A top Apple executive defended a lucrative deal with Google in court Tuesday, calling Google’s search engine the only “valid” default for iPhones and saying Apple selected it because it’s the best.
Cue, Apple’s senior vice president of services, said that under their agreement dating back to 2002, the two companies divvy up “net revenue” from Google searches on Apple devices after Google recovers its costs. When the agreement came up for renegotiation in 2016, Apple saw no other search engine worthy of priority placement, Cue said.
“There wasn’t a valid alternative that we could have gone to at the time,” he said.
What exactly that means — that Apple didn’t have other good options — could be a key point in U.S. District Judge Amit Mehta’s deliberations. He will decide whether Google abused monopoly power to quash rivals in the search industry. Google has argued that it simply has the best search engine and engages in aboveboard competition.
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Prosecutors contend that Google struck the massive revenue share agreement with Apple to keep it from branching out to rival search engines or potentially creating a competing search engine of its own.
On Tuesday, Cue said that the company has not created its own search engine and chose to default to Google’s because it has a superior product to its competitors. “We are telling the world that Google is the best search engine, because that’s what they would expect Apple to pick,” he said.
Apple also has agreements with search engines such as Yahoo and Microsoft’s Bing, Cue said, though Google has retained the default position in Apple’s Safari browser since 2002. Apple generates money from those other search engines if users change their defaults to them.
The outcome of this case could have wide-ranging effects on Google’s trajectory if Mehta imposes penalties. It is one of a series of cases that Washington antitrust enforcers have lodged against major tech companies, including one filed Tuesday by the Federal Trade Commission against Amazon. (Amazon founder Jeff Bezos owns The Washington Post. Interim CEO Patty Stonesifer sits on Amazon’s board.)
Equity research firm Sanford Bernstein estimates Google will pay Apple between $18 billion and $19 billion this year through the search-engine agreement. The two companies have not publicly disclosed figures in the trial, citing trade secrets, though another Apple executive acknowledged earlier on the stand that “billions” of dollars are involved.
The Apple deal has loomed large in the case, as it secured Google’s standing across iPhones — more than half of smartphones sold in the United States. The rest of the market is also dominated by Google through its deals with makers of Android smartphones.
Ahead of the trial, Apple attempted to quash the subpoenas seeking executive testimony, arguing the company has been “the subject of uncharacteristically overbroad and burdensome demands throughout this case.” The judge denied that motion, saying the deal with Apple is “central” to the case.
Justice Department attorney Meagan Bellshaw asked Cue on Tuesday about a part of the deal that says Apple will cooperate in the case of government actions. Cue said the language had been drafted by lawyers and included at Google’s request. He said he thought it had to do with the regulatory scrutiny Google was facing from the European Union at the time.
“That’s not why I’m here,” Cue said. “I don’t know exactly what that means from a legal point of view.”
Cue’s hour of public testimony came after another Apple executive, AI head John Giannandrea, testified behind closed doors save for 10 minutes last week, drawing protests from transparency activists. Mehta ordered Monday that part of Giannandrea’s testimony be unsealed.
Bellshaw questioned Cue on his role leading Apple’s negotiations with Google CEO Sundar Pichai to update the terms of their agreement in 2016. Cue said he pushed for Apple to receive a higher share of revenue. “We believed that we deserved to get a higher rate than we were getting,” Cue said.
Cue’s comments that Apple was able to negotiate for a better deal could be favorable for Google’s position that it did not strong-arm the iPhone maker into the agreement.
Under cross-examination by Google attorney John Schmidtlein, Cue said at one point Apple allowed Yahoo and Bing to send prompts to users to change their default search engine from Google. But Apple stopped those messages because they reminded users too often, Cue said.
“Unfortunately Yahoo abused the privilege, and we removed it later,” he said. “Basically prompting the customer all the time … so now the experience for the customer was horrible.”
Schmidtlein pushed back at the Justice Department’s contention that the deal had restricted Apple’s ability to experiment and innovate with its product offerings related to search.
“Sir, are you aware of Google restricting Apple’s ability to design its software products?” he asked.
“I am not,” Cue said.
