So sue me – The U.S. versus Google

By Bob Huxford

After a prolonged investigation, the US Justice Department filed a much-anticipated anti-trust lawsuit yesterday against Google, accusing it of anti-competitive practises designed to protect the dominance of its search engine. These practises have enabled the company to maintain a near monopoly in online search with an estimated 90% share of the world market, netting huge associated advertising revenues. This marks the first government antitrust lawsuit against a major tech company since Microsoft in 1998, the year in which Google was founded.

Key to the anti-competitive practises are exclusive agreements with consumer electronics businesses that ensure Google is the default search engine on their devices. Apple is the biggest, with Google paying $12 billion in 2019, according to Fortune Magazine, to remain the default search engine for Apple’s Safari web browser.

In response, Google’s chief legal officer, Kent Walker, posted this blog in which he states: “People use Google because they choose to, not because they are forced to, or can’t find alternatives.” but if that were the case why would Google choose to pay Apple $12 billion a year to be the default?

If the lawsuit were successful, this would have huge implications for Google. Apple alone stated in January that it has 1.5 billion active devices in use and that’s up from 1.4 billion the previous January. That’s a lot of devices on which, when they come to be replaced, Google would want to remain the default search engine.  

A successful lawsuit would also have huge implications for Apple. $12bn is a decent chunk of revenue, even for a company with a $2 trillion market cap. You’d also have to imagine most of that would fall to the bottom line as there can’t be too many costs associated with simply shipping Google Search as default. Apple’s net income for 2019 was $55.3 billion so the loss of that agreement would put a pretty big dent in that.  

Read across goes beyond Apple as well, with Google simply being the first to be attacked following a lengthy and broad investigation into other technology giants including Amazon, which dominates e-commerce, and Facebook, which dominates social media advertising. All of these companies play a huge and, in the eyes of the majority of both liberal and conservative politicians alike, excessive influence on the lives of US citizens.  

Further to this, the lawsuit could open up a whole slew of anti-trust class-actions against the tech giants from state attorney-generals. The US Justice Department is the first to file a lawsuit from almost 50 states and jurisdictions that are conducting parallel investigations at present.

Naturally, one would expect shareholders in big tech to be worried by these developments. However, at the time of writing, the share price of Alphabet (Google’s parent company) is circa 4% higher than it was at market open yesterday; Apple’s share price is up around 1.1%; Facebook is up some 6.5%; and Amazon is the only company to have declined with a marginal 1.2% dip.

This would appear to demonstrate a broad lack of concern regarding the lawsuit, given it’s the shareholders in these companies that would have most to lose should it have any damaging effects.  Further, this would also appear to demonstrate the huge power these companies wield when even the US government can’t scare them and the people that own them.

Big tech companies such as Google have very deep pockets and employ armies of lawyers and lobbyists that can fight lawsuits of this kind. In addition, Google has the added advantage of experience, having fought similar battles in Europe over several years. The message from shareholders, therefore, appears to be, “bring it on” and it will be a battle that is likely to rumble on over many years.