European Union: Breaking Up Is Hard To Do. Or Is It…?

Last Updated: 12 May 2015
Article by Jonathan Cornthwaite

The European Parliament's resolution at the end of November 2014 suggesting a possible break-up of Google has prompted a flurry of commentaries by political pundits. But the legal background to this remarkable development also deserves analysis. To what extent do EU institutions have the power to break up business conglomerates? And how has the EU's anti-trust investigation into Google helped to fuel the resolution? This article discusses these issues, and will draw out from them some lessons that are important for any US business wary of the long reach of EU competition law.

What's going on?

"GOOGLE SHOULD BE BROKEN UP, SAYS EUROPEAN MP'S"..."EUROPEAN PARLIAMENT VOTES YES ON "GOOGLE BREAK-UP" MOTION".  The headlines that reported the Parliament's vote were (as headlines often are) potentially misleading, so it is worth briefly rehearsing what actually happened, for all is not necessarily as it seems in the wacky world of EU politics.

The parliamentary motion in question was passed by a strong majority – 384 to 174, with 56 abstentions.  But the European Parliament is rather a different type of beast from the average parliamentary assembly: thus, this motion was in fact non-binding, and does not as such require the European Commission to take any action (though it will inevitably place much pressure on it to do so).  And, contrary to the impression given by various headlines, Google was not in fact expressly cited in the motion (nor, incidentally, was any other individual company); instead, the motion made a non-specific call "to consider proposals with the aim of unbundling search engines from other commercial services" in the long run.  But, though the motion avoided mentioning it by name, there can be no doubt that Google – which controls around 90% of the search engine market in the EU – was its principal target.

Why was the motion brought?

The trail of gunpowder that led to the motion can be traced back at least to 2010, when the European Commission announced that it had instituted proceedings against Google under Article 102, the much-feared provision of the Treaty on the Functioning of the European Union that prohibits abuse of a dominant position.  The institution of the proceedings was prompted by a flurry of complaints made by Google's rivals, ranging from the way that Google's algorithms supposedly demote its rivals' sites in the search engine results, to alleged restrictions on the portability of advertising data to competing online platforms.

Now, dominance per se does not contravene EU competition law; it is only if the dominance is abused that infringement of Article 102 will or may occur.  But the greater the degree of dominance, the easier it is for regulators to be persuaded that abuse has in fact taken place.  And in this connection there is no shortage of complainants: to date, evidence has been submitted to the European Commission by some twenty different parties.

The Article 102 proceedings have now been dragging on for more than four years, and it is clear that movers and shakers within the EU have become increasingly restless at the lack of any conclusive outcome to date. The former EU Competition Law supremo in fact came close to striking settlements with Google on more than one occasion, but in each case the deal had to be abandoned due to lobbying by the complainants. Since then the temperature has clearly risen, with a demand by Germany's Justice Minister last Autumn for the disclosure of Google's secret algorithms on the grounds of "transparency", followed shortly thereafter by heavy lobbying by German politicians for a much tougher degree of internet governance. The pressure on Margrethe Vestager, the EU's new Commissioner for competition, to resolve the matter is therefore massive.

What lessons can be learned?

Washington has, not altogether surprisingly, complained about what it sees as the increasing politicisation of the case. But, politics apart, what lessons does this saga hold for US companies troubled by the potential impact of EU competition law?

Firstly, it reminds us that the reach of Article 102 is a very long one, and extends far beyond the geographical limits of the EU. For example, if your abusive conduct has an effect on trade between EU member states, it is no defence for you to argue that you are physically based outside the geographical limits of the EU.

Secondly, it reminds us that the consequences of infringement can be very severe indeed. The main sanction, of course, is fines, and US companies have a gloomy distinction of holding the record for fines imposed by the European Commission for abuse of dominance: Intel's abusive dominance resulted in the highest-ever individual fine for infringement of Article 102 (€1.06b), whilst the total fines that have been imposed by the European Commission on Microsoft (paradoxically, one of the principal complainants against Google!) exceed an eye-watering €1.6b. But it is sometimes forgotten that the European Commission has other weapons in its armoury as well, for, where it finds an infringement of Article 102, it is empowered to impose a structural remedy or indeed any behavioural remedies that are proportionate to the infringement committed. The threat of using these powers has repeatedly induced those accused of abusive dominance to submit to binding commitments to (for example) sell business divisions to rivals, or to divest capacity to competitors.

Thirdly, it needs to be remembered that a finding of infringement is increasingly likely to trigger "follow-on" or "piggyback" legal proceedings for damages. In the past, victims of abusive dominance tended to be sluggish in seeking redress against the perpetrators in the civil courts, but that is changing, for companies and firms are showing themselves increasingly disposed to bring private enforcement actions, and governments are strongly encouraging them to do so.

Fourthly, let us not forget that you don't have to be the size of Google, Intel or Microsoft to fall foul of an abusive dominance allegation.  The size of the relevant product market (in turnover terms) is not the relevant factor in assessing dominance; and Article 102 (and its national equivalents in the various EU member states) can be – and has been – used in small markets against very small companies.

And finally, the Article 102 proceedings are a useful reminder of what a very important part anti-trust provisions play in EU business law. Anti-trust law was of course an American invention (it is generally taken to have begun with the Sherman Anti-Trust Act 1890), but since then the Europeans have, to put it mildly, proved themselves ready, willing and able to adopt it too.  Whatever the outcome of the Article 102 proceedings against Google, therefore, they demonstrate that the pupil has learned well from the master!

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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