Google Monopoly Ruling: What It Means for the Company

The US Department of Justice has found Google guilty of monopolistic practices by imposing its search engine as default on devices through agreements with manufacturers like Apple, in violation of antitrust laws. This ruling, stemming from a lawsuit by the Department of Justice, could impact up to 15% of Alphabet's revenues. Additionally, the court criticized Google for failing to adequately preserve evidence, which may affect future litigation.

The ruling, delivered by Judge Amit Mehta of the District of Columbia, follows a 2020 lawsuit accusing Google of unlawfully maintaining its monopoly in the search and advertising markets. Judge Mehta determined that Google’s payments, totalling up to US$26 billion, primarily to Apple, to secure its search engine as the default on smartphones and web browsers, violated US antitrust laws.

"Google has used anticompetitive tactics to maintain and expand its monopolies in the markets for general search services, search advertising, and general search text advertising, which are the pillars of its empire," the lawsuit asserts.

The Justice Department contends that these exclusive agreements hinder effective competition, giving Google an unfair advantage over its competitors. "After carefully studying testimony and evidence, the court concluded: Google is a monopolist and acts in a manner to maintain that monopoly”, reads the ruling. 

"The distribution agreements signed by Google (...) prevent its rivals from competing against the Californian firm," Mehta explained in his decision.

In response, Google has defended its practices, arguing that its agreements with Apple and other manufacturers are not exclusive and that users change their default search engine. However, the court found that these agreements have effectively "stifled competition." 

Economic Implications

Google's defeat could have significant economic implications, potentially affecting up to 15% of Alphabet’s total revenue, Google's parent company. The ruling may require Google to alter or terminate its exclusive agreements with manufacturers and developers that enforce its search engine as the default.

In the second quarter of 2024, Google Search generated US$48.5 billion in revenue, representing more than half of the company’s total revenue of US$84.7 billion, and a 14% increase from the previous year.

Doug Anmuth, analyst, JP Morgan, noted that the distribution contracts challenged in the lawsuit account for up to 25% of Google Search's revenue. "The contracts challenged by the courts represent up to 25% of Google Search's revenue, which equates to about 15% of Alphabet's total sales," Anmuth said.

Judge Mehta highlighted that "approximately 50% of all general search queries in the United States are made through a search access point covered by one of the challenged contracts".

Despite the gravity of the ruling, Quartz anticipates that implementing potential remedies by the Department of Justice will be a lengthy process. According to Dan Ives, analyst, Wedbush, "It may be several quarters and possibly years before a final outcome is reached, and we do not expect any disruption to Google's near-term operations as a result of this ruling." 

Implications for Future Litigation

In the lawsuit, Judge Mehta criticized Google for its alleged failure to preserve internal communications and misuse of legal protections, though he did not impose formal sanctions. “The court is troubled by Google's efforts to avoid creating a documentary record for regulators and litigants."

Judge Mehta noted that Google had trained its employees to avoid generating evidence that could be detrimental to the company. Google’s prior policy of automatically deleting chat messages after 24 hours without specific preservation actions was among the practices criticized.

This practice, coupled with the extensive use of attorney-client privilege to shield communications raised concerns about the integrity of the judicial process, according to Reuters,

"Google avoided sanctions in this case. It may not be so lucky in the next one," Mehta warned. "Any company that delegates responsibility for identifying and preserving relevant evidence to its employees does so at its own peril."