# United States v. Google/Conclusions of Law/Section 5B

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    B. The Exclusive Agreements Do Not Result in Procompetitive Benefits.
“[I]f a plaintiff successfully establishes a prima facie case under § 2 by demonstrating anticompetitive effect, then the monopolist may proffer a ‘procompetitive justification’ for its conduct.” Id. The defendant must “present the District Court with evidence demonstrating that the exclusivity provisions have some such procompetitive justification.” Id. at 72. “If the monopolist asserts a procompetitive justification—a nonpretextual claim that its conduct is indeed a form of competition on the merits because it involves, for example, greater efficiency or enhanced consumer appeal—then the burden shifts back to the plaintiff to rebut that claim.” Id. at 59.
Google advances three categories of procompetitive benefits. It submits that the challenged agreements (1) enhance the user experience, quality, and output in the market for general search services, (2) incentivize competition in related markets that redounds to the benefit of the search market, and (3) produce consumer benefits within the related markets. The court concludes that the record does not sufficiently support any of these procompetitive justifications.
       1. Benefits in the Market for General Search Services
First, Google argues that its browser agreements “allow the browser’s search functionality to work effectively out of the box,” which “ensure[s] convenience for Safari and Firefox users[.]” GTB at 51, 53. As support for this proposition, Google notes the longstanding industry practice of preloading a browser with a default GSE. Id. at 51. Indeed, all browsers in ​the United States are so designed. FOF ¶ 59. This practice, Google contends, is evidence that the browser agreements benefit consumers. See In re EpiPen, 44 F.4th at 989.
But the procompetitive benefit must justify “the specific means here in question, namely exclusive dealing contracts[.]” Microsoft, 253 F.3d at 71; see id. at 76 (defendant did not carry its burden when its purported benefit failed to justify the particular contractual clause that made the agreement exclusive). Assuming Google has established the value of a default placement to competition and consumers, it has not shown that exclusive defaults across nearly all key search access points have such utility.
What’s more, a non-exclusive default would still provide all the convenience and efficiency benefits that Google touts. See UPRFOF ¶ 2143 (“Plaintiffs are not challenging the concept of a search default or that distributors may recommend a search engine, set a search default, or preinstall search access points. Plaintiffs are challenging Google’s exclusionary contracts that require counterparties to set Google as the exclusive search default.”). For example, Google asserts that “Apple’s commitment to providing the best out-of-the-box experience to consumers includes designing the products to be simple to use and work right out of the box” and that “product designs with additional decisional steps for consumers to take can cause users to abandon use of the product.” GFOF ¶¶ 1223, 776. But Google does not explain why Apple would lack those same incentives absent exclusivity. Indeed, the original Google-Apple ISA preloaded Google as the default but did not require exclusivity. FOF ¶ 312; see Areeda ¶ 1822d (stating courts may “consider alternatives to the challenged practice that are less threatening to competition than the challenged practice itself”). The absence of exclusivity did not stunt Apple’s product development during that time. Additionally, Apple in the past has sought greater flexibility with defaults, which ​Google rejected. FOF ¶¶ 319–320. Presumably, Apple would not have made that request if it felt that it would harm the consumer experience.
Second, Google contends that “the contest to be the default presents search engines the opportunity to” win incremental promotion, thereby incentivizing firms “to make quality improvements to compete for the default position[.]” GTB at 53. That may be true in a competitive market. But as the court already has concluded, there is no genuine competition among GSEs for defaults, supra Section IV.A, and there is no record evidence that competition for the default has motivated GSEs to make quality improvements. If anything, Google’s near dominance over the defaults for more than a decade has reduced the incentive to invest. See supra Section V.A.3.
Google notes that “Microsoft highlighted its improvements in search quality over the past years” during its negotiations with Apple. GFOF ¶ 1440. But that only illustrates the importance of real competition for defaults. Microsoft committed resources to search, and Bing’s quality followed, because it has access to an efficient channel of distribution: the Edge browser on Windows. FOF ¶ 59. Without such access, it would be where Yahoo or DDG is today, with no real prospect of competing for any default placement. Microsoft’s ability to leverage its advantage on Windows is what spurred Microsoft’s investment in search, not the unrealistic prospect of replacing Google as a search default on Apple or any other device.
Relatedly, Google argues that the revenue sharing provisions of the agreements introduce price competition for the default that would not exist otherwise, because GSEs are free products. GTB at 53–54. The evidence does not support that assertion. True, Microsoft perceives that Apple has used it as a stalking horse in its negotiations with Google, FOF ¶ 329, but there is no evidence that Google made its revenue share offer to Apple based on a concern that Apple might accept a better price from Microsoft. To the contrary, Google knew there was no prospect that Microsoft ​could outbid it. Google’s “Alice in Wonderland” analysis projected that Microsoft would have to offer Apple over 100% revenue share to compete, FOF ¶ 328, and this study turned out to be wholly accurate. Microsoft did offer Apple 100% revenue share plus guarantees, but Apple’s executives testified that Bing was never a realistic option to replace Google. FOF ¶¶ 323–327. Even Google CEO Sundar Pichai testified that Google took “into account” that Apple had no other viable option “which was why [it] didn’t pay the share Apple wanted.” Tr. at 7772:12–7773:10 (Pichai).
Google further claims that “[t]his price competition can also reduce barriers to entry or expansion and facilitate entry from new rivals by allowing them to ‘buy’ their way into the market.” GTB at 54. That assertion does not square with market realities. There is no evidence that entrants have been able to “buy their way into” the market, let alone ante up for default placement. Supra Sections II.C.3 & IV.A. Google’s reliance on In re Epipen is unconvincing. There, “buyers instigated exclusivity to obtain lower prices” in the challenged contracts, and the exclusive deals “were a normal competitive tool in the epinephrine auto-injector market to stimulate price competition.” In re Epipen, 44 F.4th at 986, 989. Here, exclusive deals are a feature of the market only because Google has insisted on them, not its distribution partners. Moreover, it is a market reality that no firm other than Google has held a default on any Apple or Android device for a decade or more, so the distribution agreements have not served as a “normal competitive tool.” And when partners have asked for flexibility on the defaults, perhaps with an eye towards generating competition, Google has resisted. E.g., FOF ¶¶ 319–320 (Apple); FOF ¶¶ 370–375 (Verizon); FOF ¶ 378 (T-Mobile); FOF ¶¶ 395–396 (AT&T). Those market realities make this case different from Epipen.
​Third, Google contends that the challenged contracts have led to increased search output due to the efficiency of the default placements and its superior search quality. Google is right that search output has increased significantly, FOF ¶ 40, but it has presented no evidence that default exclusivity—as opposed to a host of other market forces—is a substantial cause of that result. United States v. Apple, Inc., 791 F.3d 290, 334 (2d Cir. 2015) (the challenged conduct must be “necessary” to the justification for it to be procompetitive); McWane, 783 F.3d at 841 (same).
Even if the record supported a connection between the exclusive agreements and increased search output, increased output alone is insufficient to outweigh their anticompetitive effects. Output measured by global desktop device shipments grew rapidly during the years of Microsoft’s anticompetitive conduct. See Tr. at 10456:17–10458:18 (Whinston) (discussing UPXD104 at 39). The D.C. Circuit nevertheless found that Microsoft’s conduct violated Section 2. Increased output similarly does not inoculate Google against liability.
       2. Benefits in Other Markets that Redound to the Benefit of the Search Market
Google also asserts that its revenue share payments facilitate better browsers, improved and lowered cost for smartphones, and increased competition between Apple and Android, all of which redound to the benefit of the general search market by increasing search output. See Sullivan v. NFL, 34 F.3d 1091, 1113 (1st Cir. 1994) (“[B]enefits to competition in the relevant market can include evidence of benefits flowing indirectly . . . that ultimately have a beneficial impact on competition in the relevant market itself.”); Epic Games, 67 F.4th at 990 (same).
First, Google contends that its browser agreements promote browser competition, because a better GSE improves the browser experience, and browser developers use the revenue share payments they receive to improve their products. Put simply, better browsers equal better search products. See GTB at 62; Tr. at 7646:21-23, 7653:21–7654:1 (Pichai) (“We realized just ​improving the state of browsers would overall help users use the web more, will increase online activity and increase search usage, including Google’s usage.”). Google supports its position with the testimony of its expert, Dr. Murphy. See Tr. at 9855:11-23 (Murphy). He opined, “[I]f I generate more of a complementary good, right, I give you a better browser, you’re going to do more search, right, that’s how I can compete for more search, and just like lower prices expand output, these lower price[s] expand output too, and they’re going to expand output not just of search but also out of these complementary products.” Id. at 9705:19-24 (Murphy). The court accepts that the user experience of a browser is enhanced when the default GSE is excellent, but the evidence shows no more.
The ISA does not require Apple to use revenue share payments to improve Safari, and Google has presented no evidence that Apple does so. Mozilla likely does use its payments from Google to upgrade Firefox (given that those payments make up 80% of its operating budget), but Firefox’s contribution to the overall search market is so small that the additional output it produces, at most, marginal procompetitive benefits. FOF ¶ 11. Importantly, even if there is a link between more competitive browsers and search output, Google not shown how the exclusivity of its agreements has produced that benefit. Dr. Murphy did not, for example, opine that the exclusivity feature of the distribution agreements was a contributor to increased search output. Moreover, Dr. Murphy conceded that there are multiple reasons why output in search has continued to expand for reasons that have nothing to do with Google as the exclusive default GSE. Tr. at 9710:4-25, 9711:5–9712:22, 10186:6-13 (Murphy).
Second, Google claims that the Android agreements promote smartphone competition between Android and Apple devices (inter-brand competition) and among Android devices (intra-brand competition). “This smartphone competition leads to higher-quality, lower-priced devices, ​thereby increasing usage of mobile devices and expanding search output.” GTB at 89. Again, Dr. Murphy asserted that Google’s revenue share payments fund the Android ecosystem, enabling competition with Apple, which results in more consumers searching on all devices.
DXD37 at 100; see Tr. at 9855:16-23 (Murphy) (“Since you’re going to pass some of that cost through, one of the ways you do that is through lower prices, but, also, higher quality. Higher quality is another way to get more users and, therefore, get more search and, therefore, more search revenue. So, this enhances search output, partly by directly encouraging search, because that’s where the payment is coming from, but, indirectly, also, by pushing the . . . platforms.”).
But this contention once again falls short. For one, the evidence is thin that Android device makers and carriers use Google’s revenue share in any of the ways Google suggest. See Giard Dep. Tr. at 277:25–278:3 (stating that while the revenue share payments could be said to have subsidized costs to consumers of all services provided by T-Mobile, it would have “helped in a very minor way”); Christensen Dep. Tr. at 30:9-14 (“Q. Does the fact that the Android operating system license is free help Motorola develop more competitive devices across different price points? A. I think there is not necessarily a direct relationship to that.”). Also, once more, Google has not shown how the agreements’ exclusivity is the reason for greater smartphone competition and thus increased search output. See Tr. at 9847:8–9848:1 (Murphy) (agreeing that expanded output “comes from many things . . . [l]ots of things are driving it[.] . . . I can’t tell you how much of that is due to that competition [in mobile search], but it’s clearly a part of the picture[.]”).
If anything, greater output resulting from increased competition between Android devices and iPhones benefits mainly Google. Search on those devices occurs primarily through the ​defaults, so more searching on those devices means more ad revenue for Google, which only entrenches Google as the default GSE of choice. An out-of-market benefit that “preserve[s] [Google’s] power in the [search] market” is not a procompetitive justification for the exclusive distribution agreements. Microsoft, 253 F.3d at 71.
       3. Cross-Market Benefits
Google also claims that its distribution agreements create procompetitive benefits within the related markets themselves, which independently justifies their exclusionary effect in the market for search. See GCL ¶ 116 (“Procompetitive benefits that accrue in highly complementary markets should be considered in addition to the aforementioned benefits in Plaintiffs’ alleged markets.”). Put differently, Google says that exclusionary conduct in one market can be excused if it sufficiently promotes competition in another. This is a concept known as cross-market balancing. The parties dispute whether the court can engage in such balancing in a Section 2 case.
The Ninth Circuit recently observed that “[t]he Supreme Court’s precedent on cross-market balancing is not clear.” Epic Games, 67 F.4th at 989; see NCAA v. Alston, 594 U.S. 69, 87 (2021) (declining to consider argument by amici that “review should instead be limited to the particular market in which antitrust plaintiffs have asserted their injury,” when the parties had agreed in the trial court that cross-market balancing was appropriate). The Court has refused to engage in crossmarket balancing in cases of per se violations. United States v. Topco Assocs., Inc., 405 U.S. 596, 609–10 (1972) (“Our inability to weigh, in any meaningful sense, destruction of competition in one sector of the economy against promotion of competition in another sector is one important reason we have formulated per se rules.”). But in two Sherman Act cases the Court did consider with little discussion whether procompetitive benefits in one market justified anticompetitive conduct in a related one. See Image Tech. Servs., 504 U.S. at 482–84 (addressing argument in a ​Section 2 case that exclusionary conduct in the parts and repairs market was justified by “interbrand competition” in the market for photocopiers); NCAA v. Bd. of Regents of Univ. of Okla., 468 U.S. 85, 104–08, 115–17 (1984) (considering in a Section 1 case a procompetitive rationale regarding the college football tickets market when assessing anticompetitive conduct in the market for college football television).
The court need not, however, resolve this legal question because the record evidence does not support Google’s contention that the exclusive agreements have resulted in procompetitive benefits in related markets.
Browser Market. The link between the exclusive agreements and competition in the browser market is weak. It rests on the presumption that browser developers invest Google’s revenue share payments in improving their browsers. But, as discussed, no evidence shows how Apple uses its revenue share payments, and to the extent Mozilla uses them to improve Firefox, its share of the browser market is so low that it does not move the competitive needle.
Device Market. As to the Android agreements, Google argues that its payments fund the Android ecosystem, which promotes consistency across devices, lowers device prices, and ultimately stimulates competition among Android devices and with iPhones. But here, too, the evidence is unconvincing. Google has produced little industry evidence from any OEM or carrier that views the Android agreements and their revenue share payments as enhancing competition among devices. Google’s best evidence is testimony from Brian Higgins, Chief Customer Experience Officer at Verizon. Higgins shared his view that the Android agreements align incentives between Google and Verizon to promote Android and foster competition with Apple’s operating systems. See Tr. at 1097:1-22 (Higgins). But one partner’s testimony is not enough to establish procompetitive benefits in the market as a whole. As Dr. Murphy conceded, the ​decreasing cost of Android phones was “consistent” with the “MADA barter,” but he could not establish causality. Id. at 10186:6-13 (Murphy). The rest of the evidence supporting this purported cross-market benefit comes from Google employees, but that testimony is largely speculative, as they have no first-hand knowledge of how Android partners use the revenue share payments. See GFOF ¶¶ 1711, 1713.
Security Upgrades. Before moving on to the general search text ads market, the court needs to address one more contention. That is Google’s argument that the RSAs enhance security in the Android device market because the agreements condition payment on making security upgrades. GTB at 91–92. Google notes that Apple can do this directly, as it is vertically integrated. Tr. at 9856:5-13 (Murphy). By contrast, OEMs historically have failed to prioritize performing security upgrades. See GFOF ¶ 1717. Google also points to the testimony from an AT&T representative, who said that security upgrades can involve a significant amount of work, implying that absent the agreements, AT&T might not be as willing to cooperate on device security. Id. (citing Ezell Dep. Tr. at 150:2–151:1). That witness, however, heavily caveated his own testimony. See Ezell Dep. Tr. at 153:21-25, 154:6-18.
Even if the court were to accept that the RSAs provide some additional incentive to partners to perform security upgrades, Google has not established a connection between that benefit and the agreement’s exclusivity. In fact, its CEO Sundar Pichai admitted that incentivizing partners to perform timely security upgrades could be done through a structure other than the RSA. Tr. at 7718:24–7719:1 (Pichai); FOF ¶¶ 397–398 (describing Mobile Service Incentive Agreements).
Google has not met its burden to establish that valid procompetitive benefits explain the need for exclusive default distribution. Accordingly, Plaintiffs have established that Google is ​liable under Section 2 of the Sherman Act for unlawfully maintaining its monopoly in the market for general search services through its exclusive distribution agreements with browser developers and Android OEMs and carriers.