By Brent Kendall and Rob Copeland
The Justice Department filed a long-awaited antitrust lawsuit Tuesday alleging that Google uses anticompetitive tactics to preserve a monopoly for its flagship search engine and related advertising business, illegally choking off potential competition.
The case, filed in a Washington, D.C., federal court, marks the most aggressive U.S. legal challenge to a company's dominance in the tech sector in more than two decades, with the potential to shake up Silicon Valley and beyond. It thrusts Google, once a startup and now a vast conglomerate, into the type of public showdown the company has sought to avoid.
The Justice Department alleged that Google, a unit of Alphabet Inc., is maintaining its status as gatekeeper to the internet through an unlawful web of exclusionary and interlocking business agreements that shut out competitors. The government alleged that Google uses billions of dollars collected from advertisements on its platform to pay for mobile-phone manufacturers, carriers and browsers, like Apple Inc.'s Safari, to maintain Google as their preset, default search engine.
The upshot is that Google has pole position in search on hundreds of millions of devices in the U.S., with little opportunity for any other company to make inroads, the government said.
"Google achieved some success in its early years, and no one begrudges that," Deputy U.S. Attorney General Jeffrey Rosen said. "If the government does not enforce its antitrust laws to enable competition, we could lose the next wave of innovation. If that happens, Americans may never get to see the next Google."
Google owns or controls search distribution channels accounting for about 80% of search queries in the U.S., according to the lawsuit and third-party researchers. The government says that effectively leaves no room for competition, resulting in less choice and innovation for consumers, and less competitive prices for advertisers.
The wide-ranging lawsuit included details on alleged deliberations within Google aimed at avoiding antitrust scrutiny. The government quoted Google's chief economist as telling employees, "We should be careful about what we say in both public and private."
The lawsuit in particular targeted arrangements under which Google's search application is preloaded, and can't be deleted, on mobile phones running its popular Android operating system. Google has expanded such agreements over the past year since the Justice Department probe began, the government said
And yet the lawsuit provided little new hard data on such tie-ups. Alphabet publicly discloses that it pays other companies to funnel in search traffic; analysts estimate that it pays Apple alone around $10 billion a year. The lawsuit cited a note from one senior Apple employee to his Google counterpart: "Our vision is that we work as if we are one company."
Kent Walker, Google's chief legal officer, said in a statement that the lawsuit was deeply flawed. "People use Google because they choose to -- not because they're forced to or because they can't find alternatives," he said. "Like countless other businesses, we pay to promote our services, just like a cereal brand might pay a supermarket to stock its products at the end of a row or on a shelf at eye level."
Mr. Walker said that, if successful, the lawsuit would result in higher prices for consumers because Google would have to raise the cost of its mobile software and hardware.
Alphabet's shares were roughly flat Tuesday, after The Wall Street Journal first reported news of the impending suit.
The Mountain View, Calif., company, sitting on a $120 billion cash hoard, is unlikely to shrink from a legal fight. The company has argued that it faces vigorous competition across its different operations and that its products and platforms help businesses small and large reach new customers.
Google's defense against critics of all stripes has long been rooted in the fact that its services are largely offered to consumers at little or no cost, undercutting the traditional antitrust argument centered on potential price harms to those who use a product.
The lawsuit follows a Justice Department investigation that has stretched more than a year, and comes amid a broader examination of the handful of technology companies that play an outsize role in the U.S. economy and the daily lives of most Americans.
A loss for Google could mean court-ordered changes to how it operates parts of its business, potentially creating new openings for rival companies. The Justice Department's lawsuit didn't cite particular remedies, action that is usually addressed later in a case. One Justice Department official said nothing is off the table; the lawsuit said the government would seek structural changes to Google's business "as needed."
A victory for Google could deal a huge blow to Washington's overall scrutiny of big tech companies, potentially hobbling other investigations and enshrining Google's business model after lawmakers and others challenged its market power. Such an outcome, however, might spur Congress to take legislative action against the company.
The case could take years to resolve, and the responsibility for managing the suit will fall to appointees of the winner of the Nov. 3 presidential election.
The campaign of former Vice President Joe Biden didn't return a request for comment about how he would approach the lawsuit if elected. Mr. Biden has called for greater antitrust enforcement more broadly but has stopped short of saying that big tech companies should be broken up.
During the Democratic primaries, Mr. Biden said a proposal from Massachusetts Sen. Elizabeth Warren to dismantle Facebook, Google and Amazon was worth taking "a really hard look at" but said it was premature to make a final judgment.
The challenge marks a new chapter in the history of Google, a company formed in a garage in a San Francisco suburb in 1998 -- the same year Microsoft Corp. was hit with a blockbuster government antitrust case accusing the software giant of unlawful monopolization. That case, which eventually resulted in a settlement, was the last similar government antitrust case against a major U.S. tech firm.
Google started as a simple search engine with a large and amorphous mission "to organize the world's information." But over the past decade or so it has developed into a conglomerate that does far more than that. Its flagship search engine handles more than 90% of global search requests, some billions a day, providing fodder for what has become a vast brokerage of digital advertising. Its YouTube unit is the world's largest video platform, used by nearly three-quarters of U.S. adults.
Google has been bruised but never visibly hurt by various controversies surrounding privacy and allegedly anticompetitive behavior, and its growth has continued largely unchecked. In 2012, the last time Google faced close antitrust scrutiny in the U.S., the search giant was already one of the largest publicly traded companies in the nation. Since then, its market value has roughly tripled to almost $1 trillion.
The company enters this legal showdown under a new generation of leadership. Co-founders Larry Page and Sergey Brin, both billionaires, gave up their management roles last year, handing the reins solely to Sundar Pichai, a soft-spoken, India-born engineer who earlier in his career helped present Google's antitrust complaints about Microsoft to regulators.
The chief executive has in his corner Messrs. Page and Brin, who remain on Alphabet's board and in effective control of the company thanks to shares that give them, along with former Chief Executive Eric Schmidt, disproportionate voting power.
Executives inside Google are quick to portray their business divisions as mere startups in areas -- like hardware, social networking, cloud computing and health -- where other Silicon Valley giants are further ahead. Still, that Google has such breadth points to its omnipresence.
European Union regulators have targeted the company with three antitrust complaints and fined it about $9 billion. The cases haven't left a big imprint on Google's businesses there, and critics say the remedies imposed on it have proved underwhelming.
In the U.S., nearly all state attorneys general are separately investigating Google, while three other tech giants -- Facebook Inc., Apple and Amazon.com Inc. -- likewise face close antitrust scrutiny. And in Washington, a bipartisan belief is emerging that the government should do more to police the behavior of top digital platforms that control widely used tools of communication and commerce.
A group of 11 state attorneys general, all Republicans, have joined the Justice Department's case, officials said. More could join later, according to the court docket. Other states are still considering their own cases related to Google's search practices, and a large group of states is considering a case challenging Google's power in the digital advertising market, The Wall Street Journal has reported. In the ad-technology market, Google owns industry-leading tools at every link in the complex chain between online publishers and advertisers.
The Justice Department also continues to investigate Google's ad-tech practices.
Democrats on a House antitrust subcommittee released a report this month following a 16-month inquiry, saying the four tech giants wield monopoly power and recommending congressional action. The companies' chief executives testified before the panel in July.
"It's Google's business model that is the problem," Rep. David Cicilline (D., R.I.), the subcommittee chairman, told Mr. Pichai. "Google evolved from a turnstile to the rest of the web to a walled garden that increasingly keeps users within its sights."
"We see vigorous competition," Mr. Pichai responded, pointing to travel search sites and product searches on Amazon's online marketplace. "We are working hard, focused on the users, to innovate."
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