UK: Paranoid Android?: EU Puts Searching Questions To Google

Last Updated: 29 April 2015
Article by Paul Henty

Following a five-year investigation into alleged anti-competitive conduct by Google (for alleged abuse of its dominant position in the market for search engines and mobile operating systems contrary to Article 102 TFEU), the EU Commission issued a first set of statement of objections to Google this week.   

The stakes are high in this on-going inquiry.  If the Commission finds Google liable under Article 102 TFEU, it could be fined up to 10% of its global, worldwide turnover (around $6 billion).   A final finding of liability could also force Google to change business practices which have made it a global leader in several fields.   

The Commission laid out a number of serious objections to Google's way of doing business, which include the following.

1. Manipulation of search engine results

Google's search engine is not only dominant but almost ubiquitous in its popularity, with an unassailable gap over its rivals.  This position of market strength gives Google a special responsibility not to distort search results to favour its own products and services in other markets over its competitors. 

The Commission is concerned that, in fact, Google is skewing results of searches to systematically rank its own Google shopping service ahead of competitors' own shopping platforms in the search results.  This is said to divert web traffic away from competitors' sites.    

In addition, Google stands accused of "scraping", the practice of plagiarising the content of others' websites and representing it as Google's (one example is user reviews of shopping products, restaurants and holidays which are copied from one site and duplicated under the banner of another).   This type of behaviour has not previously been sanctioned as anti-competitive in any other case.  Whilst controversial, it is not difficult to see how scraping (when combined with engineering of search engine rankings) could give Google's products and services an unfair competitive advantage.          

2. Alleged abuses involving Android operating system

Google is also dominant in the market for operating systems for mobile phones, with an eye-catching 81% of the global market.   The Commission is concerned that when licensing the Android OS software to manufacturers of mobile devices and handsets, Google forces them to pre-install its apps to the exclusion of competing alternatives.  The concern is that this practice could give Google's own apps an unnatural competitive advantage, to the detriment of other apps, even if those were technically superior in quality.

This aspect of the case has parallels with the EU case against Microsoft in the 1990s.  During that era, Microsoft Windows was the dominant operating system for personal computers.  Microsoft pre-installed its internet browser and media players into the Windows software, shutting out rival browsers.  This tying was held to be a clear abuse by the Commission, which was supported by the European Court of Justice.   

On top of this, the Commission is also alleging that Google is banning manufacturers from improving on its proprietary OS.  EU Competition Law generally aims to protect the ability of licensees to make better versions of software they have been licensed. 

3. Next steps

The SO is not the last word on the issue, but set out interim findings and allowed the defendant ten weeks to respond to the Commission's objections and convince the Commission that it has not infringed competition law.  If Google does not succeed, it can expect an eye-watering fine from the Commission.  The investigation could play out with Google giving "commitments" to the Commission (binding undertakings to change its business practices to address competition concerns).  However, given that Google has previously tried and failed to placate the Commission's concerns with commitment proposals, this may look a forlorn prospect. 

If this were not concern enough, Google is also being sued for damages by companies which allege that its practices have diverted custom from their websites.  If the Commission moves to find Google liable in a final prediction, we conclude that the number of such actions will only increase.

More worryingly still, this SO may not represent the totality of the charges against Google.  The Commission could issue subsequent SO's detailing other elements of abuse regarding the use of the Android system or the manipulation of search engine results.

Comment

Few companies enjoy the size of Google or have the scale of its operations.  Nonetheless, the case illustrates how caution must be exercised when tying one type of good or service to another.  Within tech sectors, it is also important to be aware of how creating a stronghold for a particular functionality can create a dominant position.  Companies should therefore keep their market positions under review on a regular basis and consider whether any aspect of their practices could fall foul of competition law.  From our own experience, we are aware that internal antitrust "audits" are an increasingly important element of an effective compliance program.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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