Bloomberg News

Google Suit Claims Android Tie-Ins Hurt Search Competition (1)

May 02, 2014

Google Inc. (GOOG:US) was sued over claims it abused its market power by forcing hand-held device makers that use its Android operating system to also provide the search engine company’s applications.

Google’s requirements that manufacturers such as Samsung Electronics Co. (005930) adopt less popular applications in order to use consumer favorites such as YouTube are “designed to maintain and extend its monopolies,” according to a complaint filed yesterday in federal court in San Jose, California.

The existence of the Android “mobile application distribution agreements,” or MADAs, wasn’t widely known until this year, when Harvard Business School professor Ben Edelman wrote about them on his blog and voiced concerns about anticompetitive behavior similar to the claims in the lawsuit.

Worldwide, 78 percent of smartphones were run on Android in the fourth quarter of 2013, according to IDC. Apple Inc.’s iOS had 18 percent of the market, while Windows had 3 percent and BlackBerry Ltd. had 0.6 percent.

Google’s expansion of its monopoly in search on smartphones, which helps through paid search-related advertisements to generate billions of dollars of profit a year, is “not merely a function of having built a better search engine,” according to yesterday’s complaint on behalf of consumers. The “secret” MADAs require that each Android device maker “pre-loads onto prime screen real estate all of the apps in the suite, whether the manufacturer wants them or not,” according to the complaint.

‘More Choices’

“Anyone can use Android without Google and anyone can use Google without Android,” Matt Kallman, a spokesman for Mountain View, California-based Google, said in an e-mail. “Since Android’s introduction, greater competition in smartphones has given consumers more choices at lower prices.”

Yesterday’s lawsuit was filed by the owner of an HTC Corp. EVO 3D mobile phone made in 2011 that runs on Android. The consumer argued that Google’s restrictions on Android made the phone more expensive. Google’s MADAs with Samsung and HTC were included as exhibits in the lawsuit.

EU Probe

The lawsuit includes a claim that Google’s pressure tactics on manufacturers are currently under investigation by the European Union in response to a complaint by FairSearch.org, whose members include Microsoft Corp. (MSFT:US) and Oracle Corp.

Edelman, who is a consultant to companies that compete with Google, said in a February blog post that copies of MADAs had been filed as exhibits in a 2012 trial between Google and Oracle over Android. He said yesterday that the Android tie-ins foreclose competition and raise prices for both advertisers and consumers.

“Google did this through secret contract restrictions -- documents that probably wouldn’t have become widely available to the public had I not presented them on my site in February,” he said in an e-mail. “The secrecy is itself troubling -- users see Google apps pre-installed and conclude that carriers and other users must think they’re the best, when in fact Google apps are pre-installed only because Google insists that they be there.”

Federal Probe

Google has had previous run-ins over allegedly anti-competitive behavior relating to search. The company ended a 20-month federal investigation in 2013 over whether it unfairly skewed search results. It avoided a potentially costly legal battle with U.S. regulators by pledging to change some business practices and settling allegations that it misused patents to thwart competitors in smartphone technology.

The firm said it would voluntarily remove restrictions on the use of its online search-advertising platform and offer companies the option of keeping their content out of Google’s search results.

Google’s Android business relations have been heavily scrutinized by government regulators without any action being taken, said Daniel O’Connor, public policy director at Computer & Communications Industry Association, a trade group with Google as a member.

He pointed to the U.S. Federal Trade Commission’s January 2013 statement about the Google search investigation settlement, which said the agency conducted an extensive probe into allegations the company entered into exclusive agreements for the distribution of Google Search on mobile devices.

Pretty Disingenuous

“It’s pretty disingenuous to say there’s no procompetitive reasons” for the Google agreements, O’Connor said by phone. They promote integration among applications on mobile devices, he said, adding that both Nokia Oyj and Amazon.com Inc. offer Android mobile devices that don’t run Google applications.

Hagens Berman Sobol Shapiro LLP, the Seattle-based law firm that filed yesterday’s complaint, represents plaintiffs in other big antitrust cases. In one complaint filed in March in San Francisco, the firm accused the National Collegiate Athletic Association and five regional football conferences of conspiring to cap the value of scholarships below the actual cost of college attendance to control costs.

The law firm is also handling a group lawsuit on behalf of consumers in federal court in New York alleging that Apple conspired with publishers to inflate electronic-book prices.

The case is Feitelson v. Google, 14-cv-02007, U.S. District Court, Northern District of California (San Jose).

To contact the reporters on this story: Karen Gullo in federal court in San Francisco at kgullo@bloomberg.net; Joel Rosenblatt in San Francisco at jrosenblatt@bloomberg.net

To contact the editors responsible for this story: Michael Hytha at mhytha@bloomberg.net Joe Schneider, Charles Carter


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