Apple shares rise after decision in Google antitrust case

Apple shares rose more than 3% in extended trading Tuesday after a federal judge ruled that Alphabet may continue making payments to preload Google Search onto the iPhone.

Although Apple wasn’t a party in the search monopoly trial, the judge was considering remedies that would bar Google from paying billions per year to Apple to be the default search engine on the Safari browser on iPhones, Macs and iPads.

“Google will not be barred from making payments or offering other consideration to distribution partners for preloading or placement of Google Search, Chrome, or its GenAI products,” Judge Amit Mehta wrote in his decision.

“Cutting off payments from Google almost certainly will impose substantial — in some cases, crippling — downstream harms to distribution partners, related markets, and consumers, which counsels against a broad payment ban,” the decision continued.

The landmark case focused on Google’s dominance of the general search market, Google’s violations of the Sherman Act and the barriers to entry that the search engine erected.

However, the judge said that Google will be barred from entering or maintaining “any exclusive contract” related to preloading its search engine or key apps on devices, specifying that Google can’t bundle its Android services with Google search or condition revenue share agreements on the acceptance of other Google apps or services.

The decision said that Apple’s deal with Google to be the default search engine was “exclusive” because it established Google as the default out-of-the-box search engine.

But while Mehta put restrictions on Google making payments to ensure its products receive exclusive distribution, he fell short of banning those payments entirely, leaving open the possibility that the two companies could strike a new deal. Apple, for example, could offer a search engine “choice screen” when it first boots up, analysts previously speculated.

Neither Apple nor Google immediately respond for a request for comment.

The U.S. Department of Justice filed its suit against Google in 2020, alleging that Google kept its share of the general search market by erecting strong barriers for challengers, such as its default search deals. The U.S. District Court in Washington ruled last August that Google violated Section 2 of the Sherman Act. Eddy Cue, Apple’s senior vice president of software and services, testified on Google’s behalf about potential remedies.

Tuesday’s filing was the first time the judge had detailed his proposed remedies.

Analysts previously said that it may take years before Apple is forced to make changes in response to a Google suit ruling. Google has said it will appeal the ruling, and analysts say any remedies trial could last for up to two years. Google can also appeal the outcome of the remedies trial, and the Supreme Court can choose take a look at it once appeals are exhausted.

While Google contracts with companies such as Samsung and browser-maker Mozilla to be the default search engine on their platforms, the most important and biggest such “default agreement” deal is with Apple. Google paid all partners $26 billion in total to be the default search engine in 2021, according to documents discussed in court.

Google paid because it funnels traffic from Apple’s 1 billion iPhone users to its search engine, and the revenue is critical for the growth of Apple’s services business, which investors love because it is so much more profitable than hardware sales.

In addition to the licensing payments, Apple says that it uses Google because it’s the best search engine and that its priority is to offer the best tools to its customers.

Apple also has options if it cannot make Google the default search engine. Earlier this year, for example, Apple’s Cue said in court as a witness for Google that the iPhone maker is also considering adding AI search engines as options to its software.

“Cue’s testimony establishes that Google’s high revenue share payments deterred Apple from trying to capture for itself all the advertising rents that flow through the Safari browser’s default search box,” the judge wrote in Tuesday’s filing.

Apple’s revenue from Google is reported in its financials as advertising revenue, which is reported as part of the company’s Services business, which also includes AppleCare warranties, cloud services like iCloud, and digital content like apps and Apple Music.

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