Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Consumers allege Google made secret agreements with Android manufacturers, making devices more expensive, (May 2, 2014)

By Linda O’Brien, J.D., LL.M.

Google engaged in restraint of trade by using its market power to enter into secret distribution agreements with handheld device manufacturers that require the manufacturers to make Google the default search engine and install Google applications on the prime screen of the devices, according to a complaint filed in the federal district court of San Jose, California (Feitelson v. Google, Inc.,. May 1, 2014).

Google, Inc. is a global provider of Internet services, including search engines for handheld devices, such as mobile phones and tablet devices. In 2005, Google purchased the Android mobile operating system (Android OS), which provides basic functionality for handheld devices. Plaintiffs Gary Feitelson and Daniel McKee own mobile phones that have an Android mobile operating system.

The complaint alleges that Google entered into secret Mobile Application Distribution Agreements (MADAs) with manufacturers of Android OS devices. The MADAs allow the manufacturers to pre-load a suite of Google applications only if the manufacturer pre-loads onto the prime screen all of the applications in the suite. Because consumers want access to Google products and Google had a dominant position in the U.S. market for general handheld search engines, Google has unrivaled market power over smartphone and table manufacturers.

According to the complaint, Google has restrained trade and abused its market power by requiring manufacturers to install the Google search application and set it as the default search provider for all Internet search access points. Google is aware that consumers do not know how to switch or have difficulty switching the default search engine on their devices, the plaintiffs claimed. This practice allegedly ensures that consumers will use Google search to conduct general Internet queries. The default search engine status results in more paid search-related advertisements, which are sources of billions of dollars in annual profits to Google.

The MADAs are contracts in restraint of trade that are designed to maintain its monopoly in the market for general and handheld searching. There is no pro-competitive justification for Google to condition licenses to pre-load popular Google applications on making its search product the default search engine on Android devices, the plaintiffs charged.

If device manufacturers bound by Google’s MADAs were free to choose a default search engine other than Google, the quality of Internet searches overall would improve because search engines would become more effective as more searches are processed. Also, if Google’s competitors were allowed to compete for default status, their competitive bidding to device manufacturers would lower the cost of production of the devices, which would in turn, lower consumer prices for smartphones and tablets, the complaint alleged.

The plaintiffs assert claims for monopolization, attempted monopolization, and violations of Sections 1 and 2 of the Sherman Act and the California Cartwright Act. The action seeks declaratory and injunctive relief, restitution, treble damages, costs of suit, attorneys’ fees, and any other just and proper relief.

The case is No. 5:14-cv-02007-HRL.

Attorneys: Jeff D. Friedman and Steve W. Berman (Hagens Berman Sobol Shapiro LLP) for Gary Feitelson and Daniel McKee.

Companies: Google, Inc.

News: Antitrust CaliforniaNews