Apple shares rise after judge rules Google can continue preload deals in antitrust case

Shares of Apple surged over 3% in after-hours trading following a federal court ruling that permits Alphabet to continue its financial agreements for preloading Google Search on iPhones. While Apple was not directly involved in this antitrust trial, the judge's decision addressed potential remedies that could have restricted Google's payments to Apple, which are believed to be in the billions each year for being the default search engine on Apple’s Safari browser across various devices. Judge Amit Mehta stated in his ruling that Google would not be prohibited from making payments or providing incentives to distribution partners for the placement of its search engine, Chrome, or other GenAI products. He noted that removing these payments could lead to significant, potentially detrimental effects on distribution partners, related markets, and consumers, thus advising against an outright ban on financial arrangements. The case centered on Google's stronghold in the search engine market and its alleged violations of the Sherman Act. However, the judge did impose restrictions, stating that Google cannot maintain exclusive contracts for preloading its search engine or essential applications on devices. This means that Google is not allowed to bundle its Android services with its search engine or tie revenue sharing to the acceptance of additional Google services. The ruling recognized that the agreement between Apple and Google to designate Google as the default search engine was exclusive, effectively establishing Google as the primary search option upon initial device setup. While the judge placed limitations on Google's ability to make exclusive distribution payments, he did not entirely eliminate these payments, suggesting that future agreements between the two companies could still be possible. Analysts have speculated that Apple might implement a search engine selection screen on initial device startup. Neither Apple nor Google has provided immediate comments regarding the ruling. The U.S. Department of Justice initiated its lawsuit against Google in 2020, accusing the company of maintaining its dominant market share through stringent barriers against competitors. In August, a ruling by the U.S. District Court in Washington affirmed that Google had violated Section 2 of the Sherman Act. Eddy Cue, Apple's senior vice president of software and services, previously testified in support of Google during the proceedings concerning potential remedies. This recent ruling presents the judge's first detailed view of the proposed remedies, although analysts believe it may take years before Apple faces any mandatory changes as a result of this case. Google has indicated plans to appeal the ruling, and any ongoing remedies litigation could extend for up to two years, with further appeals potentially reaching the Supreme Court. In 2021, Google reportedly paid a total of $26 billion to various partners to be their default search engine, with Apple's partnership being the most significant due to its vast user base. These payments are crucial for supporting Apple's growing services division, which is increasingly appealing to investors due to its higher profit margins compared to hardware sales. Apple has also expressed that it prioritizes offering its users the best search experience, which is why it continues to work with Google. Additionally, the company has been exploring options for incorporating AI search engines into its software offerings. The judge noted that Cue's testimony highlighted how Google's substantial revenue share payments have discouraged Apple from attempting to capture advertising revenue from Safari's default search functions. Apple's revenue from Google is categorized under advertising revenue in its financial reports, which is part of the broader Services sector that encompasses AppleCare, cloud services, and digital content like apps and Apple Music.