# United States v. Google/Conclusions of Law/Section 4C

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    C. The Challenged Agreements Are Exclusive.
“Generally, a prerequisite to any exclusive dealing claim is an agreement to deal exclusively.” ZF Meritor, LLC v. Eaton Corp., 696 F.3d 254, 270 (3d Cir. 2012) (internal quotation marks and citations omitted). Exclusivity need be neither express nor complete to render an agreement “exclusive” for Section 2 purposes: De facto and partial exclusivity may suffice depending on the circumstances. Id. at 270, 283.
To illustrate, in Microsoft, the D.C. Circuit upheld the trial court’s determination that “although not literally exclusive, the deals were exclusive in practice because they required developers to make Microsoft’s [Java Virtual Machine] the default in the software they developed.” 253 F.3d at 75–76 (emphasis added); see also LePage’s Inc. v. 3M, 324 F.3d 141, 157 (3d Cir. 2003) (Section 2 liability encompasses “arrangements which, albeit not expressly exclusive, effectively foreclosed the business of competitors.”) (citing Tampa Elec. Co. v. Nashville Coal Co., 365. U.S. 320, 327 (1961)). The court also found that Microsoft’s distribution agreements with Internet Access Providers (IAPs) were exclusive, even though browser distribution could be achieved by other “more costly and less effective” means. 253 F.3d at 70. Microsoft thus provides the template for evaluating Google’s distribution agreements.
       1. Browser Agreements
Google’s browser agreements are exclusive insofar as they establish Google as the out-ofthe-box default search engine. The Apple ISA requires that Google be preloaded as the exclusive default search engine on all Safari search access points in exchange for % revenue share. FOF ¶ 298. The resulting query volume is substantial. About 65% of queries on all Apple devices ​(mobile and desktop), and 61.8% on iOS devices (mobile), flow through the Safari default, demonstrating that default placement is a “primary channel for distribution of” search. FOF ¶¶ 296–297 (queries entered on Safari (both mobile and desktop) account for 28% of all queries in the United States); Microsoft, 253 F.3d at 61.
The Mozilla RSA has a similar effect. Google is the default GSE on all Firefox search access points, including the navigation bar and the homepage, among others. FOF ¶ 334. Google’s default placements on Firefox generate 80% of Mozilla’s overall operating revenue, demonstrating that the vast majority of query volume on Firefox goes through defaults. FOF ¶ 335. Google also has comparable agreements with smaller browsers, like Samsung’s S Browser. FOF ¶ 346; see also UPFOF ¶¶ 310–318.
Google mounts several arguments as to why these agreements are not exclusive as a matter of law.
First, it asserts that the browser agreements permit the browser to “promote search rivals on the same browser, and Apple and Mozilla have for many years entered into such promotional deals.” GTB at 37. For instance, Apple’s agreement with Microsoft provides that Apple will provide a readily discoverable means of switching the default and will install Bing as a default bookmark. FOF ¶ 320. Relatedly, Google’s agreement with Mozilla permits the “this time, search with” feature on Firefox, which allows users to select a different search product from its “Awesome Bar” for a given query. FOF ¶ 60.
The fact that Google’s browser partners can contract with its rivals for distribution through less efficient channels does not, however, immunize the challenged agreements from being deemed exclusive. That is the clear lesson of Microsoft. There, for example, Microsoft’s contracts with the leading IAP, America Online (“AOL”), provided that AOL would not “provide software ​using any non-Microsoft browser except at the customer’s request, and even then AOL [would] not supply more than 15% of its subscribers with a browser other than I[nternet] E[xplorer].” 253 F.3d at 68. The trial court had described this agreement “for all practical purposes” as guaranteeing that Internet Explorer would be AOL’s “browser of choice,” even though “Microsoft permitted AOL to offer Navigator through a few subsidiary channels.” United States v. Microsoft Corp., 87 F. Supp. 2d 30, 53 (D.D.C. 2000). The trial court held that the agreement was exclusive, and the D.C. Circuit agreed. The Circuit explained that IAPs were one of the two major channels of distribution, and by reaching agreements with 14 of the top 15 IAPs, Microsoft had “kept usage of Navigator below the critical level necessary for Navigator or any other rival to pose a real threat to Microsoft’s monopoly.” Microsoft, 253 F.3d at 67. Similarly here, the mere fact that the browser agreements do not prevent Apple and Mozilla from entering into limited distribution deals with rivals does not render the agreements non-exclusive.
Google’s additional counterargument that the ISA is not exclusive because Apple may not want more flexibility under the ISA is without merit. GRFOF ¶ 68. A firm that agrees to distribute only a monopolist’s product may itself benefit from such an agreement, but that does not render it non-exclusive. See id. at 69 (observing that “exclusivity provisions in contracts may serve many useful purposes”). Google also overlooks that Apple has previously tried to negotiate around exclusivity in the ISA to no avail. FOF ¶¶ 319–320. The question of exclusivity turns on “the opportunities for other traders to enter into or remain in [the] market.” Microsoft, 253 F.3d at 69 (quoting Tampa Elec., 365 U.S. at 327). So, even if Apple does not want more flexibility, that is a market reality that heightens the anticompetitive effects of the ISA for “other traders” who might seek to enter the market.
​Second, Google points out that the ISA does not prevent Apple from preloading a third-party’s search application or a third-party browser on its devices. GTB at 38. But market realities matter more than what is theoretically possible. See Tampa Elec., 365 U.S. at 327–28. Apple has made clear it will not design its products to include third-party applications. FOF ¶ 311. Google knows this well. See Tr. at 7667:20–7668:18 (Pichai) (testifying that it is common knowledge in the industry that Apple does not preload third-party applications onto its devices). So, even though the ISA contains no express exclusivity provision, its terms in combination with Apple’s established business practices means that Google will be the only GSE preloaded on an Apple device. That makes it exclusive. See LePage’s, 324 F.3d at 157–58 (concluding that agreement was exclusive despite no “express exclusivity requirement,” because the arrangement “effectively foreclosed the business of competitors”).
The same is true as to Google’s contention that the ISA permits Apple to preload its own search widget on mobile devices. See GRFOF ¶ 67. There is no record evidence that Apple has developed such a product or intends to do so.
Third, Google argues that “users’ search behavior [is] not consistent with Plaintiffs’ assertion that the agreements were exclusive or de facto exclusive,” and that ultimately, user choice is determined by quality, not defaults. GTB at 38. It points out that nearly 40% of queries on Apple’s mobile devices flow through non-default search access points, such as default bookmarks or organic search. Id.; FOF ¶ 296. “This fact, alone,” Google says, “confirms that the Safari agreement is not exclusive.” GTB at 38. It also highlights the example of Firefox’s default change from Google to Yahoo. In 2014, when that change happened, users switched back to Google despite the Yahoo default because users preferred Google. Id. And Google cites its own success on Windows PCs, where Google is not the preloaded search default. Id. at 38–39. This actual user ​behavior, Google says, “flatly contradicts Plaintiffs’ assertion that browser default agreements are the equivalent of an exclusive distribution agreement.” Id. at 39.
But the fact that some consumers access search on non-default access points is not dispositive on exclusivity. On Apple devices, 65% of queries still go through the default. FOF ¶ 296. That is a “substantial amount of distribution[.]” Microsoft, 87 F. Supp. 2d at 42. Moreover, Google’s brand recognition and Yahoo’s poor quality were major factors that dampened the default effect on Firefox (and yet there was still a noticeable default effect when Firefox switched from Google to Yahoo). FOF ¶¶ 370–375; infra Section V.A.2.a. And Google’s success on Windows again illustrates that defaults are less effective when the alternative has strong brand recognition and product quality. FOF ¶ 70. Even then, the default effect on users who stick with the Edge browser on Windows devices is real, as Bing receives 80% of such queries. FOF ¶¶ 82–84 (Google’s share on Windows devices overall is 80%, but its share on Edge where it is not the default is only 20%).
To be deemed exclusive, a contract need not foreclose all other avenues of distribution to which consumers might have access. It is enough that the contract “clos[es] to rivals a substantial percentage of the available opportunities for distribution.” Microsoft, 253 F.3d at 70. As will be seen when the court discusses market foreclosure, infra Section V.A.1.b, the distribution agreements do just that.
Fourth, Google notes that the ISA does not operate to prohibit users from accessing rival GSEs. To be sure, there are other ways for users to access a GSE other than Google on Apple devices and on Firefox. As noted, Bing and Yahoo are preloaded as default bookmarks on Safari’s homepage. Also, users can download another search engine, download a browser other than Safari from the App Store, or navigate directly to a rival GSE’s website for an “organic” search. See GTB ​at 39–40. Similarly, on the desktop version of Firefox, the user can use the Awesome Bar to conduct individual queries on search engines other than Google. And on both Safari and Firefox, the user can change the default GSE. But mere user access to these less efficient channels of distribution does not render the browser agreements non-exclusive.
Microsoft again illustrates the point. There, the D.C. Circuit affirmed that Microsoft’s agreements with OEMs were exclusive even though they “did not ultimately deprive Netscape of the ability to have access to every PC user worldwide to offer an opportunity to install Navigator,” as “Navigator c[ould] be downloaded from the Internet,” was “available through myriad retail channels,” and could be “mailed directly to an unlimited number of households.” 87 F. Supp. 2d at 53; see 253 F.3d at 64 (rejecting the argument that Microsoft’s licensing agreements with OEMs were not exclusive “because Netscape is not completely blocked from distributing its product,” as “although Microsoft did not bar its rivals from all means of distribution, it did bar them from the cost-efficient ones”). The court also found Microsoft’s agreement with AOL to be exclusive, even though it allowed users to request a browser other than Internet Explorer. See 253 F.3d at 68–71.
The record here resembles that in Microsoft. Users are free to navigate to Google’s rivals through non-default search access points, but they rarely do. In 2020 only 5.1% of all search queries on iOS devices went to a rival GSE through a non-default access point. FOF ¶ 296. That figure aggregates queries run through all non-default search access points, including organic searches, bookmarks, and downloaded search applications. Most non-default queries still go through Google. “The mere existence of other avenues of distribution is insufficient without an assessment of their overall significance to the market.” United States v. Dentsply, 399 F.3d 181, 196 (3d Cir. 2005). Thus, the fact that a small fraction of Apple and Firefox users search on non-default access points with a rival GSE does not render the browser agreements non-exclusive.
       2. Android Agreements
Plaintiffs likewise contend that the RSAs and MADAs are exclusive. Google disputes that characterization.
          a. MADAs
At summary judgment, the court concluded that “although, by its terms, the MADA is not an exclusive contract, there is a dispute of fact as to whether market realities make it one.” Google, 687 F. Supp. 3d at 76. With the benefit of a full trial, the court can now conclude that the MADA is exclusive in practice.
Its exclusivity arises from two contractual requirements and two market realities. The two contractual requirements are that all MADA signatories must: (1) feature the Google Search Widget in the center of the home screen and (2) place Chrome on the home screen with Google as the default GSE. FOF ¶¶ 351, 356. The two market realities are that: (1) the Google Play Store is a must-have on all Android devices, FOF ¶¶ 352–354, and (2) the industry-wide practice is to avoid excessive preloading of applications, or “bloatware,” FOF ¶¶ 359–361. This combination of factors has resulted in all Android OEMs and carriers entering into MADAs, with all Android devices featuring the Google Search Widget and Chrome on the home screen to the exclusion of rivals as a practical matter. No Android device carries a second search widget and, other than Samsung, no device comes with a second preinstalled browser (and even the S Browser defaults to Google because of the RSA). Id. These prized placements are extremely effective at driving searches to Google. To illustrate, Samsung, the largest Android OEM, derives 80% of its on-device search revenue through searches performed via the Google Search Widget and Chrome default. FOF ¶ 74.
Google offers two primary arguments for why the MADAs are not exclusive.
​First, Google contends that the MADA’s device-by-device optionality allows an OEM to choose either to preload Google’s products on some or all of their devices. GTB at 73. That is true, but the argument overlooks the market reality that the Google Play Store is viewed by OEMs as essential to the Android customer experience. FOF ¶¶ 352–354. As Microsoft CEO Satya Nadella put it, without the Play Store, the “phone is a brick.” FOF ¶ 352. Even Samsung, which has developed and preloads the Galaxy Store, deems the Play Store essential. FOF ¶ 354. Not surprisingly then, every Android device sold in the United States is subject to the MADA. FOF ¶ 350. That rival app stores might be developed in the future, see GRFOF ¶¶ 239–240, is not relevant to the court’s assessment of the market realities today. The MADA secures for Google the two most effective search access points—the search widget and the Chrome browser—on all Android devices, device-by-device optionality notwithstanding.
Second, Google points out that the MADA does not expressly prohibit OEMs from preloading other search access points on the home screen, like a second search widget or a different browser that defaults to a rival GSE. Google illustrates the point by hypothesizing numerous MADA-compliant configurations that incorporate search access points defaulting to Bing. GTB at 74–76. But market realities make such configurations unrealistic. The industry is concerned with app “bloat,” that is, excessive preinstallation of out-of-the-box applications. Too many preloaded apps degrade the user experience. FOF ¶ 359. So, while the MADA formally allows preloading of rivals’ widgets or browsers, the industry practice of avoiding app “bloat” means that Android devices rarely come preloaded with non-Google applications. ​Google recognizes this. It understands that OEMs are unlikely to place two search widgets on a device because to do so would create a negative customer experience. FOF ¶ 361. Even Microsoft did not add a second Bing search widget to its mobile devices due to concerns over poor user experience. FOF ¶ 359. The same is true of browsers other than Chrome. OEMs tend not to preload a second browser. Samsung is an exception. It preloads its S Browser (in addition to Chrome), but as noted even the S-browser defaults to Google per the Samsung-Google RSA. FOF ¶ 360. Because Samsung is unlikely to include a third out-of-the-box browser, no GSE can hope to secure that channel of distribution on Samsung devices other than Google.
Google’s additional contention that “users who wish to use a rival search service can download its app, widget, or browser, or change the default in the preloaded” browser(s) fares no better. GTB at 76. Under Microsoft, the mere availability of less efficient and less prominent channels of distribution does not make the MADA non-exclusive. See 253 F.3d at 61.
          b. RSAs
The RSAs between Google and Android device distributors formalize the practical exclusivity of the MADAs. That has been their purpose from the outset. FOF ¶ 365 (2011 Google email stating that “Our philosophy is that we are paying revenue share *in return for* exclusivity,” “we are not ‘getting’ anything” without exclusivity, and recognizing that “Microsoft and Yahoo will enter into contracts on Android through carrier deals if we do not”). All of the RSAs contain an “alternative search services” clause. That clause prohibits Google’s Android partners from preloading rival search engines. It also greatly restricts a partner’s ability to promote other GSEs. In return, the Android partner receives revenue share. The structure of revenue share payments varies among the RSAs, but the basic barter is revenue share in exchange for default exclusivity.
​It is, of course, true that no distributor of Android devices is required to enter into an RSA with Google. They can opt to distribute MADA-compliant devices without earning revenue share. Also, Google’s agreements with Verizon and Samsung permit those partners to retain the option to preinstall another GSE, albeit at a lower revenue share percentage. FOF ¶¶ 366, 381. As Google argues, RSA “[p]artners are not prevented from preloading rivals on any devices (and any amount of devices) of their choosing—the only result of doing so is that the partner will not receive the highest revenue share on those devices.” GTB at 77.
This optionality does not make the RSAs any less exclusive. “[A]ntitrust policy should not differentiate between the manufacturer of widgets that explicitly imposes exclusive dealing on its dealers and the manufacturer that gives such dealers a discount or rebate for dealing exclusively in the manufacturer’s widgets,” because both “have the ‘practical effect’ of inducing exclusive dealing.” Areeda ¶ 1807b (quoting Tampa Elec., 365 U.S. at 326). While financial incentives to deal exclusively may not thwart competition in the short-term, “[s]uch a scheme is problematic when the defendant is a dominant firm in a position to force manufacturers to make an all-ornothing choice.” Id. That is effectively how the RSAs operate. No rational market actor would sell a MADA-compliant device without ensuring that it earned search revenue through the RSA. FOF ¶ 363.
The forgone revenue is simply too great. For instance, Verizon considered switching away from the Google default but would have had to risk a $1.4 billion loss to do so. FOF ¶¶ 372–374. The decision to stick with Google was the only rational choice. FOF ¶ 379. Not surprisingly then, Google has identified no Android device presently sold in the United States that is subject to a MADA but not an RSA. Id.
​True, some of the RSAs do not present a literal “all-or-nothing choice,” as a partner can on a device-by-device basis earn some revenue share on a non-exclusive deal, but that distinction is not dispositive. But see FOF ¶ 378 (describing the T-Mobile RSA, which requires exclusive default placements as a precondition to any payment at all). In United Shoe Machinery, an early Clayton Act case, the Supreme Court confronted a similar factual scenario. There, the challenged contractual provision was a “discriminatory royalty clause providing lower royalty for lessees who agree not to use certain machinery . . . other than those leased from the lessor.” United Shoe Mach. Corp. v. United States, 258 U.S. 451, 457 (1922). The Court held that this clause was exclusionary because “[w]hile the clauses enjoined do not contain specific agreements not to use the machinery of a competitor of the lessor, the practical effect of these drastic provisions is to prevent such use.” Id. Here too, the Verizon and Samsung RSAs technically provide a non- or less-exclusive option that still allows carriers to earn some revenue share, but “the practical effect” of the tiered system is to induce carriers to select the highest-value tier. And that is precisely how the market has played out. Nearly all RSA-covered devices are presently enrolled at the highest-revenue tier, thus locking in Google as only preloaded GSE. FOF ¶ 379.
The RSAs therefore are properly treated as exclusive agreements.