News | September 18, 2018

One fine day: The European Commission’s decision in the Google Android case

The European Commission (EC) seems to be falling into the habit of imposing record-breaking fines on Google before packing up for its summer holidays. It happened last year when, at the end of June, the EC announced an eye-watering fine of €2.4bn in the Google Shopping case[1], more than twice as large as the biggest anti-trust fine[2] that the EC had previously imposed. And it has now happened again, for in the latter part of July of this year the EC imposed upon Google an even more massive fine of €4.34bn for having again breached EU competition law, this time in connection with illegal practices regarding Android mobile devices.

In this article we focus on the legal aspects of the EC’s decision in Google Android (the Decision) in order to see what can profitably be learned from it.

What was the Decision in a nutshell?

As a result of two complaints to the effect that Google had abused its market dominance in relation to Android mobile operating systems, as well as an initial investigation carried out by the EC on its own initiative, the EC opened infringement proceedings in April 2015, issued a Statement of Objections in April 2016, and concluded in July 2018 that Google’s conduct had indeed broken EU anti-trust law.

Was the Decision a surprise?

The EC’s proceedings have been lumbering on for over three years, during which many pundits correctly forecast that it would find against Google.  Few, however, accurately predicted the size of the fine, which didn’t just break the pre-existing record but shattered it.

Some have commented that the quantum of this fine, huge though it was in absolute terms, was relatively small change for Google given that the assets of its parent company, Alphabet, are astronomical.  But such comments overlook the EC’s power to impose further back-dated fines, in the event of Google’s non-compliance, of up to 5% of Alphabet’s average daily turnover.  If the duration of that non-compliance were to be lengthy, the aggregate of those further fines could be such as to make even Google feel the pain. Having said that, Google may be troubled more by the bad publicity – abusing a dominant position isn’t entirely consistent with its corporate moto “Don’t be evil“! – and (unless it successfully appeals against the Decision, as to which see below) by the need to alter its business model, for the Decision obliges Google to cease and desist from its infringing practices.

What was the legal basis for the Decision?

The Decision was grounded on Article 102 of the Treaty on the Functioning of the European Union (TFEU), which prohibits the abuse of a dominant market position, and which has been copied by other EU member states (Member States) in their respective domestic laws (for example, the UK’s Competition Act 1998 contains at section 18 an almost verbatim equivalent).  Article 102 is probably the most fearsome weapon in the EC’s anti-trust arsenal for, unlike Article 101 of the TFEU (which prohibits anti-competitive agreements and practices), it can be infringed by purely unilateral conduct, and is subject to almost no exceptions.  Furthermore, although the Article contains a list of four particularly heinous examples of abuse, that list is non-exhaustive only, which means that the prohibition is dangerously open-ended.

The task of assessing whether a business has contravened Article 102 by having abused market dominance is a composite one, involving various steps that need to be taken in the correct order.  The first is to identify the markets in question, and to decide whether the business under investigation is dominant in any of them.  In this particular case the EC came to the conclusion that there were three relevant markets to be considered, namely the worldwide (excluding China) markets for:

  • general internet search services;
  • licensable smart mobile operating systems; and
  • app stores for the Android mobile operating system.

Step number 2 was to assess whether Google was dominant in any of those markets, and the EC found dominance to have been established in all three.  One reason for that finding was the high entry barriers obtaining in all of them.  But even had those barriers been lower, the likelihood is that dominance would still have been established, as a result of Google’s sky-high market shares, which exceeded 90% in each of the three markets.

But, infuriating though it may be to the competition, market dominance – even the extreme level of dominance wielded by Google – does not itself break the law.  As the EC succinctly put it in its press release, “[m]arket dominance is, as such, not illegal under EU anti-trust rules“. The problem, rather, occurs where that dominance is abused, which was the subject of the third and final step in the EC’s legal analysis. And that step was crucial, for the analysis uncovered multiple abuses.

Of which abuses was Google guilty?

The EC found that Google had engaged in not just one but three separate types of abuse, all of which had the aim of cementing its dominant position.  One of them was the illegal tying of its search app and of its Chrome browser, namely by ensuring that both were pre-installed on practically all Android devices sold in the EEA. The result was to reduce the incentives of manufacturers to pre-install competing search and browser apps, as well as the incentives of users to download them.

A second type of abuse was the making of illegal payments conditional on exclusive pre-installation of Google Search.  Some of the largest device manufacturers, as well as mobile network operators, received significant financial incentives from Google on condition that they exclusively pre-installed Google Search across their entire portfolio of Android devices, which dissuaded them from pre-installing competing apps.

And a third illegality was the obstruction of the development and distribution of alternative Android operating systems, often known as “Android forks”.  In order to be able to pre-install Google’s proprietary apps on their devices, manufacturers had to agree contractually not to develop or sell even a single device running on an Android fork.

To what extent does the Decision set a precedent?

In terms of substantive law the Decision breaks little new ground:  after all, the prohibition of abuse of a dominant position in Article 102 (and its predecessors) has been a major plank of EU competition law for some sixty years, and it is already well-settled by cases such as Microsoft[3] that the prohibition can be breached if a player leverages its dominance in market A (in this case the market for Android operating systems) in order to exploit market B (in this case the market for general internet search).  However, in terms of the quantum of the fine (both in relative and absolute terms) the Decision breaks new ground, and arguably accords more publicity than ever before to the EC’s readiness and willingness to punish the abuse of a dominant position.

What kind of alterations to Google’s business model may result from the Decision?

In cases such as this it is the duty of competition law regulators to enforce compliance and punish breaches, rather than to dictate how compliance is to be achieved; that is why the EC’s press release said that “[i]t is Google’s sole responsibility to ensure compliance with the Commission decision“, though it is already clear that the EC will not necessarily be taking Google’s explanations at face value, and will be monitoring it closely.  The relative lack of specificity in the Decision about remedies is therefore unsurprising.  Having said that, the Decision obliges Google to cease and desist from each of the three types of abuse explained above, though it does not prevent Google from putting in place a reasonable, fair and objective alternative system to ensure the correct functioning of Android devices using Google proprietary apps and services.

Is the Decision likely to stimulate civil actions before Member States’ courts? 

We are already seeing a rising tide of civil actions before the courts of Member States by victims of anti-competitive practices, due to a range of factors, including two principal ones.  One of them is the growing familiarity with competition law on the part of businesses, who are gradually wising up to the opportunities for extracting compensation for damage inflicted on them by anti-competitive conduct.  The other is the way that the law is (belatedly) making it easier for them to do so, and in this respect the EU’s Antitrust Damages Directive[4] was a milestone.[5]  The Decision – and the major publicity accorded to it – will inevitably add fuel to the fire.

What about the EC’s other outstanding formal investigations into Google?

The Decision is not the only euro-headache that Google has. The EC’s ruling in Google Shopping has been mentioned above; and the EC is also investigating AdSense (Google’s search advertising model), having already reached the preliminary conclusion that that practice breaches EU competition law.  If this conclusion is confirmed, another thumping fine will follow as certainly as night follows day, although it is too early to speculate whether its amount would equal or exceed the one imposed this July.

Is the Decision “game over”? 

Unlikely.  Google has until the autumn in which to appeal against the Decision, and few companies in the world have a deeper war-chest with which to fund the costs of an appeal.  If it decides to appeal, it is perfectly possible that it could succeed.  After all, just because the EC is in charge of EU competition law doesn’t mean that it is infallible; on the contrary, it has got the law wrong on various occasions, and some pundits are already predicting that the Decision would be reversed in the event of an appeal.

In conclusion

Cases such as this can reinforce the belief that it is only massive multinationals that really need to fear the Article 102 prohibition.  But such a belief is erroneous…and dangerously so.  They may not command banner headlines, but there is no shortage of cases in which organisations far smaller than Google have fallen foul of Article 102 or its national equivalents.[6]  The only safe conclusion is that no business, great or small, can afford to disregard the consequences of abusing market dominance.

For further information please contact Jonathan Cornthwaite.

[1] Case 39740 Google Search (Shopping)
[2] The fine of €1.06bn levied against Intel Corporation in 2009 was (prior to the Google Shopping decision) the highest individual fine that the EC had then imposed, though the aggregate of the fine imposed by the EC on Microsoft in 2004 plus the non-compliance penalties subsequently imposed on it topped €1.67bn.
[3]Case T-201/04, Microsoft Corporation v Commission, judgment of 17 September 2007
[4] Directive 2014/104/EU of the European Parliament and of the Council of 26 November 2014 on certain rules governing actions for damages under national law for infringements of the competition law provisions of the Member States and of the European Union.
[5] Once Member States get around to transposing it into their respective national laws, that is – the EC has been obliged to institute infringement proceedings against several of them for having failed to do so!
[6] For example, organizations recently found to have infringed section 18 of the Competition Act 1998 (the UK’s equivalent to Article 102 of the TFEU) have included entities as modestly-sized as Flynn Pharma Limited and The Law Society of England and Wales.