Competition Alert – June 2017 – Record fine imposed on Google
On June 27, the European Commission fined Google for abusing its market dominance as a general internet search engine by giving an illegal advantage to its own comparison shopping service. Google will have to pay a €2.42 billion fine and cease its illegal practices within 90 days.
When Google started its own comparison shopping service, Google shopping, its market performance was not as good as expected. Google reacted with a new strategy, relying on its strong position on the general internet search market to promote its own price comparison tool.
To this end, Google has included a number of criteria in its generic search algorithms. As a result, rival comparison shopping services are demoted in Google’s search results and Google shopping, which is not subject to Google’s generic search algorithms, is displayed at or near the top of the search results.
The Commission opened proceedings in November 2010, following several complaints by European and US competitors arguing that Google had breached Article 102 of the Treaty on the Functioning of the European Union, which prohibits the abuse of a dominant position.
Initially, Google tried to resolve the matter by offering to the Commission three sets of commitments in order to address the latter’s concerns. However, third parties submitted observations showing that Google’s proposal would not be effective enough to resolve the issue.
As a result, the Commission issued a first Statement of Objections, in April 2015 and a second one in July 2016, reinforcing its preliminary conclusions with a range of additional evidence.
The Commission’s findings
In its press release, which, for now, is the only source of information regarding the Commission’s findings, the Commission stated that:
Google had abused its dominance in general internet search by giving an illegal advantage to its own comparison shopping service;
Google’s practices led to a significant drop in traffic to rival comparison shopping services.
What seems to have prompted such a decision is the Commission’s conclusion that Google’s practices “ have had a significant impact to competition between Google’s own comparison shopping service and rival services”. As a matter of fact, the Commission pointed out traffic drops of 80% to rivals in France or 85% to rivals in the United Kingdom while traffic to Google shopping increased significantly (35-fold in Germany or 29-fold in the Netherlands).
This procedure is a new example that it is not necessary for the dominance and the anticompetitive effects to take place in the same market. As a matter of fact, Google was in this case found to be dominant in the general internet search market while the anticompetitive effects have occurred on the comparison shopping services market.
The Commission’s sanctions
The sanction imposed by the Commissions may draw one’s attention for two reasons:
First, it is a new record amount in antitrust cases. The previous highest fine ever imposed by the Commission for abuse of dominance was €1.06 billion against Intel in 2009.
Second, Google has 90 days to give equal treatment for rival comparison shopping services and its own service. This requirement constitutes a real challenge for Google since, on the basis of the Commission’s press release, it seems that the EU enforcer did not elaborate on how Google should technically provide such equal treatment. Nonetheless, Google’s non-compliance within the deadline set by the Commission leads the Company to face a daily financial penalty of up to 5% of the Alphabet’s average daily worldwide turnover for non-compliance with the Commission’s decision.
By imposing such a harsh sanction, the Commission sends a strong signal to the digital players, some of which are concerned by the consequences of this decision on innovation, as slowing it down. Thus, this case is a good example of the delicate balance the Commission must achieve between the deterrence objective of its sanctions and the incentives to innovate.
What’s next ?
Given how many price comparison sites have been actively involved against Google in this case and how certain Google Shopping’s competitors have already praised the Commission’s decision, Google is likely to face follow-on actions initiated in national courts (Google’s practices took place in 13 EEA countries).
Such actions are now facilitated since most of the Member States have passed legislation on private actions in accordance with the Directive on Antitrust damages, which provides that a Competition authority’s decision creates a presumption of fault against the participant in an anticompetitive practice. In this regard, the Commission’s press release reminds that “Google is liable to face civil actions by any person or business affected by its anti-competitive behavior”.
In addition, Google is currently under the Commission’s scrutiny in two other matters:
The Android operating system: the Commission is concerned that Google has reduced choice and innovation in a range of mobile apps in order to protect and expand its dominance as a general internet search engine; and
Adsense: the Commission is concerned that Google has reduced choice by preventing third-party websites from sourcing search ads from Google’s competitors.