Smartphone suit against Google plays into rivals' hands

Google argued last week the proposed class action should be dismissed


SAN FRANCISCO (Reuters) - A U.S. consumer lawsuit accusing Google of monopolizing prime real estate on Android smartphones will help mobile rivals like Microsoft make their antitrust case with European regulators should damaging secrets emerge in court.

The suit, filed in California federal court in May by two smartphone consumers, said Google requires handset manufacturers such as Samsung Electronics Co Ltd <005930.KS> to restrict competing apps like Microsoft's Bing search on Android phones, partly by making Google's own apps the default.

Google argued last week the proposed class action should be dismissed because consumers still are free to use the other apps. The plaintiffs counter that most consumers either don't know how to switch default settings, or will not go to the trouble.

If a judge lets the lawsuit proceed, plaintiffs' attorneys would be allowed to delve into internal Google emails and contracts with smartphone companies, and could interview Google executives under oath, said Steve Berman, who represents the consumers.

"I'm confident we will get into juicy stuff, and I think that will up the pressure on Google as some of the material we discover becomes public," he said.

Google declined to comment. A hearing on Google's bid to dismiss the case is scheduled for October.

Any damaging evidence from the class action would play into the hands of Google's rivals. Microsoft spokesman Jack Evans said the company "is not a party" to the consumer lawsuit, but last year a group of companies - including Microsoft <MSFT.O>, Oracle <ORCL.N>, Nokia <NOK1V.HE>, Expedia <EXPE.O> and TripAdvisor <TRIP.O> - filed a complaint with European antitrust regulators over some of the same issues in the U.S. lawsuit.

Google apps "are widely used on Android by requiring default placement and other mechanisms for disadvantaging competing apps," the companies said in a summary of their complaint.

Google last year said it was working cooperatively with European regulators, who have yet to decide whether to formally investigate.


Berman has a long history of taking on large U.S. companies. He reached a settlement for consumers suing Apple <AAPL.O> over its e-book sales practices that could reach $450 million, and settled for $1.6 billion a lawsuit on behalf of Toyota <7203.T> car owners with unintended acceleration claims.

But the Seattle-based plaintiffs' lawyer also has represented one of Google's main rivals. Berman defended Microsoft when it faced its own antitrust investigations over Windows. Berman said he has had "conversations with Microsoft over the years about Google's conduct," but not about this lawsuit.

No stranger to antitrust inquiries, Google was scrutinized by U.S. and European regulators over allegations that it improperly manipulated search results to rank its own services higher than competitors.

U.S. authorities ultimately closed their investigation without filing a lawsuit, and Europe's competition commissioner negotiated a settlement earlier this year which is awaiting approval by the broader European Commission.


The main issue for U.S. courts will be whether Android and mobile services like search are "technically separate, or tied in ways that impedes competition for consumers," said Michael Cusumano, a professor at the MIT Sloan School of Management.

Cusumano has extensively researched Microsoft, which unsuccessfully sued the professor in the 1990s for access to his notes. This year Microsoft has sought to hire him to write an expert opinion in an unrelated proceeding.

The U.S. consumer lawsuit is based largely on contracts between Google and Android manufacturers Samsung and HTC <2498.TW> that became public during Oracle's separate 2012 trial against Google.

If Samsung or HTC wishes to use Google apps on its phones, the consumer lawsuit said, they must preload a suite of services - including YouTube and Maps - on "prime screen real estate" on the phones, and set Google search as the default.

It also argues that Google's deal with Apple to be the default search on iPhones and iPads locks out competitors across the mobile universe. Apple does not have its own search engine, has lower market share worldwide than Android and is not a defendant in the case.

Google's deals with handset makers do not prevent rival search engines "from reaching consumers through the various distribution channels available to them," Google wrote in its motion to dismiss the U.S. lawsuit.

Cusumano said the U.S. class action could hurt Google if a judge finds that it improperly pushes its mapping and location services, which is embedded across the Android system.

It's "kind of a Pandora's Box to look inside what Google does, and the relationship it has with all these smartphone and handset manufacturers," he said.

(Additional reporting by Bill Rigby in Seattle; Editing by Howard Goller)

(Reuters) - Google Inc <GOOGL.O> <GOOG.O> is the best placed of any company to benefit from the shift to mobile, increased local advertising and wearables, analysts said after the search giant posted its 18th straight quarter of 20 percent-plus revenue growth.

At least eight brokerages raised their price targets on the stock on Friday by as much as $75, to a high of $745.

Google shares were up 2 percent at $593.37 in early trading on the Nasdaq.

The company, which is also set to benefit from the so-called "internet of things", said on Thursday that second-quarter revenue rose 22 percent to $15.96 billion, beating the average analyst estimate of $15.61 billion.

Growth was driven by the company's core search business, YouTube and product-listing ads, which combined to drive three times as much mobile traffic for merchants compared with last year, Jefferies analysts wrote in a note.

Brokerage Jefferies maintained its "buy" rating and $700 price target on the stock.

Of the 46 analysts covering Google, 36 have a "buy" or a higher rating on the stock and 10 have a "hold". There are no "sell" ratings, according to StarMine data.

Google earns most of its revenue from advertising.

The number of "paid clicks" by consumers on ads serviced by Google increased 25 percent year-on-year in the quarter.

However, the average price of the ads declined 6 percent as ad rates on mobile phones are typically cheaper than traditional online ads because of their smaller screens.

"Google is successfully transitioning its business from PC to mobile, and is arguably in a more favorable position in mobile than it was in PC, which should eventually be reflected in a higher multiple," Deutsche Bank analyst Ross Sandler wrote in a client note.

Google also owns Android, the world's most-used mobile software, and YouTube, the most popular video-streaming service.

Other online companies such as Facebook Inc <FB.O> and Twitter Inc <TWTR.N> are also revamping their advertising businesses to take advantage of the shift to mobile devices.

But Google has established unusually deep competitive "moats" around its business through scale, aggressive product innovation and substantial investment, RBC Capital Markets analysts wrote in a research note.

Google's capital investment budget has topped $17 billion over the past five years, and the company has spent about $13 billion on research, according to analysts.

The company is also spending big to push into new markets with innovations such as wearable computers, ultra high-speed internet access and home automation - the "internet of things."

Up to Thursday's close, the stock had risen 26 percent in the past year. The stock hit an adjusted life high of $615.03 in February.

(Reporting by Supantha Mukherjee in Bangalore; Editing by Ted Kerr)


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