Nearshore Americas

The United States vs. Google Will Have a Lasting Impact on the Tech Industry

The recent lawsuit filed by the Department of Justice (DOJ) against Google for monopolistic practices is very reminiscent of the United States vs. Microsoft case, which began in 1998, the same year in which Google, Inc. was born in a Californian garage.

In July, we watched a House Judiciary Committee hearing of the US Congress in which the CEOs of the world’s leading technology companies appeared as part of a historic investigation into alleged competition violations. What was discussed at these hearings was of great significance, and was expected to result in legal action by the Department of Justice or the Federal Trade Commission. The report issued weeks later by Congress was basically a bipartisan agreement on the need to take legal action to limit the monopolistic practices of these companies.

Action was quickly taken. Last week, the DOJ filed a landmark lawsuit against Google for monopolistic practices under the Sherman Antitrust Act. The original investigations focused both on the domain of the search engine and on how Google would be redirecting searches to its own products or to those that contract advertising with it. But the DOJ finally decided to focus the lawsuit on the first of these points, accusing the company of engaging in monopolistic practices.

According to the lawsuit, Google has agreements with other companies to position its search engine as the default option. In the case of Apple, it pays between 8 and 12 billion dollars a year for Google to be the default search engine on the iPhone, which represents 15% of the planet’s smartphones, and dominates the US market. Those huge resources paid by Google represent approximately 20 percent of Apple’s revenue.

An Unbeatable Market Position

Google has its own operating system, Android, which maintains a market majority of over 80 percent and is the only real competition to Apple’s iOS. Android can be operated on phones of various brands, and it is also free.

That is where a new agreement comes in. In order to allow manufacturers to install Android, Google requires them to install several of its applications, including its search engine by default, and also shares a percentage of their profits.

“Many recognized industry voices have questioned why Google invests so much money annually to position itself in the market if the product is so superior?”

According to the DOJ, through these agreements, Google achieves an unbeatable market position: 60% of internet searches are made through an application in which Google has an exclusive agreement, and another 20% are made through Google’s browser, Chrome. With this market position, Google obtains a gigantic profit of 40 billion dollars per year derived from digital advertising in its search engine. That is to say, thanks to these agreements, the company redirects the great majority of cybernauts to its search engine. The profits obtained from advertising are subsequently shared with the companies that allow it to achieve this mechanism. This circumstance, according to the lawsuit, closes or limits the possibilities for the entry of new competitors, who are unable to compete given the access barriers imposed by Google. The lawsuit specifically highlight Google’s ubiquitousness – the company’s name has become a verb meaning to search the internet.

Questioning Google’s Dominance

Google has insisted that its search engine is the best, and that users prefer it regardless of these agreements, and that the user always has the possibility to change to another search engine. But many recognized industry voices have questioned why Google invests so much money annually to position itself in the market if the product is so superior? Although Google was perhaps able to gain the preference of its users legally, the discussion is centered around the existence of these agreements, which could be the mechanism by which it guarantees its position of dominance.

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This will not be a quick or easy battle. Google has unlimited resources to defend itself, and there is uncertainty about how it will be able to influence the White House following a tightly-contested election. While 11 attorney generals joined the DOJ suit, they are all Republicans, and it could be that a new administration will change its tune, although the truth of the matter is that, until now, the need to regulate the technology giants has been one of the issues that has united Democrats and Republicans. It could also be that Google opts to readjust its practices and reaches an agreement with the DOJ. That would allow the company to avoid the wear and tear that could come from submitting to a process that recalls the case of the United States vs. Microsoft.

Mauricio Paris

Partner at Ecija Law & Technology. I am passionate about advising companies in their activities throughout Central America & Caribbean markets. My areas of practice include international contracting, commercial arbitration, tech, and TMT. You can contact Mauricio here: hola.costarica@ecija.com

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