The highly anticipated antitrust case against Google, brought forth by the Justice Department, commenced in Washington, D.C. today. The case is a response to allegations that Google has unlawfully monopolized the internet search market.
Expected to run until mid-November, this case will determine whether Alphabet, Google’s parent company, has taken actions to solidify its dominance in the search market that violate federal antitrust laws. Conversely, Google argues that its significant market share is a result of the product’s utility rather than any malicious intent.
Kent Walker, President of Global Affairs at Google and Alphabet, highlighted in a recent blog post the company’s efforts in providing access to information for billions of people. The development of Google’s search engine is an ongoing process, involving thousands of annual improvements aimed at delivering the most relevant results.
The case, jointly filed by the Justice Department and a group of state attorneys general, will also examine Google’s search distribution relationships with major mobile phone providers such as Apple and Samsung. Google maintains that these agreements are based on choice and reflect the quality of their services, as well as consumer preferences.
The trial will be a bench trial presided over by District Court Judge Amit Mehta, appointed by President Obama in 2014. Unlike a jury trial, Judge Mehta will make the final decision. Representing the government’s case is Kenneth Dintzer, an experienced prosecutor with over three decades of service. John Schmidtlein, head of the antitrust practice at the law firm Williams & Connolly, leads Google’s defense.
The High-Stakes Trial: Google’s Potential Financial Impact
Introduction
In an intriguing development, some advocacy groups have been denied their request for an audio feed of a trial. However, opening statements will be available to the public. This trial is expected to have a significant financial impact on Google.
Opening Statements at Trial
The trial will commence with three opening statements. First, the Justice Department will present their case for 45 minutes. Subsequently, state attorneys general will present their arguments, also allotted 45 minutes. Finally, Schmidtlein will deliver a comprehensive 60-minute statement on behalf of Google.
Estimated Payouts to Partners
J.P. Morgan analyst Doug Anmuth estimates that Google will pay out roughly $30 billion to search distribution partners in the current year. Of this amount, approximately $20 billion will be allocated to Apple, $8 billion to Android phone companies and carriers, and the remainder to smaller browser companies.
Two Possible Outcomes
Anmuth shares the perspective that this trial presents a win-win situation for Google in the eyes of Wall Street. On one hand, if Google emerges victorious, it will not only maintain its dominant position but also preserve the status quo. On the other hand, even if Google loses, it has the potential to recoup the billions paid out to distribution partners, without suffering a significant impact on market share or search volumes.
The Ideal Outcome for Alphabet Shareholders
Anmuth suggests that an outright win in the trial would benefit Alphabet shareholders the most. Despite potentially hindering earnings growth, such a victory would solidify Google’s enviable position in the search market. However, Anmuth also estimates that if Google were to lose, it could surrender approximately 20% of its search advertising before experiencing negative implications for earnings. This projection takes into account the high costs associated with maintaining a substantial market share.
Potential Risks and Uncertainties
Anmuth further highlights the risks Google may face in the event of a loss. Microsoft Bing might become the default search provider on certain devices currently dominated by Google, or Apple could potentially develop its own search engine. Additionally, there is a possibility of new options emerging as generative AI chatbots gain popularity.
Overall, Anmuth concludes that while there are scenarios where Google could “lose” multiple claims yet still witness higher earnings, these scenarios come with increased risks and uncertainties. Thus, preserving the status quo is deemed as the most favorable outcome for Google.
Reference:
Eric J. Savitz
