The U.S. Justice Department sued Alphabet Inc.’s Google in the most significant antitrust case against an American company in two decades, kicking off what promises to be a volley of legal actions against the search giant for allegedly abusing its market power.
Google, which controls about 90% of the online search market in the U.S., is the “unchallenged gateway” to the internet and engaged in a variety of anticompetitive practices to maintain and extend its monopoly, the government said in a complaint filed Tuesday in Washington. The company has used exclusive deals costing billions of dollars to dominate search and lock out competition from rivals, the U.S. said.
“No one can feasibly challenge Google’s dominance in search and search advertising,” Attorney General William Barr said. “If we let Google continue its anticompetitive ways, we will lose the next wave of innovators and Americans may never get to benefit from the ‘next Google.’”
The complaint is the first phase of what’s shaping up as a multi-pronged attack against Google. Texas Attorney General Ken Paxton is preparing a complaint against the company over its conduct in the digital-advertising market, where it controls much of the technology used by advertisers and publishers to buy and sell display ads across the web. A separate group of states, including Colorado and Iowa, is investigating Google’s search practices and said their probe will conclude in the coming weeks. A wave of private lawsuits is likely to follow the government’s case.
Investors brushed off the complaint, which has been expected for weeks. Alphabet shares rose 1.4% to close at $1,551.08 in New York trading. Mark Shmulik, an analyst at Sanford C. Bernstein, told investors that the firm sees “limited risk” to Google from the suit.
Google’s search business generates most of the company’s revenue and has funded its expansion into email, online video, smartphone software, maps, cloud computing, autonomous vehicles and display advertising. The search engine influences the fates of thousands of businesses online, which depend on Google to get in front of users.
Google called the government’s case “deeply flawed” and said it would actually hurt consumers because it would “artificially prop up” lower-quality search options and raise phone prices.
“People use Google because they choose to, not because they’re forced to, or because they can’t find alternatives,” Google Chief Legal Officer Kent Walker said in a blog post in response to the complaint.
Walker likened Google’s distribution agreements with phone makers and wireless carriers to the way a cereal brand would pay a supermarket to stock its products on a shelf at eye level. Other search engines are able to compete with Google for those deals, he said. Users can also easily switch to other search engines on desktops and phones, Walker wrote.
“This isn’t the dial-up 1990s, when changing services was slow and difficult, and often required you to buy and install software with a CD-ROM,” he said. “Today, you can easily download your choice of apps or change your default settings in a matter of seconds—faster than you can walk to another aisle in the grocery store.
Google began dominating online search 20 years ago with an algorithm that delivered better results than those of its rivals. Since then it has also relied on its own products, like its Android mobile operating system, and exclusive agreements with device makers and mobile carriers to be the default search option for millions of users. That’s given it an insurmountable advantage over rivals, according to the government.
The exclusive agreements with phone makers like Apple Inc. and wireless carriers like Verizon Communications Inc. deny rivals the scale and distribution they need to compete against Google in search, the U.S. said. Google monetizes its dominance in search by selling advertising, which it uses to pay for the exclusive deals. Those payments create a strong disincentive for distributors to switch to another service, according to the complaint.
“Through these exclusionary payoffs, and the other anticompetitive conduct described below, Google has created continuous and self-reinforcing monopolies in multiple markets,” the U.S. said.
In a briefing with reporters, Justice Department officials declined to discuss what specific remedies the government would seek. It would be up to a federal court judge to decide what remedy to impose, including whether to order a breakup of Google’s businesses.
“At a minimum this would require stopping that conduct, but additional relief may be necessary,” said Alex Okuliar, the department’s deputy for civil antitrust.
The Justice Department’s case, which Texas and 10 other states joined, is the first to emerge from an investigation of some of the largest technology companies initiated by Barr 15 months ago. It’s the most significant antitrust lawsuit since the U.S. filed a case against Microsoft Corp. in 1998 and marks a seismic shift away from the government’s mostly laissez-faire approach toward America’s tech giants.
While it’s not illegal to be a monopoly under U.S. law, it’s a violation for a dominant company to engage in exclusionary conduct to protect or strengthen its market power.