Google's search engine business is illegal, says US court

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"Google is a monopolist, and it has acted as one to maintain its monopoly. It has violated Section 2 of the Sherman Act." This is what a US federal judge says in his ruling in the antitrust case against Google USA et al v Google et al, which has been ongoing in Washington, DC, since 2020. The data company has abused its market power in favor of its search engine business. Google is therefore in breach of US competition law. It has not yet been decided what sanctions the court will impose. Google can take legal action and will certainly do so.

Sanctions could cost Google dearly. The court expressly points out that the company has not only abused its market power to expand and secure its US market share to around 95%, but also to charge excessive prices for text advertising around search results: the famous monopoly rent.

The high market share itself is not illegal. And indeed, the judge concedes that Google has achieved market leadership through investments and smart decisions. However, Google had used the resulting revenue to buy exclusive pre-installation in web browsers and devices – harming other search engines and advertisers. In 2021 alone, Google paid 26 billion dollars for this, not least to Apple. This is almost four times the total other costs of the search engine. Google was unable to provide convincing justifications for its anti-competitive behavior.

However, the judge ruled in Google's favor on a number of points.

Monopoly on general search engine

In his ruling, the judge must first determine which markets exist at all (market definition), if applicable whether Google has a monopoly (special market power) there, to then be able to determine whether Google has abused any monopoly.

For example, Google claimed in the proceedings that there was no market for general internet searches, which is why the company could not have a monopoly there. Rather, the market consisted of "answer services to user questions", not general search engines. Google was unable to succeed with this argument: The evidence presented showed that there is indeed a market for general search; alternative offerings such as searches on social networks or services specializing in specific topics are not sufficient substitutes for general search engines, but merely supplements. This is also evident from Google's own studies.

And in the market for general search engines, Google has the market power of a monopolist. Direct evidence of this are the search engine's enormous turnover and "immense profit margins", but also an internal study conducted by the company in 2020: Google found that it would not suffer any significant loss of turnover, even if it significantly reduced the quality of the search engine. This shows Google's market power. And as our readers will know, this study result has since been confirmed.

The plaintiffs were also able to prove that a Google manager had ordered data protection measures to be slowed down. However, this alone is not strong evidence of monopoly power – it is conceivable that users are prepared to accept less data protection for better search results.

Indirect evidence of Google's monopoly power is the enormous market share of the Google search engine (89.2 percent overall and 94.9 percent on mobile devices in 2020) as well as the high barriers to market entry (not least due to the exclusive contracts concluded by Google). So far, artificial intelligence in search engines has not sufficiently broken down these barriers either.

Monopoly for certain types of advertising

The court then turns to the topic of online advertising. (For a better understanding, it is important to note that the proceedings were originally based on two different lawsuits, one brought by the US government and one brought by US states. See below). In its complaint, the US government alleged that Google had monopoly power over online advertising on search engines per se. The lawsuit filed by the US states, on the other hand, only refers to advertising on general search engines. Both lawsuits agree that Google has monopoly power in the sub-segment of text advertising on general search engines.

Google, on the other hand, argued that all types of online advertising are in competition with each other and can replace each other, meaning that there cannot be separate markets for advertising on search engines or on general search engines or for text advertising on general search engines. The court takes a differentiated view.

According to the ruling, no sufficient evidence was presented in the proceedings to show a single market for advertising on search engines per se; however, it was proven that there is a market for advertising on general search engines, especially as other forms of online advertising could not compete with the specific information from search queries. However, the plaintiffs had failed in the next step: they had not shown that Google had monopoly power in this market. And while Google had regularly increased prices for text advertising, it had not regularly increased prices for other advertising, such as products in Google Shopping (product listing ads, PLA).

The court also recognizes the submarket of text advertising on general search engines as a relevant market under competition law. Text advertising is much more similar to real search results, written by the advertisers themselves, and available for many more advertising purposes than additional services such as PLAs. Accordingly, even retailers would consider other offers as a supplement to text advertising, not as a possible replacement.

And in the case of text advertising on general search engines, the plaintiffs had indeed proven Google's monopoly power. The group sets the parameters of advertising space auctions without regard to Bing's (or other competitors') bids, which is direct evidence of monopoly power. Indirect evidence is Google's steadily increasing market share in text advertising on search engines to 88 percent (2020), the high barriers to market entry, as well as testimonies according to which the distribution of advertising budgets follows Google's market share.