Winding paths for Google in Europe

Por: Diego Acosta - Asistente de Investigación

The Mountain View based technology company, Google, since its founding in 1998, has gradually become a leading torch in the internet, software and communications industries[1]. Starting with a revolutionary web search engine, and then launching a webmail application (Gmail), a mobile operating system (Android), and various other services[2], Google has succeeded in offering many innovative tools for millions of people around the globe.

The Mountain View based technology company, Google, since its founding in 1998, has gradually become a leading torch in the internet, software and communications industries[1]. Starting with a revolutionary web search engine, and then launching a webmail application (Gmail), a mobile operating system (Android), and various other services[2], Google has succeeded in offering many innovative tools for millions of people around the globe. Last year, its total revenue amounted to 66 billion US dollars[3], and the term “to google”, meaning to search for information on the Web[4], is now a common used expression in different languages. However, certain Google’s business operations have called the attention of competition authorities in the past several years. Of particular importance, is the decision of the European Commission to present charges against Google for infringement of European antitrust law in the web search market.

The legal basis upon which the European competition authority founds its accusation is given by article 102 of the Treaty on the Functioning of the European Union, which prohibits the abuse of a dominant position within the internal market or a substantial part of it[5]. To demonstrate Google’s dominant position, European officials bring attention to the fact that the American company controls over 90% of Europe’s web search market[6]. As to the abuse of such dominant position, there are currently two business conducts that concern the European Commission. Such conducts relate to Google’s web search engine and to Android, its mobile operating system.  But before reaching its latest development, this competition case underwent various stages, since it began in November 2010.

The European Commission’s investigations began following complaints from various search service providers[7] alleging unfavorable treatment to their services in Google’s unpaid search results[8]. In parallel, complainants as well argued that the search results seem to favor Google’s own services over those of competitors[9]. This situation takes place within the scope of specific online content or so called vertical search services, such as comparison shopping services[10]. The supposed mistreatment refers to the lowering of the ranking of competing services of specific online contents, while at the same time conferring preferential placement for Google’s services[11]. In other words, Google’s services occupy the first places, thereby most probably holding the attention of internet users, without necessarily being the most relevant results for users’ queries.

In addition to concerns regarding Google’s online search service, in November 2010 the European Commission also mentioned other issues that could possibly amount to antitrust law infringement. The Commission referred to Google’s imposing of exclusivity obligations on advertising partners, restraining them from placing certain competing ads on their websites, as well as preventing them from running advertising campaigns on competing advertising platforms[12]. These questions and the web search issue motivated the European Commission to formally open an investigation to determine whether Google’s conducts constituted an abuse of dominant position, and thus were in violation of European antitrust laws.

In an effort to answer the European Commission’s concerns, Google prepared a set of proposals to present for the Commission’s consideration. Regarding the search engine issue, Google offered to commit itself to display rivals’ services in a comparable way to its own specialized search services[13]. This would be implemented by the prominent display of three rival services on the same page in which Google would promote one of its own specialized search services[14]. Concerning the other issues, Google conceded to remove exclusivity requirements in its agreements with advertising partners, as well as restrictions to run advertising campaigns on competing search advertising platforms[15]. In addition to these commitments, an independent monitoring trustee would be conferred with the duty to advise the Commission on their implementation and to supervise Google’s compliance[16].

On the 5^th of February,  2014, the European Commissioner for Competition, Mr. Joaquín Almunia, issued a statement expressing his approval of Google’s proposals[17]. He declared that following a path of binding commitments with Google would be more advantageous than following an adversarial path. However, Google’s complainants and other interested parties considered the commitment proposals were not enough[18]. Some even went as far as asking the European Commission to prevent Google from promoting its own specialized search services in its search engine[19].

The European Commission’s approach to Google’s case saw an important change when Mrs. Margrethe Vestager assumed her position as Commissioner for Competition. Contrary to her predecessor Almunia, she is of the view that Google’s search business operations continue to constitute an abuse of dominant position and that Google’s commitment proposals in that regard do not satisfy the European Commission’s concerns[20]. As a result, Mrs. Vestager decided to suspend negotiations for binding commitments with Google and pursue instead a more frontal approach. In that sense, the 15^th of April it was announced that the European Commission had sent Google a Statement of Objections, containing charges of infringement on competition law[21]. Google has 10 weeks to answer the charges, request a formal hearing, and try to submit new proposals of commitments[22]. However, the Statement of Objections sets up the possibility for the Commission to impose a fine on Google, which could amount to 10% of its global annual revenues[23]. Google would have the opportunity to appeal such eventual decision in court, and in that case the controversy could last several years.

At the same time it was announced the Statement of Objections had been sent to Google, Mrs. Vestager declared a formal investigation would be opened to explore certain Google’s conducts regarding Android, its mobile operation system[24]. The objective of the investigation is to determine whether Google breached European antitrust law whilst demanding manufacturers who use Android on their devices to pre-install Google’s services, and preventing them from developing modified versions of Android[25]. Given the significant amount of revenues Google receives from Android, decisions on this issue could strongly affect the company’s fate in the years to come.

In response to the European Commission’s latest announcements, Amit Singhal, Google’s Search senior vice president expressed in a blog post his total disagreement. He argued that competition for Google’s comparison shopping service (Google Shopping) was guaranteed in the European market with the presence of Amazon, Ebay, and the German shopping site Zalando[26]. In addition, he commented that in a sector lacking competition there is no much innovation, new entrants nor investment[27].  But since in the markets in which Google participates there are many actors taking part in innovation and investment, this proves there is high competition.

Other individual voices of critique have also raised. Thomas Sowell, a Harvard economist, has studied the great differences between both antitrust law systems, the American and European.[28] In his view, the goal of competition is to promote economic efficiency and eliminate the less efficient producers[29]. But apparently, the notion in Europe is that big companies should help their smaller competitors survive[30]. According to Sowell, understanding competition in the latter way obeys to political interests, which in no way can influence application of the law[31]. In a similar view, Clyde Wayne Crews, Policy Director at the Competitive Enterprise Institute, writing in reference to Google’s case in Europe, criticizes antitrust law as being designed to free small firms from the need to competitively respond to new market regimes, and to restrict consumers’ freedom by forcing them to consider other options[32]. He affirms, that if Google is indeed dominant, competitors’ reaction should be transformed through mergers or alliances to offer better alternatives to the same customers[33].

Following New York Times columnist, Joe Nocera, there is a clear political intent behind the recent European Commission’s decision regarding Google[34]. In his perception, there is considerable fear among Europeans of the growing influence of the big American internet companies. If Europe wants to develop its own internet platforms, restricting American platforms’ operations might be a plausible way[35]. Among the same lines, British magazine The Economist offers an alternative opinion. If the Europeans’ interest is to create conditions for the development of local internet platforms, imposing restrictions on American companies is not the best solution[36]. Instead, they should focus on creating a common digital market across the continent[37]. That way they could emulate America’s large and open domestic market, which has enabled the creation of large internet companies[38].

Nowadays, Google also faces competition issues in other countries such as India, Russia, Brazil, Argentina, Taiwan and Canada[39]. But, the dispute in Europe is worrying due to the size of the European market and to the European Commission’s pressure, which is capable of imposing high fines and ordering changes in business models. Google’s present situation brings to the memory the case of another technology giant, Microsoft, which in 2013 was condemned to pay 561 million euros by the European Commission, because it did not comply with its antitrust commitments[40]. Some analysts say Microsoft still has not managed to fully recover from that penalty. In Google’s case, the fine could be as high as 6 billion US dollars.  ¿Will Google’s antitrust case end up as a major drawback for the company’s path in Europe or will the high tech firm reach a solution to further enhance its prosperous legacy?

[1] GOOGLE. Company – Google. Available at: http://www.google.com/about/company/

[2] Ibídem

[3] STATISTA – THE STATISTICS PORTAL. Google’s global revenue from 2002 to 2014 (in billion U.S. dollars). Available at: http://www.statista.com/statistics/266206/googles-annual-global-revenue/

[4] MERRIAM-WEBSTER DICTIONARY. Google. Available at: http://www.merriam-webster.com/dictionary/google

[5] Article 102 of TFEU. See: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:12008E102:EN:HTML

[6] BUSINESS INSIDER. Here’s How Dominant Google Is In Europe. Available at: http://www.businessinsider.com/heres-how-dominant-google-is-in-europe-2014-11

[7] Although the names of complainants has not been officially disclosed by the European Commission, some firms have publicly expressed their concerns regarding Google’s conducts. These include Microsoft, Yelp, TripAdvisor, Euro-Cities, ICOMP, VDZ and BDZV. See: REUTERS. EU antitrust case against Google based on 19 complainants – sources. Available at: http://uk.reuters.com/article/2015/04/24/uk-eu-google-antitrust-idUKKBN0NF1Z820150424

[8] EUROPEAN COMMISSION – PRESS RELEASE DATABASE. Antitrust: Commission probes allegations of antitrust violations by Google. Available at: http://europa.eu/rapid/press-release_IP-10-1624_en.htm?locale=en

[9] Ibídem

[10] Ibid

[11] Ibid

[12] Ibid

[13] EUROPEAN COMMISSION – PRESS RELEASE DATABASE. Statement on the Google investigation. Available at: http://europa.eu/rapid/press-release_SPEECH-14-93_en.htm

[14] Ibídem

[15] Ibid

[16] Ibid

[17] Ibid

[18] LOEK ESSERS. Publishers urge European Commission to reject Google antitrust deal. In PCWORLD. Available at: http://www.pcworld.com/article/2602600/publishers-urge-european-commission-to-reject-google-antitrust-deal.html

[19] TECH EU. Taming a search titan: A deep dive into the Google-EU antitrust pact. Available at: http://tech.eu/features/486/taming-a-search-titan-google-eu-antitrust-pact/

[20] MACDONALD ALASTAIR AND FIORETTI JULIA. EU accuses Google of hurting consumers, competitors in Web search case. In Reuters. Available at: http://www.reuters.com/article/2015/04/15/us-google-eu-idUSKBN0N610E20150415

[21] Ibídem

[22] Ibid

[23] Ibid

[24] BBC NEWS. EU accuses Google Shopping of search “abuse”. Available at: http://www.bbc.com/news/technology-32315649

[25] Ibídem

[26] LUCKERSON VICTOR. What to Know About Google’s Fight With Europe. In Time. Available at: http://time.com/3822956/google-eu-antitrust-case-shopping/

[27] Ibídem

[28] SOWELL THOMAS. Antitrust Law, Google, Europe And Floating Legal Standards. In Investors Business Daily. Available at: http://news.investors.com/ibd-editorials-on-the-right/042715-749775-antitrust-regulators-sue-google-in-europe.htm

[29] Ibídem

[30] Ibid

[31] Ibid

[32] WAYNE CREWS CLYDE JR. European Commission Still Searching For Google Monopoly. In Forbes. Available at: http://www.forbes.com/sites/waynecrews/2015/04/15/european-commission-still-searching-for-google-monopoly/

[33] Ibídem

[34] NOCERA JOE. Europe’s Google Problem. In New York Times. Available at: http://www.nytimes.com/2015/04/28/opinion/joe-nocera-europes-google-problem.html?_r=0

[35] Ibídem

[36] THE ECONOMIST. Europe v Google: Nothing to stand on. Availablle at: http://www.economist.com/news/business-and-finance/21648606-google

[37] Ibídem

[38] Ibid

[39] BBC NEWS. EU accuses Google Shopping of search “abuse”. Available at: http://www.bbc.com/news/technology-32315649

[40] EUROPEAN COMMISSION – PRESS RELEASE DATABASE. Antitrust: Commission fines Microsoft for non-compliance with browser choice commitments. Available at: http://europa.eu/rapid/press-release_IP-13-196_en.htm