Judge Weighs Big Changes to Google, Including Breakup, AI Limits

(Bloomberg) -- The federal judge who will decide how to limit Google’s monopoly in search is considering its advantage in artificial intelligence, and aiming to minimize harm to the other players in the market with any resolution. 

On Friday in US District Court in Washington, attorneys for Alphabet Inc.’s Google and the Justice Department answered Judge Amit Mehta’s final questions in the government’s monopoly case against the search giant. It will be up to Mehta to decide whether to break up the company and reshape the internet or impose more limited remedies. Mehta has previously said he expects to issue a ruling by August.

The Justice Department has proposed that Google be forced to sell its popular Chrome web browser and share some of the data it collects to create its search results. It has also asked Mehta to ban Google from paying for search engine defaults — a bar that would also apply to Google’s AI products, including Gemini, which the government says were aided by the company’s illegal monopoly in search.

Mehta’s first questions to the government focused on whether curbing Google’s position in generative AI was a fitting way to address the company’s dominance in search. He also mulled the possibility of Google being forced to share key data with rivals and banning it from paying to make its search engine the default on other devices.

“Do you think somebody is going to come off the sidelines and build a new general search engine in light of what we are now seeing happen in the AI space?” he asked.

“The short answer is yes, your honor,” Justice Department lawyer David Dahlquist responded. “We do believe that these remedies that will be proposed will allow that opportunity to occur. The reason we are so focused on gen AI, and the reason you heard a lot of evidence about it, is because that is the new search access point.”

The questions focused on the Justice Department’s proposal for forward-looking, long-term measures to reform Google, which Mehta ruled last year was an illegal monopoly of the online search market. Antitrust regulators have argued that Google’s dominance in traditional search could extend to generative AI, which is becoming a key gateway for how users access information online.

Exclusive Agreements

Central to the case are agreements with Apple Inc. and other device makers in which Google pays billions of dollars annually to be the default search engine devices.

The company’s lawyers have argued that banning Google from competing for search distribution contracts only serves to help large rivals like Microsoft at the expense of consumers, browser companies and device makers. Google’s counterproposal would still allow for the company to split revenue with competing browsers. 

Mehta told the DOJ that if he were to cut off Google’s payments to Apple, Mozilla and others to distribute its search engine, it would cause widespread market harm. 

“Every single distribution partner said, ‘This would harm us.’ Some have gone so far to suggest this would put them out of business,” Mehta said. “Is that an acceptable outcome, to fix one market and harm others?” he asked, referring to the browser and device maker industries.

“That’s a fair question,” Dahlquist replied. But “that is asking the court to put private interests ahead of the public interest.” He added that the government does not “dispute the possibility of some private impact.”

Mehta asked if it would work to create any exceptions to the payment ban, a possibility Dahlquist rejected, saying that even Apple executive Eddy Cue wasn’t fully opposed to the government’s proposals. Apple stands to lose tens of billions of dollars in annual payments from Google if the DOJ’s proposals are adopted and revenue sharing is paused for the next 10 years.

“I think you’re right that Mr. Cue wants more choice and he may be willing to be paid less money” for more choice, Mehta responded. “I just don’t know whether he wants to live in a world where he can’t get paid anything for no choice.”

The company’s lead lawyer John Schmidtlein objected to any payment ban. “Banning the payments here would not be addressing the unlawful conduct,” he said. “It would not be connected to the violation in this case.”

Existential Threat

Google has argued that the government’s proposals are too extreme, saying they would hurt American consumers and the economy, as well as weaken US technological leadership. Google argues that it is the market leader in search because of more than 20 years of innovation. It says people use its service because it is the best.

Schmidtlein asserted on Friday that the court should focus on addressing the specific conduct found to be illegal, rather than imposing extensive remedies — including on Google’s generative AI products — that he said could fundamentally restructure the market.

But Mehta also appeared skeptical of the tech giant’s argument for more limited remedies, indicating he is seriously considering including AI-related measures in his decision.

“It seems to me that to simply say, ‘look, just open up the avenues of distribution,’ without providing any further remedies that are forward-looking and that would allow competitors to actually be rivals here, sells the remedy portion of this short,” Mehta commented.

Schmidtlein countered that gen AI products are not in the relevant market for search. “There is no evidence that gen AI products have been harmed by any of the conduct issue in this case,” he said. “They couldn’t have been, they weren’t around, right?”

AI chatbots are already seen as an existential threat to traditional search engines, as they can address users’ questions directly with AI-drafted responses — replacing the need to present people with a long list of search results pointing across the web.

As the trial unfolded in April and May, some representatives from AI companies told the court they are already being stymied by Google. Perplexity’s Dmitry Shevelenko testified that Google’s contract with Lenovo Group Ltd.’s Motorola blocked the smartphone maker from setting Perplexity as the default assistant on its new devices. Motorola “can’t get out of their Google obligations and so they are unable to change the default assistant on the device,” the Perplexity executive said.

Competition for Chrome

The US has also asked Mehta to order Google to sell its popular Chrome web browser to provide relief to the market. “Chrome is the most popular browser and the most widely used browser in the United States,” Dahlquist said. “In fact, its only real rival is the Apple Safari browser, which is also defaulted to Google today.” Thirty-five percent of Google’s total queries begin through Chrome, he added, which makes it a significant part of the company’s search business.

Representatives of two prominent AI startups — OpenAI and Perplexity — have testified during the course of the trial that their companies would be interested in buying Chrome if Google were forced to divest it.

But the judge’s questions about the remedy suggested concern about whether the divestiture would actually achieve its intended competitive benefits. 

One possibility is that Chrome is acquired by a company that then self-preferences its own search product, Mehta said. Another is that it isn’t purchased by a company that has its own search product and it simply reinserts Google. “So there’s no competition period, so that’s not really going to enhance competition,” he said.

Dahlquist, the DOJ lawyer, said the agency envisioned a third scenario, where there would be healthy competition for the search access point within Chrome. 

In the immediate term, the new Chrome owner could accept money from other companies for default search placement or still set Google as its preferred search engine — though Google would be barred from paying for this placement. Once the payment ban was lifted, he said, Google could pay for placement on Chrome again.

Google argued that any divested Chrome would be “a shadow of the current Chrome,” harming competition instead of helping it. Chrome was built with “blood, sweat and tears” over many years, Google lawyer Schmidtlein said, and the product isn’t a standalone business but rather depends on and integrates with other Google products.

Still, of the proposed DOJ remedies, Mehta said a Chrome divestiture is “a little cleaner, a little more elegant, a little less speculative than the other remedies.”

Schmidtlein disagreed forcefully, arguing the outcome would be contingent on who buys it and companies including OpenAI are already trying to build their own browser.

As he heard the final arguments on Friday, Mehta told government lawyer Dahlquist that he is “not looking to kneecap Google” but to instead bolster potential competitors. “We are trying to kickstart competitors, we are not trying to put them on equal footing on day one.”

(Updates with Chrome divestiture possibility in final section.)

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