Search
Technology
Foxconn highlights growing AI ambitions at ‘Tech Day’ as it grows beyond iPhone assembler identity
The entrance to a Foxconn construction site in Mount Pleasant, Wisconsin, in May 2019.
Katie Tarasov | CNBC
Foxconn showcased its push into artificial intelligence at its annual ‘Hon Hai Tech Day’ in Taiwan on Friday, underscoring the world’s largest contract manufacturer’s efforts to evolve beyond its role as the biggest assembler of Apple’s iPhones.
The company, officially known as Hon Hai Precision Industry Co., has also become a major player in the AI hardware space, with its event taking place the same day it announced a partnership with ChatGPT maker OpenAI.
OpenAI CEO Sam Altman, in a video statement streamed at the event, said that the two firms would “share insight into emerging hardware needs across the AI industry.”
He added that Foxconn would use those insights to design and prototype new equipment that could be manufactured in the United States.
The partnership will center on Foxconn’s server business, which earlier this year became its largest revenue driver and helped drive record profit in the September quarter.
Describing Foxconn and OpenAI as “natural partners,” Kirk Yang, an adjunct finance professor at National Taiwan University, told CNBC, “OpenAI needs strong partners, not only to manufacture products, but to quickly introduce all the products to the market.”
“So I think it makes perfect sense for OpenAI to work with Foxconn. And Foxconn is probably the strongest partner that open AI can find,” he added.
Foxconn also announced a partnership with Intrinsic, a unit of Alphabet to build so-called “artificial intelligence factories.”
The Taiwanese manufacturer highlighted deeper work with Nvidia as well, showcasing its compute trays for the chip designer’s cutting-edge Blackwell chips.
Speaking at the Friday event, Alexis Bjorlin, vice president and general manager of Nvidia’s DGX Cloud unit, said the partners would work on deploying advanced AI infrastructure much faster to meet customer demand.
AI hardware orders have surged this year, with Nvidia beating third-quarter expectations on Wednesday and providing a strong forecast for the current quarter.
Despite Nvidia’s results showing that demand for AI hardware remains strong, concerns persist in the market about a potential AI bubble and the sustainability of heavy AI spending.
Speaking to CNBC’s Emily Chan on the sidelines of Hon Hai Tech Day, Foxconn Chairman Young Liu expressed confidence that the company would be protected from a potential AI bubble.
“No matter what [AI] models or [AI] model players will win, they all need hardware, and no matter what GPU player will win, they all need system and component suppliers to support them,” he said.
— CNBC’s Emily Chan contributed to this report
An electric air taxi by Joby Aviation flies near the Downtown Manhattan Heliport in Manhattan, New York City, U.S., November 12, 2023.
Roselle Chen | Reuters
Air taxi maker Joby Aviation in a new lawsuit accused competitor Archer Aviation of using stolen information by a former employee to “one-up” a partnership deal with a real estate developer.
“This is corporate espionage, planned and premeditated,” Joby said in the lawsuit filed Wednesday in a California Superior Court in Santa Cruz, where the company is based.
Archer and Joby did not immediately respond to CNBC’s request for comment.
The lawsuit alleges that former U.S. state and local policy lead, George Kivork, downloaded dozens of files and sent some content to his personal email two days before he resigned in July to take a job at Archer, which had recruited him.
By August, Joby said a partner that worked with Kivork said it had been approached by Archer with a “more lucrative deal.” Joby alleges that the eVTOL rival’s understanding of “highly confidential” details helped it leverage negotiations.
Joby also said the developer attempted to terminate the agreement, citing a breach of confidentiality.
Kivork refused to return the files when Joby approached him after conducting an investigation, according to the suit. The company also said Archer denied wrongdoing, and would not disclose how it learned about the terms of the agreement or provide results from an internal investigation it allegedly undertook.
The lawsuit comes during a busy period for electric vertical takeoff and landing (eVTOL) technology as companies race to gain Federal Aviation Administration certification to start flying commercially. ‘
The sector has also benefitted from President Donald Trump‘s newly minted eVTOL pilot program.
Joby argued in the complaint that it’s “imperative” to protect Joby’s work “from this type of espionage” to promote the sector’s success and ensure fair competition.
Last week, Joby said it completed its first test flight for a hybrid aircraft it’s working on with defense contractor L3Harris. This month, Amazon-backed Beta Technologies, another electric flight company, also went public on the New York Stock Exchange.
Joby shares have more than doubled over the last year, while Archer is up about 68%.
In August 2023, Archer settled a previous legal dispute with Boeing-owned Wisk Aero over the alleged theft of trade secrets. As part of the deal, Archer agreed to use Wisk as its autonomous tech partner.
A hearing is scheduled for March 20, 2026.
Joby and Archer year-to-date stock chart.
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