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On Monday, August 5, Eastern Time, U.S. Judge Amit Mehta made an important ruling, confirming that Google has formed a monopoly in the Internet search market. He cited Microsoft, a company in the most famous technology antitrust case in U.S. history.

The ruling bears striking similarities to Microsoft's antitrust case 20 years ago.A federal court ruled in 1999 that Microsoft illegally used its Windows operating system to squeeze out rival browsers, including Netscape Navigator. A 2001 settlement forced Microsoft to stop disadvantage rivals in the personal computer business.

Just as Microsoft was found guilty of violating the law for abusing its market dominance in the Windows operating system, Google is also facing legal sanctions. Google's landmark case was brought by the government in 2020, accusing the company of creating various barriers to entry for competitors while using its large user base and various services to continuously strengthen its position, forming a cycle to maintain its dominance. The court ruled that Google violated the antitrust law, Section 2 of the Sherman Act, which explicitly prohibits monopolistic behavior.

In his 300-page ruling, Judge Mehta stated:

"The final ruling in this case is quite similar to the conclusion of the Microsoft browser market case. As in the Microsoft case, the relevant agreement ensured that Netscape Navigator's usage rate could not reach a critical level that posed a substantial threat to Microsoft's monopoly.Google’s distribution agreements limit the volume of search queries that competitors can see, thereby avoiding a substantial competitive threat."

In addition, Judge Mehta stressed the importance of "default settings".This mainly refers to Google's default search position on Apple's iPhone and Samsung devices. These partnerships require Google to pay them huge fees every year, and users rarely choose non-default search engines. "While users have the freedom to choose to access Google's competitors through non-default search channels, in practice they rarely do so," Judge Mehta wrote.

Justice Mehta declared,Another trial will be held on September 4, in which the court will discuss and decide how to deal with Google's monopoly behavior., such as what kind of fines to impose on Google or what changes to be required of it. At that time, Google has the right to appeal, and experts expect that this legal process may take about two years. Microsoft also appealed after initially losing the case and eventually reached a settlement with the US Department of Justice.

Some legal experts believe the most likely outcome is that the court will require Google to cancel certain exclusive agreements. The court may recommend that Google make it easier for users to switch to other search engines. Although fines are an option, the greater risk is that Google may need to change its business practices, which could weaken its profitability. For example, if Google is no longer seen as the default search engine on smartphones, it may lose a large piece of business in its core market.

In the second quarter, Google Search and other businesses contributed $48.5 billion in revenue to Alphabet, accounting for 57% of its total revenue. After the ruling was announced, Google's stock price did not fluctuate significantly. On Monday, Google A fell 4.45% due to panic selling triggered by the US recession alarm. On Tuesday, the risk aversion sentiment subsided and Google A fell slightly by 0.6% to close at $158.29. On Wednesday, Google A once rose by more than 2.8% during the session before the increase was cut in half.

Could AI be new evidence of Google’s non-monopoly?

In its upcoming appeal, Google is likely to emphasize the role of AI in market competition, a new reality that the Justice Department did not fully recognize when it initially filed the lawsuit. However, Google has been trying to downplay this since its position in the field of AI was surpassed by OpenAI's ChatGPT.

Neil Chilson, former chief technologist at the U.S. Federal Trade Commission and current director of artificial intelligence policy at the Abundance Institute, believes that the development of artificial intelligence has exposed Google to more competition, which may be good for Google because it can use this to prove that it is not a monopoly. Chilson pointed out:

“The court ruled that Google had illegally maintained a monopoly in general search (general search services), in part because the market definition was relatively fixed, mainly looking at traditional search engines, and now there are some new competitors, such as specific search services provided by Amazon (search vertical service providers) and artificial intelligence services like ChatGPT. These new technologies and services have the potential to completely change Google’s traditional search advertising business model.”

Google and Microsoft cases share similarities

Judge Mehta did not mention possible remedies in his ruling, so investors and analysts will have to wait and see. Experts say it is unlikely that Google will be forced to break up.

"The government has been saying, both explicitly and implicitly, that they are basing this case on the Microsoft case," said Sam Weinstein, a law professor at Cardozo Law School and a former Justice Department antitrust lawyer.

Weinstein noted:

"In the Microsoft case, there were some obvious lines of business that could be divested, but that's not as clear in the Google case, and divestitures are rarely required in Section 2 cases."

The trial, set to begin on September 4, will provide some key answers. Bill Baer, ​​who previously served in the Federal Trade Commission and the Justice Department's antitrust division, said Microsoft's case provides a strong precedent for the allegations against Google, and it is difficult to predict what remedies the Justice Department will seek and what conditions the judge will accept.

In the Microsoft case, Judge Thomas Penfield Jackson found that Microsoft required all companies that sold computers to pre-install Microsoft's browser, Internet Explorer, with their Windows operating systems and threatened these companies with penalties if they installed or promoted other companies' browsers (such as Navigator) on their computers.

Microsoft has two major businesses: operating systems (Windows) and applications (such as Office), which allows it to suppress competitors through unfair means. To solve this problem, Judge Jackson suggested that Microsoft be split into two independent companies, one that only makes Windows and the other that only makes application software such as Office, so that no one company can control both the operating system and application markets at the same time, thereby reducing unfair competition.

After Microsoft successfully appealed, the U.S. District Court required Microsoft not to retaliate against device manufacturers for installing multiple operating systems on computers (such as installing Windows and other operating systems at the same time). At the same time, Microsoft needed to provide other software and hardware companies with the same programming interfaces that Microsoft itself uses so that they can also run easily on Windows.

Nicholas Economides, an economics professor at New York University's Stern School of Business, noted the similarities between the Google case and the Microsoft case. He said: "My first reaction to this ruling is that Google seems to have lost everything. This loss reminds me of the victory of the Department of Justice against Microsoft."