Google a ‘monopoly’: a judgment that will reverberate in Australia

Google acted illegally to maintain a monopoly in online search, a US federal judge has found, in a landmark ruling insiders say will affect Australia, where Google commands more than 95 per cent of the search market.

Judge Amit Mehta said the search engine’s $US26 billion ($40 billion) in payments to become the default option on smartphones and web browsers effectively blocked any other competitor from succeeding in the market.

The ruling on Google’s search dominance was the first antitrust decision of the modern internet era in a case against a technology giant.Credit: Getty Images

“Google’s distribution agreements foreclose a substantial portion of the general search services market and impair rivals’ opportunities to compete,” Mehta said in a 286-page ruling.

By monopolising distribution on phones and browsers, Google had been able to consistently raise the prices of online advertising without consequences, Mehta said.

“The trial evidence firmly established that Google’s monopoly power, maintained by the exclusive distribution agreements, has enabled Google to increase text ads prices without any meaningful competitive constraint,” he wrote.

Google said it planned to appeal against the decision. “As this process continues, we will remain focused on making products that people find helpful and easy to use,” said Kent Walker, president of Google Global Affairs.

Australia’s competition watchdog has spent years investigating Google’s local market power in a wide-ranging inquiry initiated by former chair Rod Sims.

Former consumer watchdog chairman Rod Sims led a years-long inquiry into the market dominance of big tech.Credit: Jamila Toderas

Sims described the US verdict as “really quite incredible”. He said the Australian Competition and Consumer Commission under his leadership had previously considered taking action against Google for creating a monopoly in search, but had opted against it given the then-imminent US Department of Justice action.

“It’s a terrific outcome. Google is effectively a monopoly in search including in Australia,” he said.

“Monopolists get complacent, and consumers therefore lose out. There are all sorts of innovations we may not be getting.

“The other point to make is Google was paying Apple at least $US12 billion per annum to be the default search engine. If you’re so sure of your product, and you think you’re going to win out anyway, why would you pay $US12 billion? It’s just extraordinary.

“[The verdict] will obviously get appealed, but if it stands up, it will be great for consumers and their experiences in search.”

According to Sims, a probable outcome is that the judge would ban Google from making payments to the likes of Apple to be the default search engine. He said such a decision would force Google to change its practices globally, which would flow through to Australian devices.

Australian regulators are watching the US machinations closely. An ACCC spokeswoman said the watchdog was considering the state of competition of Australia’s internet search services as part of its ongoing inquiry into big tech.

The ACCC’s ninth report of the inquiry is due to be handed to the treasurer next month.

“We note today’s significant outcome of the US Department of Justice’s case against Google,” the spokeswoman said. “This is an important application of US antitrust law that has found, under the US act, that Google is a monopolist and has acted as one to maintain its monopoly.”

Last month, the watchdog revealed Google was also signing similar – though far less expensive – deals in Australia to be the nation’s de facto search engine.

In July, the ACCC accepted undertakings from Telstra and Optus after an investigation found that both companies had entered into deals with Google to make it the pre-installed default search option on Australian Android smartphones.

Telstra and Optus have since declared that they would not renew or enter any such agreements with Google.

“We are grateful for the co-operation of Telstra and Optus in responding to the ACCC’s competition concerns,” ACCC commissioner Liza Carver said in a statement last month.

“The undertakings will allow alternative search engines to be able to compete to be a default search engine on the Android devices these companies supply.”

Carver said that reform to Australia’s competition and consumer laws, particularly to create mandatory codes of conduct to prevent anticompetitive behaviour, remained “critically important”.

“Globally, a range of measures are under way to protect and boost competition in the digital economy. In our view, these undertakings from Telstra and Optus are an important step in providing Australian consumers with more choice about the digital platforms and services they use, and encouraging more competition in these markets,” she said.

“We are continuing our investigation into Google’s conduct in entering into such agreements more broadly as we consider this raises potential competition concerns.”

Shares of Google’s parent company, Alphabet, slid almost 4.5 per cent to $US159.25 at the close in New York amid a wider market sell-off. Apple, which depending on the remedy could stand to lose billions in payments Google makes to have its search engine be the default browser on iPhones, fell 4.8 per cent to $US209.27.

“This victory against Google is a historic win for the American people,” said Attorney General Merrick Garland. “No company — no matter how large or influential — is above the law. The Justice Department will continue to vigorously enforce the antitrust laws.”

The US Justice Department hasn’t yet said what changes it will seek, though it presented evidence that efforts by European regulators to require Google to offer users a choice of search engines led few to switch. The agency could demand the separation of Alphabet’s search business from other products, such as Android or Chrome, which — if ordered by the judge — would mark the biggest forced break-up of a US company since AT&T was dismantled in 1984.

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