Secret Contracts Keep Google In Control Of Mobile Search Argues Lawsuit

Google legalA would be class action lawsuit was filed last week against Google in Federal Court in California. The action seeks to resurrect some of the themes and arguments raised in the now settled FTC antitrust case against the company.

While repeating familiar abuse of market power allegations against Google, the new civil case is focused on mobile search and Android devices rather than the desktop. The FTC investigation didn’t look at Android.

The complaint (embedded below) alleges violations of various antitrust and unfair competition laws. However at its factual core is the argument that Google maintains a mobile search monopoly through Mobile Application Distribution Agreements (MADAs) and “tying” — mandatory installation of the full suite of Google mobile apps, with a privileged position for Google’s search app:

But Android itself only enables the basic functionality of a handheld device; what brings mobile phones and tablets to life are applications. Some of the most popular handheld- device applications, including the YouTube video app and Google Play (which enables shopping in Google’s app store) also are Google properties. As Google well knows, customers expect to see these apps on their Android devices. So Google, by way of secret Mobile Application Distribution Agreements (“MADA”), allows Android OS device manufacturers to pre-load a suite of Google apps including the YouTube app and Google Play client, among others, onto a phone or tablet – but only if the manufacturer pre-loads onto prime screen real estate all of the apps in the suite, whether the manufacturer wants them or not. Because consumers want access to Google’s products, and due to Google’s power in the U.S. market for general handheld search, Google has unrivaled market power over smartphone and tablet manufacturers.

These alleged tying agreements, which plaintiffs argue are generally “concealed,” effectively block Android handset makers from installing Bing, Yahoo or another search engine in the default position on Android devices. Thereby they reinforce and perpetuate Google’s alleged mobile search monopoly.

Google’s search dominance on the mobile web is greater than on the PC. However the numbers below don’t tell the whole story because of the role of apps in mobile internet access.

Mobile search market share (US):

  • Google: 88.6 percent
  • Yahoo: 7.8 percent
  • Bing: 3.34 percent
  • Others: 0.3 percent

Source: StatCounter

That mobile search monopoly, the complaint argues, results in higher consumer prices paid for Android smartphones and tablets:

If device manufacturers bound by Google’s distribution agreements were free to choose a default search engine other than Google, the quality of Internet search overall would improve because search engines become more effective as they process more and more search queries. With default search engine status providing access to more searches, Google’s competitors in search would become more effective as they processed more queries, and this competition would push Google to improve as well. Also, if Google’s rivals were allowed to compete for default status, they would do so in part by offering to pay device manufacturers for that status on various Android smartphones and tablets. Such payments to device manufacturers, maximized by way of competitive bidding, would lower the bottom-line cost associated with production of the covered devices, which in turn would lead to lower consumer prices for smartphones and tablets.

Factually there are two problems with the case. First OEMs can use Android any way they like (see Amazon). There’s a version of Android that’s open-source. Google in a statement pointed that out last week. The second problem is the hook for the class action: that consumers have been forced to pay more for devices by virtue of these MADAs and their terms.

Of the two problem arguments the “open source defense” can be more easily overcome. If you as a handset maker want access to Google Play (Android app store) you have to distribute all Google apps. The licensing language says the following:

“Devices may only be distributed if all Google Applications [listed elsewhere in the agreement] . . . are pre-installed on the Device . . . .” (Exs. A and B, ¶ 2.1.)

That argument has teeth and smells like tying (to mix metaphors). However damages (i.e., higher consumer prices) are probably not there and much harder to prove.

Android devices are pretty cheap and aggressively subsidized by carriers. But you can now buy unlocked Android phones for under $300. Yet, the argument goes, if Bing were allowed to pay to be the default search engine on some portion of US Android handsets and tablets those devices would bring prices down further.

That argument will be very hard to sell. There are probably too many leaps to make there. I also don’t think this case will gain class certification.

Hypothetically, it might be possible to find liability (illegal tying) and no damages (consumer harm, higher prices). I’m not certain what the remedy would be in that case.