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It’s fairly common knowledge that Google pays Apple a massive sum of money to maintain its dominant position as the default search engine on the iPhone, iPad, and Mac. However, a new class action antitrust suit is claiming that there may be more to the deal between the two companies than has been publicly disclosed.
The complaint, which was filed by California Crane School in that state’s court earlier this week, alleges that Apple and Google have had a secret backroom deal in place for years in which Apple agreed to stay out of the search engine business to avoid competing with Google. In exchange, Apple received not only the licensing fees paid for default placement, but also a share of profits from Google.
While it’s no secret that Google pays billions of dollars to be the default search engine on Apple devices, the exact terms of that deal have never been fully disclosed. Documents from previous court cases reveal that the deal goes back to at least 2014, at which point Google was paying a mere $1 billion. That’s ballooned over the year as the iPhone, iPad, and Mac have become more popular, with some estimating it reached as much as $15 billion last year.
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However, there’s never been any evidence that there’s more to this deal than what appears on the surface. There’s some indication that Google may also be sharing a portion of the advertising revenue it gains from the use of its search engine on Safari mobile, and that doesn’t seem all that unreasonable either, considering it’s Apple’s devices that are driving that traffic.
More importantly, however, there’s every reason to believe that Apple would be happy to make this deal with anybody who was willing to outbid Google. Default search engine placement on the billions of Apple devices around the world is prime digital real estate, but it’s effectively up for rent to the highest bidder. In fact, some analysts believe that Google upped the ante last year out of fear that Microsoft would outbid it and capture the high ground.
Did Apple and Google Sign a Non-Compete Agreement?
This new lawsuit, however, claims that Apple and Google also secretly signed a non-compete agreement, with Apple promising that it would stay out of the search engine business in exchange for Google’s money.
The complaint makes several allegations of anticompetitive behaviour on the part of both companies:
- Google would share its search profits with Apple.
- Apple would give preferential treatment to Google for all Apple devices.
- Regular secret meetings occurred between the executives of both companies.
- Google paid Apple billions of dollars annually not to compete in the search business.
- The deal suppressed competition from smaller search engines, keeping them out of the search market.
- Google and Apple also acquired actual and potential competitors in the search market to prevent them from becoming a threat to its business interests.
The result of this illegal collusion, the plaintiffs say, has been to drive up advertising rates much higher than they should be, since the two companies have limited competition in the search engine and advertising business.
The complaint is asking for an injunction that would prohibit all of these alleged agreements between Apple and Google, including the non-compete agreement, profit-sharing agreement, preferential treatment for Google on Apple devices, and the payment of billions of dollars by Google to Apple.
The case goes a step further than that, however, calling for the breakup of Apple and Google, each into separate and independent companies, citing the breakup of Standard Oil into Exxon, Mobile, Conoco, Amoco, Sohio, Chevron, and others as a precedent.
What’s Going on Here?
Of course, anybody can make any claim they want in a lawsuit. They still have to prove it, and it remains to be seen whether this case will end up holding any water at all.
Out of the six points made in the filing, the first two are not entirely in dispute. That’s basically what we already know about the Apple-Google search deal. Technically speaking, Apple and Google don’t likely have an actual profit-sharing arrangement; however, it’s fair to say that the many billions of dollars Google is paying Apple comes from its search profits. After all, where else would they be coming from? Pixel phone sales?
The remaining allegations, however, may be completely out to lunch, and will certainly have to be substantiated in court. There’s been no real evidence to support any of these claims thus far, however, and it’s quite possible this case is little more than a fishing expedition to see what can be gleaned from the discovery process. In the very least, though, we’ll likely get to find out how much Google is really paying Apple, assuming the case goes forward and at least makes it to the discovery phase.
There have been relatively few in-person meetings between the CEOs of Apple and Google over the years, and there’s also no reason to believe that Apple would be interested in building its own search engine anyway. The billions of dollars that it can get from Google — or anybody else who is willing to pay for top placement — is much easier money.
To be clear, there have been indications of an Apple search engine, but these are generally believed to simply show the underpinnings of the Siri and Spotlight search features, rather than an attempt to compete with Google. Still, if a non-compete deal were in place, certainly Apple wouldn’t even be going that far.
If anything, any efforts on Apple’s part to create a search engine may be the result of cases like this one. There have been fears for a while that antitrust regulators could declare Apple’s deal with Google anticompetitive, even aside from the seemingly spurious claims in this latest case. If that were to happen, Apple might have an incentive to pursue its own search engine instead. Certainly, it would have about 15 billion fewer reasons not to do so.
[The information provided in this article has NOT been confirmed by Apple and may be speculation. Provided details may not be factual. Take all rumors, tech or otherwise, with a grain of salt.]