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European Commission slams Google with a Euro 4.3 billion fine

Posted on 18 July 2018

Google facing new European Commission fine

On 18 July 2018, the European Commission imposed a €4.3 billion fine on Google for abusing its dominant position in markets in relation to the Android operating system for mobile phones. The Commission concluded that Google "…used Android as a vehicle to cement the dominance of its search engine" in the general internet search market.

The Commission re-affirmed its finding in June 2017 that Google is dominant in the market for general internet search, and decided that it has been dominant in the market for app stores for the Android mobile operating system since 2011, and is also dominant in the market for licensable smart mobile operating systems.

This is a record fine for anti-competitive behaviour imposed on a single company by the European Commission. EU Competition Commissioner, Margrethe Vestager, said in a statement that Google “denied rivals the chance to innovate and compete on the merits. They have denied European consumers the benefits of effective competition in the important mobile sphere. This is illegal under EU antitrust rules.”

Google has announced that it has plans to appeal.

The Commission has had Google firmly in its sights for the last eight years, with three investigations initiated against the company during that period. The Commission first targeted Google with an investigation into comparison shopping. That investigation concluded in 2017 with a €2.4 billion fine against Google, when the Commission determined that Google was unfairly directing consumers away from other online stores, and towards Google-favoured retailers. The Commission is also investigating Google with regard to whether the company unfairly banned competitors from websites that used its search bar and adverts.  

In April 2015, the Commission commenced an investigation of the company's alleged abuse of dominance in relation to Google’s Android mobile operating system and Google’s mobile applications. Android is the mobile operating system used in the majority of the world's smartphones. Google bought the original developer of Android in 2005, and has continued to develop Android ever since.  When Google creates a new version of Android, it publishes the source code online (i.e. open-source). In theory, this allows third parties to download and modify the open-source code to create "Android forks". However, the open-source code online does not cover Google's proprietary apps and services. Smartphone manufacturers who wish to obtain Google's proprietary apps and services have to enter into contracts with Google, and Google imposes a number of restrictions as part of these contracts. Google also imposed restrictions in its contracts with certain large mobile network operators.

In April 2016, the European Commission published a formal statement of objections with a preliminary finding that Google had abused its market power. This has been upheld in the Commission's decision of 18 July 2018.

In its press release dated 18 July, the Commission identified that Google:

  • required manufacturers to pre-install the Google Search app and browser (Chrome), as a condition for licensing Google's app store (the Play Store);
  • made payments to certain large manufacturers and mobile network operators on condition that they exclusively pre-installed the Google Search app on their devices; and
  • prevented manufacturers wishing to pre-install Google apps from selling even a single smart device running on alternative versions of Android that were not approved by Google (so-called "Android forks").

The Commission concluded that Google breached antitrust rules by engaging in three practices:

  1. Illegal tying by:
    1. tying of the Google search app, thus ensuring that its Google Search app is pre-installed on nearly all Android devices sold in the EEA; and
    2. tying of the Google Chrome browser, thus ensuring that its mobile browser is pre-installed on practically all Android devices sold in the EEA.
  2. Illegal payments conditional on exclusive pre-installation of Google Search:
    1. Google granted financial incentives to some of the largest device manufacturers as well as mobile network operators on condition that they exclusively pre-installed Google Search across their entire portfolio of Android devices. The Commission found that Google's conduct in this regard was illegal between 2011 and 2014.
  3. Illegal obstruction of development and distribution of competing Android operating systems:
    1. Google prevented device manufacturers from using any alternative version of Android (e.g. Android forks) that was not approved by Google. The Commission found that Google's conduct in this arena was abusive as of 2011, when Google became dominant in the market for app stores for the Android mobile operating system.

Google denied any wrongdoing. The company argued that the Commission should include Apple's operating system - IoS - as a rival to Android in its definition of the market. The fine imposed on Google shows that the Commission does not accept Google's denial of wrongdoing. The fine was calculated on the basis of Google's revenue from search advertising services on Android devices in the EEA. The Commission decision requires that Google bring its illegal conduct to an end "in an effective manner within 90 days of the decision".

Google now has 90 days to stop and to not re-engage in any of the three types of practices identified by the Commission as illegal. If Google fails to ensure compliance with the Commission's decision, its parent company Alphabet could be liable to further fines of up to 5 per cent of daily revenues. Google is also liable to face civil actions for damages by any person or business affected by its anti-competitive behaviour.

The Commission's focus on Google shows that regulators are willing to take on tech giants to check apparent abuse of dominance. However, commentators and rivals of Google suggest that fines and regulations will not make much of a difference. Google's Android has about 80% of the smartphone operating system market globally. Google also has as much as 90% of the internet search market. Given these kind of statistics, it is not clear that smartphone producers will soon move away from their reliance on Google's Android.

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