Will an Apple-Google AI partnership get past regulators?

By Jon Swartz

The tech dream team of Apple Inc. and Alphabet Inc.'s Google has already provoked the ire of federal regulators in the past, via a multibillion-dollar search deal that led to a Justice Department antitrust lawsuit and trial.

Could another partnership between the giants - this time over Google's Gemini artificial-intelligence engine - prompt a repeat investigation and charges of illegal monopoly?

Opinions are varied, given the active nature of the discussions and the actual specifics of an agreement. But any deal - especially one involving AI - will capture the attention of federal and state lawmakers, the Biden administration, consumer-privacy advocates and government regulators.

Read more: Alphabet's stock heads for best day in a year as Apple may use Google AI engine

An accord between Apple (AAPL) and Google (GOOGL) (GOOG) would essentially extend their online-search partnership that reared regulatory scrutiny. Google reportedly paid Apple about $18 billion in 2021 to make its search engine the default on iPhones.

Outgoing Rep. Ken Buck, a Colorado Republican, has warned that Google will use its AI tools to extend and entrench its online-search dominance unless regulators intervene.

Google, for its part, has argued that its arrangement with Apple benefited customers, who considered its search engine the best-available product. A judge is expected to rule on the case later this year.

Read more: Google officially charged with antitrust by Justice Department

"For Apple, this will give them the foundation and technology blueprint to double down on AI features currently being developed within Apple Park to make sure that iPhone 16 will be a potential game changer iPhone release around AI functionality," Wedbush analyst Daniel Ives said in a note to clients on Monday.

Apple and Google were not immediately available for comment on the Bloomberg report that broke the news.

At the very least, Justice Department officials are likely to look into the deal once it is announced. Apple is expected to discuss its AI plans during its Worldwide Developers Conference in June.

"If the deal is exclusive, it could be a regulatory issue, yes," said Patrick Moorhead, chief analyst at Moor Insights & Strategy. "It will likely open the deal up to scrutiny."

Antitrust expert Abiel Garcia said a potential deal is "unlikely to get regulatory scrutiny unless someone complains about it."

"The FTC/DOJ may ask for information, but depending on how it's structured, I don't think it needs regulatory approval," Garcia added.

Should Apple and Google team up on Gemini AI, the tools would let Apple's iOS perform such tasks as creating images and providing written responses to user prompts, according to the Bloomberg report. Google's AI would potentially be installed on more than 2 billion Apple devices.

That alone has raised concerns, after Google recently disabled Gemini's image-generation tool because it generated pictures such as female NHL players and an Asian woman dressed as a Nazi soldier - sparking allegations that Google injected the chatbot with political bias.

A potential AI deal also comes at a precarious time for Apple as it navigates a regulatory tightrope, both in the U.S. and abroad.

The Department of Justice is expected to sue Apple as soon as this month over its "walled-garden" ecosystem that closely ties together the iPhone, the Apple Watch and other products and services.

Read more: Department of Justice edges toward antitrust case vs. Apple: report

The probe - which reportedly focuses on everything from the seamless integration between the iPhone and Apple Watch, to the company's digital-payments system and its use of green text bubbles to differentiate Android text messages from iMessage communications - is nothing short of an all-out assault on Apple's $2.8 trillion "walled garden" to its core.

Earlier this month, the European Union fined Apple a whopping $1.95 billion for abusing its position in the market for the distribution of music-streaming apps - its first fine against the iPhone maker and one of its largest ever levied on a tech company. The news sent Apple shares down 3%.

Read more: EU's record Apple antitrust fine is just the start of a Big Tech regulatory crackdown this year

To complicate matters even further, tech companies must also now comply with the EU's Digital Markets Act, which makes large players in ad tech accountable for user data they collect and use in the European Union. The DMA went into effect March 6.

"For Apple, they lack a horse in the GenAI game. Google provides an answer," Stephen Messer, co-founder of Collective[i], a generative-AI platform for business-to-business commerce sales, said in an email.

"It will be interesting to see if the DoJ sees a combined mobile-first distribution strategy as anticompetitive," Messer said. "Until that plays out, it's a brilliant move and bellwether for the partnership strategies that traditional tech players (providing distribution and cash) will need to strike with AI providers, whose intelligence is transforming the technological landscape."

-Jon Swartz

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03-23-24 0711ET

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