The Anti-trust Saga Continues: European Commission v. Google

The European Commission has decided to open an antitrust investigation into allegations that Google Inc. has abused a dominant position in online search, in violation of European Union rules (Article 102, Treaty on the Functioning of the European Union – “TFEU”). On 30 November 2010, the Commission decided to initiate antitrust proceedings in cases COMP/C-3/39.740, COMP/C-3/39.775 & COMP/C-3/39.768 within the meaning of Article 11(6) of Council Regulation No 1/2003 (that the initiation of proceedings relieves the competition authorities of the Member States of their authority to apply the competition rules laid down in Articles 101 and 102 of the Treaty) and Article 2(1) of Commission Regulation No 773/2004 (that the Commission can initiate proceedings with a view to adopting at a later stage a decision on substance according to Articles 7-10)
The proceedings were opened with a view to adopting a decision in application of Chapter III of Council Regulation No 1/2003 and concern the unfavourable treatment by Google Inc. of competing vertical search service providers in Google’s unpaid and sponsored search results coupled with an alleged preferential placement of Google’s own services. The Commission investigated the alleged imposition of exclusivity obligations by Google on its advertising and distribution partners and suspected restrictions on advertisers as to the portability of campaign data to competing online advertising platforms.
In March 2013, the Commission formally informed Google of its preliminary conclusion that the following four types of business practices by Google may violate EU antitrust rules prohibiting the abuse of a dominant position (Article 102, TFEU):

The favourable treatment, within Google’s web search results, of links to Google’s own specialised web search services as compared to links to competing specialised web search services (i.e. services allowing users to search for specific categories of information such as restaurants, hotels or products);
The use by Google without consent of original content from third party web sites in its own specialised web search services;
Agreements that oblige third party web sites (“publishers”) to obtain all or most of their online search advertisements from Google; and
Contractual restrictions on the transferability of online search advertising campaigns to rival search advertising platforms and the management of such campaigns across Google’s Adwords and rival search advertising platforms.

The Commission considered at this stage that these practices could harm consumers by reducing choice and stifling innovation in the fields of specialised search services and online search advertising.

Google’s reply:

On April 3rd 2013, to address these concerns, Google offered for a period of 5 years to:

label promoted links to its own specialised search services so that users can distinguish them from natural web search results,

clearly separate these promoted links from other web search results by clear graphical features (such as a frame), and
display links to three rival specialised search services close to its own services, in a place that is clearly visible to users,

offer all websites the option to opt-out from the use of all their content in Google’s specialised search services, while ensuring that any opt-out does not unduly affect the ranking of those web sites in Google’s general web search results,

offer all specialised search web sites that focus on product search or local search the option to mark certain categories of information in such a way that such information is not indexed or used by Google,
provide newspaper publishers with a mechanism allowing them to control on a web page per web page basis the display of their content in Google News,

no longer include in its agreements with publishers any written or unwritten obligations that would require them to source online search advertisements exclusively from Google, and
no longer impose obligations that would prevent advertisers from managing search advertising campaigns across competing advertising platforms.

These commitments would cover the European Economic Area (EEA).The proposals also foreseed that an independent Monitoring Trustee would advise the Commission in overseeing the proper implementation of the commitments.

The Commission sought feedback from stakeholders on these commitments through a market test launched on 25 April 2013. The Commission then informed Google that additional improvements to its commitments were required to adequately address the Commission’s concerns. Google offered changes to its commitments in October 2013. The Commission sought feedback on Google’s revised commitments from complainants and other relevant market participants and, after taking into account that feedback, informed Google that its proposal of October 2013 was not yet sufficient to fully address the Commission’s competition concerns. Google then submitted a second improved offer.

In this offer, three issues have been of critical importance.

First, given the importance of the choice of visual formats in attracting user clicks, it is essential that the presentation of rival links is comparable to that of the Google services.
Secondly, given the speed with which Google develops its services, that comparability of presentation of rival links has to be ensured dynamically over time. This means that if Google improves the presentation of its services, so must the presentation of rival links.
Finally, in a fast-moving market, any commitments must retain their relevance throughout their lifetime. This means that any new vertical search services developed by Google must also be subject to the commitments.

To address these concerns, Google had finally accepted to guarantee that whenever it promotes its own specialised search services on its page, the services of rivals will also be displayed in a comparable way. In practice, this means that when Google promotes one of its own specialised search services, there will be three rival services also displayed prominently on the page, in a way that is clearly visible to users.

These alternatives will also be attractive: for instance, if Google has a picture to promote its services, which is a key element in attracting users, rival services will also have such a picture. The experiments we received during the market test showed the importance of pictures in attracting user click-through.

And this principle would apply not only for existing specialized search services, but also for future ones: if tomorrow Google decides to display videos, rivals will also be able to display videos.

In the three other areas of concern significant concessions were also achieved:

Google would give content providers an extensive opt-out from the use of their content in Google’s specialised search services if they so wish, without fear of retaliation. Up until now, Google was able to copy content from rivals without restriction.
Google would remove exclusivity requirements in its agreements with publishers for the provision of search advertisements; and
Google would remove restrictions on advertisers being able to run their search advertising campaigns across Google’s and competing search advertising platforms.

This was also found insufficient by the Commission to address its concerns. A statement of objections is a formal step in Commission investigations into suspected violations of EU antitrust rules. The Commission informs the parties concerned in writing of the objections raised against them. The addressees can examine the documents in the Commission’s investigation file, reply in writing and request an oral hearing to present their comments on the case before representatives of the Commission and national competition authorities. The Commission takes a final decision only after the parties have exercised their rights of defence.

Then on 15th April, 2015, the European Commission sent a Statement of Objections to Google alleging the company has abused its dominant position in the markets for general internet search services in the European Economic Area (EEA) by systematically favouring its own comparison shopping product in its general search results pages. The Commission’s preliminary view is that such conduct infringes EU antitrust rules because it stifles competition and harms consumers. Sending a Statement of Objections does not prejudge the outcome of the investigation.

The Commission has also formally opened a separate antitrust investigation into Google’s conduct as regards the mobile operating system Android. The investigation will focus on whether Google has entered into anti-competitive agreements or abused a possible dominant position in the field of operating systems, applications and services for smart mobile devices.The European Commission has sent a Statement of Objections to Google outlining the Commission’s preliminary view that the company is abusing a dominant position, in breach of EU antitrust rules, by systematically favouring its own comparison shopping product in its general search results pages in the European Economic Area (EEA). The Commission is concerned that users do not necessarily see the most relevant results in response to queries – to the detriment of consumers and rival comparison shopping services, as well as stifling innovation.

The Commission’s preliminary conclusions in the Statement of Objections:

The Statement of Objections alleges that Google treats and has treated more favorably, in its general search results pages, Google’s own comparison shopping service “Google Shopping” and its predecessor service “Google Product Search” compared to rival comparison shopping services. Google’s conduct may therefore artificially divert traffic from rival comparison shopping services and hinder their ability to compete, to the detriment of consumers, as well as stifling innovation.

More specifically, the preliminary conclusions are:

Google systematically positions and prominently displays its comparison shopping service in its general search results pages, irrespective of its merits. This conduct started in 2008.
Google does not apply to its own comparison shopping service the system of penalties, which it applies to other comparison shopping services on the basis of defined parameters, and which can lead to the lowering of the rank in which they appear in Google’s general search results pages.
Froogle, Google’s first comparison shopping service, did not benefit from any favourable treatment, and performed poorly.As a result of Google’s systematic favouring of its subsequent comparison shopping services “Google Product Search” and “Google Shopping”, both experienced higher rates of growth, to the detriment of rival comparison shopping services.

Google’s conduct has a negative impact on consumers and innovation. It means that users do not necessarily see the most relevant comparison shopping results in response to their queries, and that incentives to innovate from rivals are lowered as they know that however good their product, they will not benefit from the same prominence as Google’s product.

The Statement of Objections takes the preliminary view that in order to remedy the conduct, Google should treat its own comparison shopping service and those of rivals in the same way. This would not interfere with either the algorithms Google applies or how it designs its search results pages. It would, however, mean that when Google shows comparison shopping services in response to a user’s query, the most relevant service or services would be selected to appear in Google’s search results pages.

The Commission has previously outlined four concerns as regards Google’s conduct. Today’s Statement of Objections relates to the first of those concerns. In the context of that concern, the Commission continues to actively investigate Google’s conduct as regards the alleged more favourable treatment of other specialised search services. The Commission also continues to actively investigate Google’s conduct with regard to the other three concerns (copying of rivals’ web content (known as ‘scraping’), advertising exclusivity and undue restrictions on advertisers). The sending of a Statement of Objections in relation to comparison shopping does not in any way prejudge the outcome of the Commission’s investigation of the other three concerns.

Google’s Second Reply:

Google on 27th April, 2015 issued its response to the commission. It is not subtle: “We believe that the [commission’s] preliminary conclusions are wrong as a matter of fact, law and economics,” writes Kent Walker, Google’s general counsel.

Start with fact. Google says its online-shopping service has not damaged competitors, quite the reverse: web traffic (excluding paid referrals) to other price-comparison sites has increased by 227% over the past decade. However, it did not say by how much its own traffic, or internet traffic in general, increased during the same period. As for law, Google argues that the commission’s proposed remedies, which include obliging its website to display ads “sourced and ranked” by rival companies, would only have a legal basis if it were a monopoly provider of essential supplies such as gas or electricity. And as regards economics, Google says the commission fails to grasp how the market works. “Economic data spanning more than a decade, an array of documents, and statements from complainants all confirm that product search is robustly competitive,” it says.

Google’s response, which runs to almost 130 pages and leans heavily on legal opinions and case law, suggests that Google is gearing up for a protracted legal battle against the European Commission, which has alleged the search giant skewed search results to favor its own comparison-shopping service.

The document argues that EU has not provided substantiated reasons as to why it found the January 2014 commitments insufficient. The document highlights Mr. Almunia’s announcement in January 2014 that a third settlement proposal from Google was “capable of addressing [the EU’s] competition concerns,” as well as the EU’s decision to send letters to complainants later that year to reject their concerns about the settlement.
Google also questions the EU’s legal justification for demanding that Google change its algorithms to treat comparison-shopping rivals equally in search results. To do so, Google argues, the EU would need to show that its results are as essential as a public utility.
The EU shouldn’t impose a fine, the document argues, because the case rests on a novel legal theory, and Google participated in settlement negotiations in good faith.
The document expands on Google’s earlier arguments that the EU erred in its analysis of the fast-changing online-shopping business and failed to account for the fast growth of companies such as com Inc. and eBay Inc.
The response also claims that the EU did not take into account that Google provides consumers with a free service, saying “a finding of abuse of dominance requires a ‘trading relationship’ as confirmed by consistent case law. No trading relationship exists between Google and its users.”

There is no deadline for the commission to reach a final conclusion. If they find that Google breached the ant-trust rules, Google could potentially face fine of up to 10% of its annual revenues which in 2014 stood at $ 44 billion.
Aprajita Singh, Second Year, Amity Law School, GGSIPU. She can be contacted at [email protected]

Source: Legal news India

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