Google Search Monopoly Case: Will history repeat Microsoft's fate?

On Monday, August 5th, US District Judge Amit Mehta made a significant ruling, confirming that Google has established a monopoly in the internet search market, citing the most famous tech antitrust case in US history involving Microsoft.

This ruling bears striking similarities to the antitrust case against Microsoft 20 years ago. In 1999, a federal court ruled that Microsoft illegally leveraged the market dominance of its Windows operating system to squeeze out competitors, including Netscape Navigator. The 2001 settlement agreement forced Microsoft to stop putting competitors at a disadvantage in the personal computer business.

Just as Microsoft was found guilty of abusing the market dominance of the Windows operating system, Google is now facing legal repercussions. A milestone case against Google was initiated by the government in 2020, accusing the company of creating barriers for competitors to enter the market, while leveraging its massive user base and various services to strengthen its position and maintain dominance. The court ruled that Google violated the antitrust law - Section 2 of the Sherman Act, which explicitly prohibits monopolistic behavior.

In his extensive 300-page ruling, Judge Mehta pointed out:

"The ultimate ruling in this case bears a resemblance to the conclusion of the Microsoft browser market case. Just as in the Microsoft case, relevant agreements ensured that the usage rate of Netscape Navigator could not reach a critical level that posed a substantial threat to Microsoft's monopoly position, Google's distribution agreements restricted the search query volume of competitors, thereby avoiding substantial competitive threats."

Furthermore, Judge Mehta emphasized the importance of "default settings." This mainly refers to Google's default search position on Apple iPhones and Samsung devices, where these partnerships require Google to pay substantial fees annually, while users rarely choose non-default search engines. Judge Mehta wrote, "Although users have the freedom to access Google's competitors through non-default search methods, in reality, they rarely do so."

Judge Mehta announced that another trial will be held on September 4th, where the court will discuss and decide how to address Google's monopolistic behavior, such as imposing fines on Google or requiring it to make certain changes. Google will have the right to appeal, and experts estimate that this legal process may take about two years. After initially losing the case, Microsoft also appealed and eventually reached a settlement with the US Department of Justice.

Some legal experts believe that the most likely outcome is that the court will require Google to cancel certain exclusive agreements. The court may recommend that Google make it easier for users to switch to other search engines. While fines are an option, the greater risk is that Google may need to change its business practices, which could weaken its profitability. For example, if Google is no longer seen as the default search engine on smartphones, it may lose a significant portion of its business in its core market.

In the second quarter, Google Search and other businesses contributed $48.5 billion in revenue to Alphabet, accounting for 57% of its total revenue. Following the announcement of the ruling, Google's stock price did not experience significant fluctuations. On Monday, influenced by panic selling triggered by US recession warnings, Google Class A shares fell by 4.45%. On Tuesday, as risk aversion subsided, Google Class A slightly declined by 0.6%, closing at $158.29 Google's Class A shares rose more than 2.8% intraday on Wednesday before halving their gains.

Will AI become new evidence for Google's non-monopoly?

In the upcoming appeal, Google may emphasize the role of artificial intelligence in market competition, a new development that the Department of Justice did not fully recognize when it initially filed the lawsuit. However, since Google was surpassed by OpenAI's ChatGPT in the field of artificial intelligence, Google has been trying to downplay this fact.

Neil Chilson, former Chief Technologist at the Federal Trade Commission and current Director of Artificial Intelligence Policy at the Prosperity Research Institute, believes that the development of artificial intelligence poses more competition for Google, which could benefit Google by proving that it is not a monopolist. Chilson pointed out:

"The court ruled that Google illegally maintained a monopoly position in the general search field (general search services), partly because the definition of the market is relatively fixed, mainly focusing on traditional search engines. Now there are some new competitors, such as Amazon providing specific search services (vertical search service providers) and artificial intelligence services like ChatGPT. These new technologies and services have the potential to completely change Google's traditional search advertising business model."

Similarities between Google and Microsoft cases

Judge Mehta did not mention possible remedies in the ruling, so investors and analysts can only wait patiently. Experts suggest that Google is unlikely to be forced to break up.

Sam Weinstein, a law professor at Cardozo Law School and former antitrust lawyer at the Department of Justice, pointed out: "The government has been explicitly and implicitly indicating that they are building the legal basis for this case based on the Microsoft case."

Weinstein stated:

"In the Microsoft case, there were some obvious business lines that could be divested, but in Google's case, this is not so clear. In cases under Section 2 of the Sherman Act, there is rarely a requirement for business divestiture."

The trial scheduled to begin on September 4th will provide some key answers. Bill Baer, who has served in the Federal Trade Commission and the Department of Justice's Antitrust Division, stated that the Microsoft case provides a strong precedent for the charges against Google. It is currently difficult to predict what remedies the Department of Justice will seek and what conditions the judge will accept.

In the Microsoft case, Judge Thomas Penfield Jackson found that Microsoft required all computer sellers to pre-install Microsoft's browser Internet Explorer on their Windows operating system and threatened these companies with penalties if they installed or promoted other companies' browsers (such as Navigator) on their computers.

Microsoft had two major businesses, operating systems (Windows) and applications (such as Office), which allowed it to suppress competitors through unfair means. To address this issue, Judge Jackson suggested splitting Microsoft into two independent companies, one focusing on Windows and the other on applications like Office, to prevent one company from controlling both the operating system and application markets In order to reduce unfair competition.

After Microsoft's successful appeal, the U.S. District Court ruled that Microsoft cannot retaliate against device manufacturers for installing multiple operating systems on computers (such as installing both Windows and other operating systems at the same time). At the same time, Microsoft is required to provide other software and hardware companies with the same programming interfaces that Microsoft uses, allowing them to easily run on Windows.

Nicholas Economides, an economics professor at New York University's Stern School of Business, pointed out the striking similarities between the Google case and the Microsoft case. He said, "My initial reaction to this ruling is that Google seems to have lost across the board. This defeat reminds me of the victory the Justice Department achieved over Microsoft back then."