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A common demand that recurs across challenges to corporate power, from union strikes to antitrust cases, is forcing companies to “open the books” and unspool their webs of financial secrets for the public to see. In the U.S. v. Google trial, the government’s efforts to pull back the curtain on key company documents critical to its case have been especially difficult. Google’s legal defense team has obstructed at every turn, objecting to the unsealing of documents and pushing for closed-court sessions, which choke off public access entirely. At the outset of the trial, Google was even in hot water for tampering with evidence by deliberately turning off its chat history, which drew a sanction from a California court but not yet from the D.C. district court.
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Curtailed public access to the trial has become a defining story in its own right for the first three weeks of the trial. Several attorneys involved in the case and outside legal observers have called the level of secrecy “unprecedented.”
Google and Apple in particular are routinely protesting against documents related to their multibillion-dollar default agreements entering the public record. In exchange for default status on Apple devices, among others, Google shares a portion of its revenue. The government argues that this power of default, core to Google’s entire operation, entails exclusionary contracts that block rival search engines from competing.
These objections to disclosing documents may be violating securities law, according to a new letter sent to the Securities and Exchange Commission this week by the American Economic Liberties Project. The supposed confidential nature of the contracts might also even fail to meet legal precedent.
THE GOVERNMENT HAS FOCUSED ON THE INNER WORKINGS of Google’s default contracts in its cross-examination and extracted revealing testimony from Google’s chief economist Hal Varian, Apple executives, and also harmed parties such as Microsoft.
We now know based on these testimonies that these agreements are worth billions of dollars each year. Equity research firm Sanford Bernstein estimated it could be around $18 billion to $19 billion, which is not exactly chump change, as Google has suggested in trial.
However, the exact value, and the defined terms for revenue-sharing, are still shrouded in mystery, at least in terms of what’s been released in open court. The figures matter for determining the scale of these exclusionary contracts and could potentially undermine Google’s defense that default status is not essential to its success. Product quality is the only reason Google dominates the market, its legal team has argued.
Google, Apple, Samsung, and other parties have claimed the details of their default agreements are confidential and sensitive business matters. They insist releasing them could lead to competitive harm, which is ironic because that’s exactly what Google is being sued for.
Both Judge Amit Mehta and the Department of Justice have mostly accepted Google and Apple’s confidentiality rationale, and allowed for extensive closed-door sessions to discuss these matters. This week, though, there’s been somewhat of an effort to keep more testimony in open court, which is suspected to be in response to media scrutiny around the lack of public access.
The companies’ confidentiality defense runs up against the fact that both are publicly traded firms. The specifics of the default agreements would be material knowledge to shareholders and investors, since the information could be “market moving,” as Apple indicated in a petition filed to the court this week. Material facts must be disclosed, per U.S. securities law.
In response to that petition, the American Economic Liberties Project submitted a letter on Tuesday to the Securities and Exchange Commission requesting an investigation into whether Apple violated anti-fraud and securities law. The letter argues that the sealed documents are essential since the termination of the agreements could bring significant losses to Apple and its shareholders.
“The SEC has rules in place on disclosing material information for investors for a reason and they need to look into this,” said Krista Brown, senior policy analyst at the American Economic Liberties Project, in a statement.
There’s also an open question as to whether Google and Apple’s confidentiality claims even meet the legal precedent.
Megan Gray is an independent lawyer dealing in internet law who used to work for DuckDuckGo. She’s been tracking Google’s objections throughout the trial, and argues that the case for sealing default agreements has not yet fully met the standard legal threshold commonly held to in court. At least, it should not be taken as a given that documents must be sealed just because Google and Apple say so. That’s because holding information as confidential does not always mean it will verifiably be harmful to the company if it’s revealed.
“You can’t just say competitive harm, you have to actually justify that through certain metrics like pricing or business deals put at risk, which neither party has been urged to do out in the public,” said Gray.
Gray explains that certain of Apple’s objections relate to default agreements from over four years ago. It’s hard to see how that would impact their current market position.
While Judge Mehta initially took heat from anti-monopoly groups for limiting public access, there’s growing frustration outside the courtroom this week with how deferential the Department of Justice has been to Google’s obstruction. While the DOJ understandably doesn’t want to cross Judge Mehta, they’ve allowed numerous Google and Apple objections to go unchallenged.
The DOJ, for example, stopped posting public exhibits on its website, even though it’s a common practice. Prosecutors even took down existing evidence because Google cried foul in court. Judge Mehta sternly cautioned the DOJ to inform him if they planned to post the exhibits moving forward but did not demand the DOJ take down the exhibits that they’d already posted. The exhibits are now mostly back on the website.
In another exchange at the end of the day on Wednesday, DOJ attorney David Dahlquist asked Judge Mehta to correct in the record that they had not unilaterally entered closed-court proceedings with Apple executive Eddy Cue earlier that day. Mehta appeared exasperated and responded that the government should object to a closed-court session if they oppose it.
This incident points to the DOJ’s perceived timidity in pushing back against closed-court proceedings.
“The DOJ trial team cares about beating Google, not public access to the trial,” said Matt Stoller, director of research at the American Economic Liberties Project, whose organization pushed for a public audio line to the trial, which Judge Mehta denied.
“Losing the trial isn’t even the worst outcome for the antitrust movement, it’s if the public just completely tunes out,” Gray explained.
DESPITE GOOGLE AND APPLE’S PERSISTENT OBJECTIONS, testimonies this week have brought numerous details to light about the harms that default agreements bring on rival search engines.
Google’s core defense is that there was fierce competition for default agreements and it won the arms race with a better product. That argument was eroded this week by the testimony of Mikhail Parakhin, the head of Microsoft’s advertising and web services. Parakhin says the negotiations Microsoft pursued with Apple were never really competitive. Apple merely used Microsoft as a bargaining chip to get a better revenue-sharing agreement out of Google.
Similarly, Alex Austin, the CEO of Branch Metrics, a search tool for finding apps on mobile devices, testified how default agreements impeded the development of their product. In negotiations, the major carriers and telecom utilities all cited their contracts with Google as the reason why they could not allow Branch’s discovery on their devices in its full capacity. The carriers imposed restrictions on Branch’s product that undercut its reach to users so that it would not interfere with Google Search and threaten their billion-dollar money pot.
Plus, the few public portions of Apple executive Eddy Cue’s testimony all but confirmed that Apple would have invested in its own search engine if it didn’t have Google as its default and if the revenue-sharing terms weren’t so lucrative.
The DOJ characterizes Google’s default agreements as a form of exclusive contract that harms competition. The evidence presented also points to one potential policy solution, whether the government wins or loses the case. An article published shortly before the 2020 election by Sandeep Vaheesan, the legal director at the Open Markets Institute, singled out these types of restrictive contracts as a scourge that the FTC should target with its powers.
By using the same rulemaking authorities it used to propose a ban on noncompete agreements, the FTC could ban default agreements as an unfair method of competition. It would strike at the heart of Google and Apple’s duopoly and also set fair terms for firms to compete moving forward to produce the best product, rather than just paying off other tech firms to achieve dominance.
