Google: is the competition truly just a click away?

By Ms Beatriz Marques, LLB (Hons) (2011 alumna) (University of Bristol Law School).*

Google has faced heightened scrutiny by numerous competition authorities worldwide since 2007. Most significantly the European Union (EU) fined Google a record €2.4bn ($2.7bn) for abusing its dominant position as a search engine. This blog post examines Google’s recent antitrust troubles in the EU and the United States (US) and analyzes whether the EU fine is likely to ignite further investigations against Google.

In December 2002 Google launched “Froogle” a product and shopping price comparison search engine, renamed “Google Product Search” in 2007. Google made changes to this search in 2008, which gave rise to allegations of anticompetitive behavior. Today, Google controls search in both the EU and US markets. In the EU, Google has accounted for 90% of the market since 2008.[1] In the US, it held 68.8% of the market as of January 2016.[2]

As attention grows towards the “data economy’s oligopolies” the question whether the competition is truly just a click away has caught the attention of regulators. Network effects where data is used to attract more users who then, generate more data, improving services and thereby attracting more users; allows for market dominance to arise more naturally.[3] This can lead to high barriers to entry, affecting competitors’ potential to innovate and compete effectively.

 Google’s antitrust troubles in the EU

In 2009, industry trade groups and competitors filed complaints against Google throughout Europe alleging its vertical search favored its own services, over both Google’s sponsored links[4] and unpaid search results notwithstanding of the results’ merit. In other words, Google leveraged its dominance in general search to give its comparison shopping services more favorable treatment whilst demoting its competitors. This resulted in the European Commission opening an investigation into Google in November 2010 for abuse of dominant position in online search, in breach of Article 102 Treaty on the Functioning of the European Union (TFEU).[5] EU competition law does not aim to protect competitors but to preserve competition on the merits for the benefit of consumers. Having a dominant position is not itself unlawful. However, dominant undertakings have a special responsibility not to allow their conduct to impair genuine undistorted competition.[6]

In May 2012, the Competition Commissioner Joaquín Almunia gave Google an opportunity to offer remedies pursuant to article 9 of Regulation 1/2003. Pressure from Google’s competitors escalated in 2013 asking the Commission to discontinue the legally binding commitment approach of Article 9 in favor of Article 7, the normal procedure, which prohibits anticompetitive practices, imposes fines and is far more punitive. As a result, by September 2014, which marked the end of Commissioner Almunia’s term no settlement had been reached. In November 2014, Margrethe Vestager, the current Commissioner for Competition took over bringing forth a new era — a tougher Commission. On April 2015, the European Commission sent a Statement of Objections to Google alleging it abused its dominant position in search services by systematically favoring its own comparison shopping product and demoting competitors. The Commission’s Opening of Proceedings took place in 2016.

On 27 June 2017 the European Commission, fined Google a record €2.4bn ($2.7bn), for abusing its dominant position in giving an illegal advantage to its own comparison shopping service through its search engine. In its Prohibition Decision (following Article 7 procedure)  the Commission underlines that a website’s traffic is directly related to the prominence in which it is shown in Google search. Moreover, traffic is paramount for effective competition of comparison shopping services.

As per market definition the Commission deemed merchant platforms (Amazon and eBay) were in a different market than Google being that they are customers, not competitors, and even if Google were to be in direct competition with them, Google’s actions would have nonetheless harmed competition. Google harmed consumers by not giving them the most relevant search results, which can lead to higher fees for merchants and as a result higher prices for consumers,[7] and stifled innovation and competitor’s ability to compete on the merits by preventing competitors’ visibility despite their relevance. The Commission recognized no objective justification nor efficiency claims. The Prohibition Decision required Google to stop its illegal conduct within 90 days, and thereby treat its competitors neutrally. Non-compliance could lead to fines of up to 5% of the average daily worldwide turnover of Alphabet (Google’s holding company) for each day of non-compliance.

The Commission’s fine was the first time that Google was sanctioned by a big competition regulator. This not only lays a bedrock for further investigations as per Google’s behavior toward other specialist search markets but also adds fuel to the flame of critic’s distaste for Google’s size and influence.[8] Private antitrust lawsuits against Google may also follow by competitors whose business was allegedly wiped out in the course of the Commission’s investigation.

In August 2017 Google sent a proposed fix to the Commission. As a result, Google has begun allowing price comparison websites to bid for space in results at the top of the page. However, many argue that whilst some competitors have secured prime space, the main beneficiary remains Google.[9]  The Commission is monitoring the fix at this time. In September Google filed an appeal with the General Court of the CJEU, it is unlikely however that the General Court will find for Google; the CJEU is not known to have overturned many Commission abuse of dominance decisions over the years. Google faces an uphill battle in Europe, with more unfavorable decisions from the Commission likely to come its way soon, and a discouraging battle on search results at the CJEU.

Google’s antitrust troubles in the US

As a consequence of complaints by competitors in 2010 the Federal Trade Commission (FTC) launched its formal investigations against Google for abuse of its monopoly power in relation to Google Search, based on S.1 and S.2 of the Sherman Act.[10] The FTC’s investigation was sparked by Google’s alleged abuse of its dominant position by favoring its own products and services in Google search whilst it demoted competitors’ links.

In January 2013, the FTC closed its investigation into Google search by a 5-0 bipartisan vote. It found that Google did not favor its own services or products without legitimate justification.[11] The aim of the changes was recognized as improving the user experience. Chairman Jon Leibowitz underlined “while not everything Google did was beneficial, on balance we did not believe that the evidence supported a FTC challenge to this aspect of Google’s business under American law.”[12] American law like EU law, is concerned with the protection of competition, not competitors.

Recently, following the EU Commission’s decision, renewed interest as to Google’s alleged search bias has resurfaced in the US. By way of contrast to Europe, in the US, the FTC and DOJ must win their case in court. Unlike the EU Commission, American regulators cannot prohibit abuse of dominant position without a court order. Results like the EU’s would be harder to accomplish in the US, despite many of Google’s competitors support the EU decision.[13]

In November 2017, Missouri’s attorney general Josh Hawley announced its antitrust investigation against Google as to whether Google search benefits its own products and services (the investigation also covers scraping under antitrust laws and privacy issues). So far, only a subpoena has been issued and the investigation is at an early stage. Jim Hood, the attorney general of Mississippi, has an ongoing privacy battle with Google and announced a competition law inquiry would be next.[14] As the tension between privacy, big data and competition law arises, from US State Attorney Generals to Germany[15] and other EU member states, it is likely that Google’s troubles escalate.

The political winds in Washington have shifted; add to this the Commission’s record fine against Google and an ever-rising appetite to scrutinize the “data economy’s oligopolies:” the investigation into Google for abuse of its monopoly power in relation to Google search seems far from extinguished in the US.  If Google’s search where to be re-examined it is uncertain whether on balance it would be found not to be demonstrably uncompetitive. US law differs from EU law, a US judge may rightly not find the same problems as the EU Commission did and continue to recognize a legitimate justification.

Concluding remarks

The market is generally able to auto correct and quickly address any undertakings that stifle competition, but when it cannot do so, regulators should intervene. This must be done whilst keeping in mind that a dominant position is not in itself unlawful. Dominant companies should be recognized for their innovation and investment and should not be punished without an abuse. Discriminatory practices do stifle the competition further than just a click away. In highly innovative industries the market’s ability to auto correct was presumed as well as its competitive nature. Data, however, may give an anticompetitive edge and proposals for allowing competitors to access particular data in order to avoid barriers to entry should be weighed. Buy-out acquisitions, arguably seen in Facebook’s acquisitions of WhatsApp amongst others, ensure there are no new competitors to challenge the dominant undertakings. Authorities should remain vigilant not only in terms of abuse of dominance but also when reviewing mergers and acquisitions.

Antitrust enforcement should always seek to promote dynamic competition, innovation and consumer protection. Proper enforcement requires balance. It should not be manipulated by competitors or political appetites nor left untouched where the market itself cannot auto-correct. The data economy will surely lead competition law itself to acclimate and it has the ability to do so as it stands, as for the Google comparison shopping EU decision it applies both to the brick and mortar and online spheres.

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* This post was first published in the American Bar Association’s International Antitrust Bulletin (2018), vol 2, 21-23, and is now reproduced here with thanks.
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[1] http://gs.statcounter.com/search-engine-market-share/all/europe/2016
[2] https://www.statista.com/statistics/267161/market-share-of-search-engines-in-the-united-states/
[3] https://www.justice.gov/atr/speech/competition-innovation-and-antitrust-enforcement-dynamic-network-industries
[4] Google’s competitors alleged that Google gave its own services a more prominent placing by lowering the ‘Quality Score’ of its competitor’s sponsored links (http://europa.eu/rapid/press-release_IP-10-1624_en.htm)
[5] Id.
[6] Article 102 states that “Any abuse by one or more undertakings of a dominant position within the internal market or in a substantial part of it shall be prohibited as incompatible with the internal market in so far as it may affect trade between Member States.” (See Treaty on the Functioning of the European Union (TFEU))
[7] Sections 593-594 and 597-599 explain consumer harm (http://ec.europa.eu/competition/antitrust/cases/dec_docs/39740/39740_14996_3.pdf)
[8] https://www.ft.com/content/9554a8bc-5b12-11e7-b553-e2df1b0c3220
[9] https://www.ft.com/content/b3779ef6-b974-11e7-8c12-5661783e5589
[10] http://uscode.house.gov/view.xhtml?path=/prelim@title15/chapter1&edition=prelim
[11] https://www.ftc.gov/news-events/press-releases/2013/01/google-agrees-change-its-business-practices-resolve-ftc
[12] https://www.ftc.gov/sites/default/files/documents/public_statements/opening-remarks-federal-trade-commission-chairman-jon-leibowitz-prepared-delivery/130103googleleibowitzremarks.pdf
[13]  https://www.ft.com/content/f16372d2-5aea-11e7-9bc8-8055f264aa8b
[14] https://www.ft.com/content/12f9e432-caec-11e7-aa33-c63fdc9b8c6c
[15] From 2016 the Bundeskartellamt is investigating whether Facebook has abused its dominant position through their terms of service in failing to inform users about the “type and extent of data collected.” In other words, imposing unfair conditions on users through its dominant position. (http://www.bundeskartellamt.de/SharedDocs/Meldung/EN/Meldungen%20News%20Karussell/2016/02_03_2016_Facebook.html)

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