One of the fronts in the Justice Department’s case against Google is a 13-year-old agreement between Apple and Google that has evolved into a multibillion-dollar deal with enormous consequences for both companies and many of their rivals.
When Apple introduced the iPhone in 2007, Google was the device’s default search engine. In return, Google paid Apple a chunk of the ad revenue it collected from the millions of Google searches conducted on iPhones.
Today that arrangement covers all Apple devices, which now account for nearly half of all Google search traffic, according to the Justice Department’s lawsuit. As a result, Google pays Apple an estimated $8 billion to $12 billion a year, according to the suit. That has made Apple and Google hugely reliant on one another, while edging out other search engines and, according to the U.S. government, protecting Google’s monopoly.
“By paying Apple a portion of the monopoly rents extracted from advertisers, Google has aligned Apple’s financial incentives with its own and set the price of bidding for distribution extraordinarily high — in the billions,” the Justice Department said in its lawsuit.
With billions of dollars on the line, the partnership is critical to both companies.
With billions of dollars on the line, the partnership is critical to both companies. Inside Google, losing its pole position on iPhones is considered a “Code Red” scenario, according to the lawsuit. At Apple, Google’s payments account for roughly 15 percent to 20 percent of Apple’s profits.
Google officials said they weren’t aware of the Justice Department’s “Code Red” allegation and that the company’s deal with Apple is no different than Coca-Cola paying a supermarket for prominent shelf space.
Apple did not immediately respond to a request for comment.
The Department of Justice’s lawsuit against Google is big, complicated and could take years to resolve. Today’s DealBook newsletter addresses five questions that arise from the government’s action:
Why now? A better question might be, “This again?” The Federal Trade Commission conducted a two-year antitrust investigation into Google under President Barack Obama, which went nowhere. Bill Barr, the attorney general, pushed hard to bring this new case before the Nov. 3 presidential election, but even if Democrats take the White House, experts say that it is unlikely to be withdrawn.
How long will it take? “This legal case is going to be loud, confusing and will most likely drag on for years,” writes The Times’s Shira Ovide. And a bipartisan coalition of attorneys general from states including New York, Colorado and Iowa said yesterday that they would conclude their own probe into Google “in the coming weeks.” European antitrust regulators sued Google in 2015 based on similar facts, and settled in 2018. The U.S. Justice Department’s landmark antitrust case against Microsoft was filed in 1998 and settled in 2001.
Is this like the Microsoft case? Yes, but not exactly. Google is charged with monopolizing search by using restrictive and exclusive deals, like Microsoft’s bundling of software programs with its operating system. Google says that other companies, including Microsoft, control prime mobile and desktop space, so it negotiates for “eye-level shelf space” to place its products like a cereal brand would with supermarkets.
Will Google get broken up? “Nothing is off the table,” said the associate deputy attorney general Ryan Shores. A trial judge initially ordered a breakup in the Microsoft case, but the Justice Department eventually settled the case. The E.U. has generally eschewed breakups — it settled its antitrust case against Google for abusing its power in the mobile phone market with a fine and behavioral changes. Whatever the outcome, investors don’t seem worried: Shares in Google’s parent, Alphabet, rose yesterday, and are also up in premarket trading today.
Could Google just pay to make this go away? With more than $120 billion in cash and an army of lawyers, it has the power to drag this out for a long time if it wants to. Or it could dip into the funds to settle the case with a fine and some promises to behave differently. State attorneys general fear this sort of anticlimactic ending, which is part of why they’re filing separate suits, giving them leverage to move independently if they think the Justice Department might settle too soon or too leniently.
The Justice Department accused Google on Tuesday of
Read More: A Deal With Apple Is Central to the Case Against Google: Live Updates