Case 1:20-cv-03010-APM Document 1033 Filed 08/05/24 Page 1 of 286
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`Case No. 20-cv-3010 (APM)
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`UNITED STATES DISTRICT COURT
`FOR THE DISTRICT OF COLUMBIA
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`UNITED STATES OF AMERICA et al.,
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`Plaintiffs,
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`GOOGLE LLC,
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`Defendant.
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`STATE OF COLORADO et al.,
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`Plaintiffs,
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`GOOGLE LLC,
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`Defendant.
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`Case No. 20-cv-3715 (APM)
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`MEMORANDUM OPINION
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`Case 1:20-cv-03010-APM Document 1033 Filed 08/05/24 Page 2 of 286
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`TABLE OF CONTENTS
`INTRODUCTION......................................................................................................................... 1
`PROCEDURAL HISTORY ......................................................................................................... 5
`FINDINGS OF FACT................................................................................................................... 7
`I.
`PARTIES AND RELEVANT NONPARTIES ............................................................ 7
`Parties .......................................................................................................................... 7
`A.
`B. Key Third Parties ....................................................................................................... 9
`II. GENERAL SEARCH ENGINES ............................................................................... 13
`A. Overview .................................................................................................................... 13
`B. How a GSE Works (Greatly Simplified) ................................................................ 14
`C.
`Types of Queries ....................................................................................................... 16
`D.
`Search Engine Results Page ..................................................................................... 19
`E.
`The Expense of Developing and Maintaining a GSE ............................................ 21
`F. GSE Distribution ...................................................................................................... 24
`1.
`Default Distribution ................................................................................................ 24
`2.
`Other Search Access Points .................................................................................... 31
`G.
`The Importance of Scale .......................................................................................... 34
`H. Artificial Intelligence ................................................................................................ 39
`I.
`User Data and Privacy ............................................................................................. 43
`III. GOOGLE SEARCH .................................................................................................... 46
`A.
`Product Development ............................................................................................... 46
`B.
`Branding .................................................................................................................... 47
`C.
`Internal Quality Studies ........................................................................................... 48
`IV. OTHER PLATFORMS ............................................................................................... 50
`A.
`Special Vertical Providers........................................................................................ 50
`B.
`Social Media Platforms ............................................................................................ 55
`V.
`THE DIGITAL ADVERTISING INDUSTRY .......................................................... 57
`A.
`Search Advertisements ............................................................................................. 57
`1.
`Search Ads on GSEs................................................................................................ 59
`2.
`SVP Search Ads....................................................................................................... 67
`B.
`Display Ads ................................................................................................................ 67
`C.
`Social Media Ads ...................................................................................................... 70
`D.
`The Marketing Funnel ............................................................................................. 72
`E.
`Shifting Spend ........................................................................................................... 76
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`Text Ads Auctions (Also Greatly Simplified) ......................................................... 81
`F.
`Pricing Knobs ......................................................................................................... 83
`1.
`Increasing Text Ads Prices ..................................................................................... 85
`2.
`Limiting Advertiser Control .................................................................................... 93
`3.
`SA360 ......................................................................................................................... 98
`G.
`VI. THE RELEVANT CONTRACTS ............................................................................ 101
`A.
`Browser Agreements .............................................................................................. 101
`1.
`The Google-Apple Internet Services Agreement ................................................... 101
`2. Mozilla-Google RSA ............................................................................................. 115
`3.
`Other Browser Agreements ................................................................................... 118
`B.
`Android Agreements .............................................................................................. 118
`1. Mobile Application Distribution Agreements ....................................................... 118
`2.
`Revenue Share Agreements ................................................................................... 123
`3. Mobile Services Information Agreements ............................................................. 133
`CONCLUSIONS OF LAW ...................................................................................................... 134
`I.
`LEGAL FRAMEWORK ........................................................................................... 134
`II. MONOPOLY POWER: GENERAL SEARCH SERVICES ................................. 136
`A.
`Principles of Market Definition ............................................................................. 137
`B. General Search Services is a Relevant Product Market. .................................... 140
`1.
`Peculiar Characteristics and Uses ....................................................................... 140
`2.
`Industry or Public Recognition ............................................................................. 144
`3.
`Unique Production Facilities ................................................................................ 146
`4.
`Google’s Proposed Query Product Market .......................................................... 147
`C. Google Has Monopoly Power in the General Search Services Market. ............ 152
`1.
`Direct Evidence ..................................................................................................... 154
`2.
`Indirect Evidence – Market Share ........................................................................ 156
`3.
`Indirect Evidence – Barriers to Entry ................................................................... 157
`4.
`Google’s Counterarguments ................................................................................. 161
`III. MONOPOLY POWER: ADVERTISING MARKETS .......................................... 165
`A.
`Search Advertising Is a Relevant Market, But Google Does Not Have Monopoly
`Power in It. ........................................................................................................................ 166
`1.
`Search Advertising Is a Relevant Product Market. ............................................... 166
`2.
`Google Does Not Have Monopoly Power in the Search Ads Market. .................. 180
`B. Google Has Monopoly Power in the General Search Text Ads Market. ........... 185
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`General Search Text Ads Is a Relevant Product Market. ..................................... 185
`1.
`Google Has Monopoly Power in the General Search Text Ads Market. .............. 189
`2.
`The Evidence Does Not Support a Market for General Search Advertising. ... 191
`C.
`IV. EXCLUSIVE DEALING ........................................................................................... 197
`A.
`“Competition for the Contract” Is No Defense. ................................................... 198
`B.
`The Microsoft Exclusive Dealing Framework Is Applicable. ............................. 203
`C.
`The Challenged Agreements Are Exclusive. ........................................................ 204
`1.
`Browser Agreements ............................................................................................. 204
`2.
`Android Agreements.............................................................................................. 210
`EFFECTS IN THE MARKET FOR GENERAL SEARCH SERVICES ............. 214
`V.
`The Exclusive Agreements Cause Anticompetitive Effects in the General Search
`A.
`Services Market. ................................................................................................................ 214
`1.
`The Exclusive Agreements Foreclose a Substantial Share of the Market. ........... 216
`2.
`The Exclusive Agreements Have Deprived Rivals of Scale. ................................. 226
`3.
`The Exclusive Agreements Have Reduced Incentives to Invest and Innovate. ..... 236
`B.
`The Exclusive Agreements Do Not Result in Procompetitive Benefits. ............. 248
`1.
`Benefits in the Market for General Search Services ............................................. 248
`2.
`Benefits in Other Markets that Redound to the Benefit of the Search Market ...... 252
`3.
`Cross-Market Benefits .......................................................................................... 255
`VI. EFFECTS IN THE MARKET FOR GENERAL SEARCH TEXT ADVERTISING
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`258
`The Exclusive Agreements Foreclose a Substantial Share of the Market. ........ 258
`A.
`The Exclusive Agreements Allow Google to Profitably Charge Supracompetitive
`B.
`Prices for Text Advertisements........................................................................................ 259
`C.
`The Exclusive Agreements Have Allowed Google to Degrade the Quality of its
`Text Advertisements. ........................................................................................................ 263
`D.
`The Exclusive Agreements Have Capped Rivals’ Advertising Revenue. .......... 264
`VII. SA360 ........................................................................................................................... 265
`A.
`The Sherman Act Imposes No Liability on Google for Its Refusal to Grant Feature
`Parity to Microsoft Ads on SA360. .................................................................................. 266
`B.
`Plaintiff States Have Not Proven that Google’s SA360 Conduct Had
`Anticompetitive Effects. ................................................................................................... 271
`VIII. INTENT AND SANCTIONS .................................................................................... 272
`A.
`The Court Need Not Make a Finding of Anticompetitive Intent. ...................... 274
`B.
`The Court Declines to Impose Sanctions. ............................................................. 275
`CONCLUSION ......................................................................................................................... 276
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`INTRODUCTION
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`The general search engine has revolutionized how we live. Information that once took
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`hours or days to acquire can now be found in an instant on the internet with the help of a general
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`search engine. General search engines use powerful algorithms to create what seems like magic.
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`Enter a search query, and the general search engine will retrieve, rank, and display the websites
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`that provide the exact information the user seeks at that very moment. And it all happens in the
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`blink of an eye.
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`General search engines make money by selling digital advertisements. Type the words
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`“running shoes” into a general search engine, and sellers of running shoes will compete with one
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`another in a split-second auction to place an advertisement on the results page, which if clicked
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`takes the user directly to the seller’s website. This is a highly effective way of reaching consumers.
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`It is also an incredibly lucrative business. In 2021, advertisers spent more than $150 billion to
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`reach users of general search engines.
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`For more than 15 years, one general search engine has stood above the rest: Google. The
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`brand is synonymous with search. Once a scrappy start-up founded by two Stanford University
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`students in a rented garage, Google is now one of the world’s most valuable companies. Its parent
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`company, Alphabet Inc., today has a market capitalization (the value of its outstanding shares of
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`stock) of more than $2 trillion. Much of that value is due to Google’s extremely profitable
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`advertising business.
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`Google’s dominance has gone unchallenged for well over a decade. In 2009, 80% of all
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`search queries in the United States already went through Google. That number has only grown.
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`By 2020, it was nearly 90%, and even higher on mobile devices at almost 95%. The second-place
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`search engine, Microsoft’s Bing, sees roughly 6% of all search queries—84% fewer than Google.
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`Google has not achieved market dominance by happenstance. It has hired thousands of
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`highly skilled engineers, innovated consistently, and made shrewd business decisions. The result
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`is the industry’s highest quality search engine, which has earned Google the trust of hundreds of
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`millions of daily users.
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`But Google also has a major, largely unseen advantage over its rivals: default distribution.
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`Most users access a general search engine through a browser (like Apple’s Safari) or a search
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`widget that comes preloaded on a mobile device. Those search access points are preset with a
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`“default” search engine. The default is extremely valuable real estate. Because many users simply
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`stick to searching with the default, Google receives billions of queries every day through those
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`access points. Google derives extraordinary volumes of user data from such searches. It then uses
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`that information to improve search quality. Google so values such data that, absent a user-initiated
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`change, it stores 18 months-worth of a user’s search history and activity.
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`The distribution agreements benefit Google in another important way. More users mean
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`more advertisers, and more advertisers mean more revenues. As queries on Google have grown,
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`so too has the amount it earns in advertising dollars. In 2014, Google booked nearly $47 billion
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`in advertising revenue. By 2021, that number had increased more than three-fold to over
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`$146 billion. Bing, by comparison, generated only a fraction of that amount—less than $12 billion
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`in 2022.
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`For years, Google has secured default placements through distribution contracts. It has
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`entered into such agreements with browser developers, mobile device manufacturers, and wireless
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`carriers. These partners agree to install Google as the search engine that is delivered to the user
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`right out of the box at key search access points.
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`Google pays huge sums to secure these preloaded defaults. Usually, the amount is
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`calculated as a percentage of the advertising revenue that Google generates from queries run
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`through the default search access points. This is known as “revenue share.” In 2021, those
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`payments totaled more than $26 billion. That is nearly four times more than all of Google’s other
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`search-specific costs combined. In exchange for revenue share, Google not only receives default
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`placement at the key search access points, but its partners also agree not to preload any other
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`general search engine on the device. Thus, most devices in the United States come preloaded
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`exclusively with Google. These distribution deals have forced Google’s rivals to find other ways
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`to reach users.
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`Google’s dominance eventually attracted the attention of antitrust enforcers—the
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`U.S. Department of Justice and nearly every state’s Attorney General. They homed in on Google’s
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`distribution agreements and in late 2020 filed two separate lawsuits alleging that the agreements
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`and certain other conduct violate Section 2 of the Sherman Act. According to their complaints,
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`Google has unlawfully used the distribution agreements to thwart competition and maintain its
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`monopoly in the market for general search services and in various online advertising markets.
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`The proceedings that followed have been remarkable. Discovery began in December 2020
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`and concluded in March 2023. Millions of pages exchanged hands, Google produced petabytes of
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`data, and the parties deposed dozens of witnesses, including high-ranking executives at some of
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`the world’s largest technology companies. The court held a nine-week bench trial starting in
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`September 2023. It heard from dozens of live witnesses, including multiple experts, and admitted
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`over 3,500 exhibits. After receiving extensive post-trial submissions, the court held closing
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`arguments over two days in early May 2024. The lawyering has been first rate throughout.
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`After having carefully considered and weighed the witness testimony and evidence, the
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`court reaches the following conclusion: Google is a monopolist, and it has acted as one to maintain
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`its monopoly. It has violated Section 2 of the Sherman Act.
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`Specifically, the court holds that (1) there are relevant product markets for general search
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`services and general search text ads; (2) Google has monopoly power in those markets;
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`(3) Google’s distribution agreements are exclusive and have anticompetitive effects; and
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`(4) Google has not offered valid procompetitive justifications for those agreements. Importantly,
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`the court also finds that Google has exercised its monopoly power by charging supracompetitive
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`prices for general search text ads. That conduct has allowed Google to earn monopoly profits.
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`Other determinations favor Google. The court holds that (1) there is a product market for
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`search advertising but that Google lacks monopoly power in that market; (2) there is no product
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`market for general search advertising; and (3) Google is not liable for its actions involving its
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`advertising platform, SA360. The court also declines to sanction Google under Federal Rule of
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`Civil Procedure 37(e) for its failure to preserve its employees’ chat messages.
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`This decision is organized as follows. The court begins with a brief procedural history.
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`It then sets forth findings of fact. They are followed by the court’s conclusions of law regarding
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`the challenged distribution agreements. The court first addresses market definition and monopoly
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`power, then the exclusionary nature of the conduct (including the contracts’ exclusivity), and
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`finally the agreements’ anticompetitive effects and Google’s procompetitive justifications for
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`them. A discussion of the SA360-related conduct follows. The opinion ends with brief sections
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`on anticompetitive intent, as well as Plaintiffs’ request for sanctions. The court has included as an
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`Appendix a list of the names and titles of all witnesses whose testimony is cited in the decision.
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`PROCEDURAL HISTORY
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`On October 20, 2020,
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`the U.S. Department of Justice,
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`joined by 11 States
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`(“U.S. Plaintiffs”), commenced United States v. Google, 20-cv-3010 (APM). See Compl.,
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`ECF No. 1. Pursuant to authority conferred by 15 U.S.C. § 4, U.S. Plaintiffs alleged that Google
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`had violated Section 2 of the Sherman Act by unlawfully maintaining its monopoly in three product
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`markets by entering into exclusive agreements to secure default distribution on nearly all desktop
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`and mobile devices in the United States. See generally Am. Compl., ECF No. 94. The alleged
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`markets are general search services, search advertising, and general search text advertising. Id. ¶¶
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`88–107. U.S. Plaintiffs advanced three Section 2 claims, each corresponding to an alleged market.
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`Id. ¶¶ 173–193. They sought a finding of liability, an injunction against the challenged conduct,
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`and structural relief necessary to cure any resulting anticompetitive effects. Id. ¶ 194.
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`On December 17, 2020, 38 States (“Plaintiff States”) joined together to bring State of
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`Colorado v. Google, 20-cv-3715 (APM) [hereinafter Colorado v. Google Docket]. They filed suit
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`pursuant to Section 16 of the Clayton Act, 15 U.S.C. § 26, in their sovereign or quasi-sovereign
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`capacities as parens patriae on behalf of the citizens, general welfare, and economy of each of
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`their states. The Colorado complaint adopted the allegations in the U.S. Plaintiffs’ complaint but
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`supplemented it in three ways. Compl., Colorado v. Google Docket, ECF No. 3 [hereinafter
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`Colorado Compl.]. First, Plaintiff States alleged a third advertiser-side market for general search
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`advertising but not one, as U.S. Plaintiffs had, for search advertising. Id. ¶¶ 56 n.3, 82–89.
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`Second, they asserted exclusionary conduct by Google that targeted specialized vertical providers,
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`or SVPs. Id. ¶¶ 168–189. Third, Plaintiff States claimed that Google had engaged in further
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`exclusionary conduct by using its proprietary advertising platform, SA360, to harm competition
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`in all proposed markets. Id. ¶¶ 144–167. Plaintiff States similarly sought declaratory and
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`injunctive relief. Id. ¶ 233.
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`On January 7, 2021, upon Plaintiff States’ motion, the court consolidated the two cases for
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`pretrial purposes, including discovery. Order, Colorado v. Google Docket, ECF No. 67. The court
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`subsequently consolidated the cases for trial as well. See Status Conf. Tr., ECF No. 609, at 10–14.
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`The parties also jointly asked to bifurcate the liability and remedies phases, and the court agreed
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`to do so. See Order, ECF No. 264.
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`Discovery closed on February 23, 2023. Soon after, U.S. Plaintiffs moved for sanctions
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`under Rule 37(e) for Google’s failure to preserve relevant chat messages among its employees.
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`Pls.’ Mot. for Sanctions, ECF No. 512. The court deferred ruling on the motion pending the
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`presentation of evidence relevant to that issue at trial. Order, ECF No. 610, at 2.
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`Google also moved for summary judgment in both cases. See ECF Nos. 451, 452. The
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`court granted in part and denied in part Google’s motions. It entered judgment for Google as to
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`U.S. Plaintiffs’ claims related to Android Compatibility Commitments and Anti-Fragmentation
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`Agreements, Google’s voice-activated assistant and other “Internet-of-Things” devices, and the
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`Android Open-Source Project. See United States v. Google LLC, 687 F. Supp. 3d 48, 78–84, 85–
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`87 (D.D.C. 2023). It also entered judgment in favor of Google on Plaintiff States’ theory that
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`Google’s targeting of SVPs caused anticompetitive effects in the proposed markets. Id. at 78–83.
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`The court permitted the remaining claims to proceed to trial.
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`Trial commenced on September 12, 2023. Both sides presented exhaustive evidence in
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`support of their various claims and defenses. Dozens of witnesses, including numerous Google
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`employees, third-party witnesses, and several experts, testified live and were subject to lengthy
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`cross-examination. The parties entered thousands of exhibits and designated certain deposition
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`testimony into the trial record. Trial concluded just over nine weeks later on November 16, 2023.
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`Following trial, each group of Plaintiffs and Google filed separate post-trial briefs, as well
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`as affirmative and responsive proposed findings of fact and conclusions of law. Those submissions
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`ran into the thousands of pages. Finally, the court held two days of closing arguments on May 2
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`and 3, 2024.
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`I.
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`PARTIES AND RELEVANT NONPARTIES
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`FINDINGS OF FACT
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`A.
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`1.
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`Parties
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`Plaintiff United States of America, along with Plaintiffs Arkansas, California,
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`Florida, Georgia, Indiana, Kentucky, Louisiana, Michigan, Mississippi, Missouri, Montana, South
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`Carolina, Texas, and Wisconsin—U.S. Plaintiffs—filed the lawsuit captioned United States v.
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`Google, 20-cv-3010 (APM). See Am. Compl. at 2–3.
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`2.
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`Separately, Plaintiffs Colorado, Nebraska, Arizona, Iowa, New York, North
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`Carolina, Tennessee, Utah, Alaska, Connecticut, Delaware, District of Columbia, Guam, Hawaii,
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`Idaho, Illinois, Kansas, Maine, Maryland, Massachusetts, Minnesota, Nevada, New Hampshire,
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`New Jersey, New Mexico, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Puerto Rico,
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`Rhode Island, South Dakota, Vermont, Virginia, Washington, West Virginia, and Wyoming—
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`Plaintiff States—filed the lawsuit captioned State of Colorado v. Google, 20-cv-3715 (APM).
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`See Colorado Compl.
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`3.
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`Alphabet Inc. is the California-based parent company of a collection of businesses,
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`the largest of which is Defendant Google LLC (Google). UPX8085 at 851.1 Google was founded
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`1 This opinion uses the last three digits of Bates numbers on an exhibit to cite the specific pages that support a finding
`of fact.
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`in 1998 by two students from Stanford University, Larry Page and Sergey Brin, who left school to
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`create Google, which is a general search engine (GSE). Trial Tr. at 7292:21–7293:1 (Raghavan)
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`[hereinafter Tr.]. A GSE is software that produces links to websites and other relevant information
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`in response to a user query. See infra Part II. What started in a rented garage is today one of the
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`world’s largest companies. The Chief Executive Officer (CEO) of Alphabet and Google is Sundar
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`Pichai. Tr. at 7638:2-12 (Pichai).
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`4.
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`Although Google began as a GSE, today its core services include a suite of
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`applications widely used on mobile and desktop devices, including Gmail, Google Drive, Google
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`Maps, Google Photos, Google Play, and YouTube. Id. at 7717:2-12 (Pichai); UPX8085 at 852.
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`5.
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`In 2008, Google developed Android, an open-source operating system for mobile
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`devices. See Tr. at 7652:1–7653:11 (Pichai). An open-source system allows third-party
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`developers to create new smart devices and technologies by customizing the Android system to
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`the device or technology. See id. at 7653:2-3 (Pichai) (“[Y]ou can just take the open source project
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`and do whatever you want with it without ever talking to Google”); id. at 9414:25–9415:3
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`(Rosenberg) (“Being open source, [Android is] customizable. It [i]s something that someone could
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`take with its underlying capabilities and then build on top of and add capabilities to.”). Today,
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`hundreds of millions of mobile devices in the United States run on the Android operating system.
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`UPX639 at 266.
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`6.
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`Also in 2008, Google launched Chrome, a web browser. Tr. at 7646:5-7 (Pichai).
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`A web browser is software that allows users to access websites on the internet, among other things.
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`See M. Baker Dep. Tr. at 23:1–27:8. Chrome was designed to increase the speed and seamlessness
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`of web navigation by users. Tr. at 7649:11–7650:2 (Pichai). “Chromium is the underlying engine
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`which powers Chrome,” and it is fully open source, like Android. Id. at 7648:21–7649:5 (Pichai).
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`Google is the default search engine on Chrome. Id. at 7650:5-9 (Pichai).
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`7.
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`Google also acquired an online advertising platform, DoubleClick, in 2008, which
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`it developed into what today is known as SA360. Id. at 1235:5-12 (Dischler); PSX1109. SA360
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`is a search engine marketing tool, which allows advertisers to purchase digital advertisements
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`across multiple platforms. Tr. at 1234:2–1235:4 (Dischler); see also infra Section V.G.
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`8.
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`In 2022, Google reported Search+ revenues over $162 billion. UPX8085 at 879,
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`899 (including “other Google owned and operated properties like Gmail, Google Maps, and
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`Google Play”). Between 2014 and 2021, Google’s Search+ revenues more than tripled, with gross
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`margins ranging from 76–82% annually. See UPX7002.A. The vast majority of Alphabet’s
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`revenues (nearly 80%) come from digital advertisements, and historically the largest component
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`has been ads displayed on Google’s search engine results page. See UPX8085 at 878–89; UPX342
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`at 824 (attributing approximately 66% of the “company’s revenue and $ growth for 10+ years” to
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`search advertising).
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`B.
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`9.
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`Key Third Parties
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`Apple Inc. is a California-based company that “designs, manufactures[,] and
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`markets smartphones, personal computers, tablets, wearables[,] and accessories, and sells a variety
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`of related services.” UPX8105 at 172, 175. Those products include the iPhone, iPad, and Mac
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`personal computers (PCs). Id. at 175. Each of these devices runs on an Apple-developed,
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`proprietary operating system: iOS for iPhones, iPadOS for iPads, and macOS for Mac computers.
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`Id. Unlike Android, Apple’s operating systems are not open source. See Tr. at 9841:25–9842:5
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`(Murphy). Apple’s products all come preloaded with its proprietary web browser, Safari. Id. at
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`9
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`Case 1:20-cv-03010-APM Document 1033 Filed 08/05/24 Page 14 of 286
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`
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`632:9-10 (Rangel). In 2022, Apple’s market capitalization was at least $2.8 trillion. UPX8105 at
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`173.
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`10. Microsoft Corporation is a Washington-based company whose products include
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`an operating system called Windows, a web browser called Edge, and various devices, including
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`PCs and tablets. UPX8094 at 517, 521, 530–31. In 1998, Microsoft licensed a third-party GSE,
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`MSN Search, for use on its devices. Tr. at 3545:11-21 (Nadella). In 2005, Microsoft created its
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`own GSE, which was then known as Live Search. Id. at 3547:3-24 (Nadella). In 2009, Microsoft
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`launched Bing, a GSE. Id. at 3548:4-5 (Nadella). Microsoft has invested nearly $100 billion into
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`search over the past two decades. Id. at 3510:3-7, 18-21 (Nadella). Bing’s search and news
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`advertising revenue totaled $11.6 billion in 2022. See UPX8094 at 612. The CEO of Microsoft
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`is Satya Nadella. Tr. at 3487:2-6 (Nadella). Microsoft’s revenues in 2022 were over $198 billion,
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`with a market capitalization of $2.5 trillion. UPX8094 at 559, 517.
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`11. Mozilla Corporation is a California-based company that developed an open-
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`source web browser called Firefox for both desktop and mobile devices. JX31 at 612, 633. Today,
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`Mozilla’s share in the desktop browser market is about 10% and negligible in the mobile market.
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`M. Baker Dep. Tr. at 127:24–128