In a double blow to Google, the European Commission made two announcements on 15 April concerning its investigations into Google’s online practices and Android operating system. First the Commission announced that it had sent a Statement of Objections to Google alleging that Google has been “systematically favouring” Google Shopping at the expense of competing comparison sites. Then the Commission announced that it was opening a separate investigation into the Google Android operating system. In making the announcements, the EU Commissioner for Competition Margrethe Vestager (pictured above) stated that the Google antitrust investigations have been one her priorities since taking office in November last year to ensure that “consumers and innovative companies can benefit from a competitive environment in Europe”. Google strongly denies the allegations.
Statement of Objections concerning Google Shopping
In its Statement of Objections, the Commission has set out its preliminary view that Google is abusing a dominant position by “systemically favouring” its own comparison shopping product in general search results pages. Google holds a dominant position in providing general online search services with above 90% market shares in most EU countries. It also provides a shopping comparison service (initially called “Froogle” but later changed to “Google Shopping”) which allows consumers to compare prices between different vendors. However, the Commission alleges that Google has been using its dominance in the general search market to unfairly compete in the market for shopping comparison services by diverting traffic to Google Shopping.
In particular, the Commission alleges that Google has engaged in the following abusive conduct:
- Google systematically positions and prominently displays its comparison shopping service in its general search results pages, irrespective of its merits. This conduct started in 2008.
- Google does not apply to its own comparison shopping service the system of penalties that it applies to other comparison shopping services. This can lead to the lowering of the rank in which these rival services appear in Google’s general search results pages.
- Google’s first shopping comparison product “Froogle” did not benefit from any favourable treatment and performed poorly whereas Google’s subsequent shopping services have experienced higher rates of growth due to Google’s systematic favouring of its own service in the general search site.
The Commission has given its preliminary view that Google should treat its own comparison shopping service in the same way as its rivals. In setting out the allegations, EU Commissioner Vestager stated “The commercial importance of appearing prominently in Google’s general search results is obvious. I am concerned that Google has artificially boosted its presence in the comparison shopping market, with the result that consumers may not necessarily see the most relevant results in response to their queries, and Google’s competitors may not get the commercial opportunities that their innovations deserve.”
Google though denies the allegations with Senior Vice President Amit Singhal saying: “If you look at shopping it’s clear that (a) there’s a ton of competition (including from Amazon and eBay, two of the biggest shopping sites in the world) and (b) Google’s shopping results have not the harmed the competition.”
The Commission should receive Google’s formal response to the Statement of Objections in the coming weeks (10 weeks is the standard response period but it can be extended). It is also likely to receive submissions from complainants and other interested parties. On the basis of the available evidence, the Commission will then have to determine whether there has in fact been an infringement of EU competition law and, if so, whether to require remedies and issue fines.
Investigation into Android Operating System
In parallel, the Commission announced that it had opened formal proceedings against Google to investigate the company’s conduct in relation to its Android operating system for smart mobile devices.
Android is an open source operating system meaning that it can be freely used and developed by anyone. However, smartphone and tablet manufacturers often use a range of Google applications and services in combination with the Android operating system. It is in relation to these applications and services that the Commission has concerns that Google has been hindering market access for rival providers.
Specifically, the Commission’s investigation will focus on the following three allegations:
- Agreements requiring smartphone and tablet manufacturers to exclusively pre-install Google’s own applications or services have hindered market access to competing services.
- Google has prohibited smartphone or tablet manufacturers from using modified and potentially competing versions of Android (so-called Android forks) through anti-fragmentation agreements.
- Google has tied or bundled certain Google applications and services distributed on Android devices with other Google applications thereby giving its own products an unfair competitive advantage.
The opening of the formal investigation means that the Commission is taking the allegations raised in the complaints seriously but does not prejudge the outcome. Google though has denied the allegations, pointing out that Android is available for free has led to incredible innovation in a market that just a decade ago did not even exist.
“We hoped that by offering a great, free open-source operating system, we could turbocharge innovation by allowing manufacturers and developers to focus on what they do best”, explained Hiroshi Lockheimer, VP of Engineering, Android, “At the time, most people thought this plan was nuts. Fast forward to today. The pace of mobile innovation has never been greater.”
Google has also defended its anti-fragmentation agreements pointing out that they are necessary to ensure apps work across different Android devices. It notes that its products face fierce competition from the likes of Facebook, Expedia and Amazon, all of which can be easily downloaded or are also available to consumers when they purchase mobile devices. The task for Google now will be to convince the Commissioner for Competition about the benefits of such agreements and the health of competition in the App eco-system that it has played such a key role in nurturing.
The Commission’s double announcement in Brussels today will reverberate around Silicon Valley for some time. Both complainants and supporters of Google are now likely to descend on Brussels as the investigations intensify. The Commission is also investigating Google’s conduct in other areas (e.g. copying of rivals’ web content known as “scraping”, advertising exclusivity and undue restrictions on advertisers). It seems that the European Commission’s search into fair competition online is far from over.
Benoît Keane specialises in EU competition law in particular concerning the media sector. For more information, please visit www.keanelegal.com/about