European Commission fines Google €4.34 Billion

One of the most controversial issues in the legislation related to the protection of competition is the question of defining the abuse of a dominant position. The term abuse of dominant position refers to anticompetitive business practices in which a dominant firm may engage in order to maintain or increase its position in the market. The dominant market position in EU law and most of the countries outside the EU, is not forbidden, but the abuse of a dominant position is, and subject to penalties.

… a dominant position is defined as a position of economic strength enjoyed by an undertaking which enables it to prevent effective competition being maintained in the relevant market…
(Article 102 TFEU)

The European Commission has fined Google €4.34 billion for breaching the EU antitrust rules. According to the EC Google has imposed illegal restrictions on Android device manufacturers and mobile network operators to cement its dominant position in general internet search.

In 2005 Google bought the original developer of the Android mobile operating system and has continued to develop Android mobile operating system ever since, so today, about 80% of smart mobile devices in Europe, and worldwide, run on Android.

As the owner of the Android mobile operating system, Google became dominant in the markets for general internet search services, licensable smart mobile operating systems and app stores for the Android system. At the same time, the company has started to set conditions for the device manufacturers who wanted to obtain Google’s proprietary Android apps and services.

The goal for which the measures are taken is not important, but the final effect as a result of the behavior of the dominant company.

Also, according to Article 102 TFEU, a dominant position is defined as a position of economic strength enjoyed by an undertaking which enables it to prevent effective competition being maintained in the relevant market by giving it the power to behave to an appreciable extent independently of its competitors, customers and ultimately of consumers’(emphasis added) (Case 27/76, United Brands. https://eur-lex.europa.eu/legalcontent/
EN/TXT/?uri=CELEX%3A61976CJ0027 ). Dominant positions are assessed in relation to the internal market as a whole, or at least a substantial part of it. How much of the market is taken into account depends on the nature of the product, product availability, alternative products.

european-commission-fines-google-4-34-billion
European Commission fines Google €4.34 Billion

Also, the European Court of Justice considers that the existence of abuse does not depend on the intention of the dominant company to weaken its competitors. The goal for which the measures are taken is not important, but the final effect as a result of the behavior of the dominant company (emphasis added).

Article 54 of the European Economic Area Agreement (EEA Agreement), provides that any abuse by one or more undertakings of a dominant position within the territory covered by the Agreement, or in a substantial part of it, shall be prohibited as incompatible with the functioning of the Agreement in so far as it may affect trade between Contracting Parties.

As stated in the report of the European Parliament, Council Regulation (EC) No 1/2003 (https://eurlex. europa.eu/legal-content/en/ALL/?uri=CELEX%3A32003R0001) has governed the implementation of the rules laid down in Articles 101 and 102 TFEU since 1 May 2004. This allows national competition authorities and the courts of the Member States to apply Articles 101 and 102 TFEU themselves. In 2017, the Commission proposed a Directive to empower national competition authorities (NCAs) to become more effective enforcers of EU antitrust rules with a view to ensuring that, when applying the same legal basis, NCAs cooperating via the European Competition Network (ECN) have the appropriate tools to establish a genuine common competition enforcement area.

Google’s practice has… reduced the incentives of manufacturers to pre-install competing search and browser apps, as well as the incentives of users to download such apps. This reduced the ability of rivals to compete effectively with Google…

The legal basis for the Comission’s decision are reported bellow. They concentrate on three specific types of contractual restrictions that Google has imposed on the device manufacturers and mobile network operators.

Google arguably:

  • has required manufacturers to pre-install the Google Search app and browser app (Chrome), as a condition for licensing Google’s app store (the Play Store);
  • made payments to certain large manufacturers and mobile network operators under the condition that they exclusively pre-installed the Google Search app on their devices; and
  • has prevented manufacturers wishing to pre-install Google apps from selling even a single smart mobile device running on alternative versions of Android that were not approved by Google (so-called “Android forks”).

1. Illegal tying of Google’s search and browser apps

Google offers its mobile apps and services to device manufacturers as a bundle, which includes the Google Play Store, the Google Search app and the Google Chrome browser. Google’s licensing conditions make it impossible for manufacturers to pre-install some apps but not others.

As part of the Commission investigation, device manufacturers confirmed that the Play Store is a “must have” app, as users expect to find it preinstalled on their devices (not least because they cannot lawfully download it themselves).

Pre-installation can create a status quo bias. Users who find search and browser apps pre-installed on their devices are likely to stick to these apps. For example, the Commission has found evidence that the Google Search app is consistently used more on Android devices, where it is pre-installed, than on Windows Mobile devices, where users must download it. This also shows that users do not download competing apps in numbers that can offset the significant commercial advantage derived through pre-installation.

Google’s practice has therefore arguably reduced the incentives of manufacturers to pre-install competing search and browser apps, as well as the incentives of users to download such apps. This reduced the ability of rivals to compete effectively with Google as stated by the European Commission.

2. Illegal payments conditional on exclusive preinstallation of Google Search

Google granted significant financial incentives to some of the largest device manufacturers as well as mobile network operators under the condition that they exclusively pre-installed Google Search across their entire portfolio of Android devices. This harmed competition by significantly reducing their incentives to pre-install competing search apps.

…even if the rival search engine was preinstalled on only some devices, they would have to compensate the device manufacturer or mobile network operator for a loss of revenue share from Google across all devices.

Google has also allegedly closed off an important channel for competitors to introduce apps and services, in particular general.

According to the Commission’s investigation a rival search engine would have been unable to compensate a device manufacturer or mobile network operator for the loss of the revenue share payments from Google and still make profits. That is because, even if the rival search engine was pre-installed on only some devices, they would have to compensate the device manufacturer or mobile network operator for a loss of revenue share from Google across all devices.

3.Illegal obstruction of development and distribution of competing Android operating systems

Following the European Commission’s report investigation, Google has prevented the device manufacturers from using any alternative version of Android that was not approved by Google (Android forks). In order to be able to pre-install on their devices Google’s proprietary apps, including the Play Store and Google Search, manufacturers had to commit not to develop or sell even a single device running on an Android fork. This practice reduced the opportunity for devices running on Android forks to be developed and sold.

In doing so, Google has also allegedly closed off an important channel for competitors to introduce apps and services, in particular general.

This is a legal report offered by Jusufovic&Fernandez Jankov aiming exclusively at offering a better understanding of the main legal issues that permeate business to our clients.

Jusufovic & Fernandez Jankov Legal Team
Supervised by Prof. dr Fernanda F.Fernandez Jankov
www.jfj.rs

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