by Google has a lot at stake as a federal judge weighs whether to break up the tech giant’s search empire.
So does the rest of Silicon Valley.
A landmark antitrust case pitting Google (GOOG, GOOGL) against the Justice Department entered its final phase last week as prosecutors from the federal government and 14 states said in their closing arguments that Google illegally monopolized on the online search and search advertising markets.
Google’s lawyer, John Schmidtlein, once again pushed back with a claim the company made from the beginning: “Google wins because it’s better,” he said.
A government win would certainly put a huge chunk of Google’s $237.8 billion profit engine at risk. But the outcome, to be decided by US District Judge Amit Mehta in the coming weeks or months, has huge implications for some of the other big names in the tech world.
That’s because Apple ( AAPL ), Amazon ( AMZN ), and Meta ( META ) are defending themselves against a series of other federal and state-led antitrust suits, some of which make similar claims, and because losing or that all three of them will recover. depending on the result.
In Apple’s case, US lawyers have alleged that the iPhone maker blocked competitors from entering the smartphone market by using a “web of contractual restrictions”.
The government made a similar claim in the case of Google, which relied on several types of contracts allegedly used by Google to secure its search dominance.
“The broad lessons here are far from over, but it’s clear that this is a very important moment when deciding the first of these technology cases,” said University of Washington trustee professor Douglas Ross.
“I think they’re going to be interested in how narrow or wide they are [the judge] he defines the markets here,” said Ross, “and if there is any learning in what he writes that could be applied elsewhere.”
The government argues that Google is violating Section 2 of the Sherman Act by preventing competitors from entering three distinct markets: general online search, search advertising, and search text advertising.
In general, Ross said, prosecutors tend to narrow market definitions to make it easier to prove a defendant has a monopoly.
How courts respond to those arguments, he said, will be significant.
New York University Law Professor Harry First said the impact of the Google case also depends on whether the judge accepts or rejects one of the government’s antitrust theories — that Google’s collective actions qualify as anticompetitive.
That strategy has so far been unsuccessful for the DOJ, including in its landmark case in the 1990s that eventually forced Microsoft ( MSFT ) to settle to open its operating system to competitors in the early 2000s.
But if the judge in the Google case is convinced that the theory has some merit, First Explained, it could change the way antitrust cases are evaluated in the future.
“I’m curious to see how much the government tries to return to that theme and maybe move it in a direction that could be useful in other situations,” said First.
What the judge decides could affect many companies, even beyond the world of technology.
A government win would jeopardize billions of dollars in lucrative contracts between Google and Apple, as well as deals with device manufacturers and other telecommunications companies.
The government alleged in its case that Google pays billions of dollars each year to LG, Motorola (MSI), and Samsung; major US wireless carriers such as AT&T ( T ), T-Mobile ( TMUS ), and Verizon ( VZ ); and browser developers such as Mozilla, Opera, and UCWeb.
Government prosecutors alleged that Google was paying Apple between $8 billion and $12 billion a year – a portion of search ad revenue – in exchange for awarding Google Search default placement on Apple devices.
In 2022, according to prosecutors, those payments amounted to about $20 billion. The DOJ said its figure represents 15%-20% of Apple’s global net income.
However, some tech companies will benefit if the government ultimately prevails.
Breaking Google’s contract arrangements could boost rival search engines such as Microsoft’s Bing and DuckDuckGo.
It could also open the door to new search engines and mobile phone manufacturers.
Amazon, for its part, left the mobile phone market after Google’s contracts prevented it from attracting manufacturers to its other operating system, Fire OS, a competing “fork” of Google’s Android operating system.
Prosecutors said manufacturers were concerned that Amazon’s partnership with Bing for mobile search services would jeopardize lucrative deals with Google.
The government has yet to say what exact remedy it would seek if it were to prevail against Google. If the government wins any of its claims, a separate settlement phase of the trial would be held.
The situation could also be affected by the outcome of the November presidential election, which was held under former President Donald Trump’s administration.
If Biden is defeated, a new administration could decide to pursue different remedies or leave the case altogether.
The judge in this case, Mehta, may or may not have addressed his closing questions to the lawyers during closing arguments last week.
He pushed back on arguments made by both sides.
“You can talk about competition, but the competitor has some responsibility for competition,” Mehta said while also questioning why new competitors weren’t pushing to enter Google’s market – and whether that’s even possible.
“It seems very likely, if not impossible, under current market conditions,” Mehta said.
Alexis Keenan is a legal reporter for Yahoo Finance. Follow Alexis on Twitter @alexiskweed.
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