EC lodges anti-trust complaint against Google over comparison shopping, investigates Android mobile operating system

Written by on April 15, 2015 in Business - Comments Off on EC lodges anti-trust complaint against Google over comparison shopping, investigates Android mobile operating system

The European Commission (EC) said on April 15 that it had sent a statement of objections to Google outlining the EC’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).

A statement of objections is a formal step in Commission investigations into suspected violations of EU antitrust rules.

“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 EC said.

Google has a dominant position in providing general online search services throughout the EEA, with market shares above 90 per cent in most EEA countries, the Commission said.

Since 2002, Google has also been active in providing comparison shopping services, which allow consumers to search for products on online shopping websites and compare prices between different vendors. The first product it offered, “Froogle”, was replaced by “Google Product Search”, which in turn was replaced by its current product “Google Shopping”.

The Statement of Objections outlines that the markets for general search and comparison shopping are two separate markets, the EC said. In the latter market, Google faces competition from a number of alternative providers.

The Statement of Objections alleges that Google treats and has treated more favourably, 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.

“Sending a Statement of Objections does not prejudge the outcome of the investigation,” the EC said.

Google now has the opportunity to respond to the Commission’s allegations outlined in the Statement of Objections within 10 weeks, the EC said. It can also seek an oral hearing to present comments.

“The Commission will fully respect Google’s rights of defence and carefully consider its comments before taking a decision.”

The EC has previously outlined four concerns as regards Google’s conduct. The April 15 Statement of Objections relates to the first of those concerns, the EC said.

“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.

Article 101 of the Treaty on the Functioning of the European Union (TFEU) prohibits anticompetitive agreements and decisions of associations of undertakings. Article 102 TFEU prohibits the abuse of a dominant position which may affect trade and prevent or restrict competition. The implementation of these provisions is defined in the Antitrust Regulation (Council Regulation No 1/2003), which can be applied by the Commission and by the national competition authorities of EU member states.

A statement of objections is a formal step in Commission investigations into suspected violations of EU antitrust rules, the EC said.

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.

There is no legal deadline for the Commission to complete antitrust inquiries into anticompetitive conduct. The duration of an antitrust investigation depends on a number of factors, including the complexity of the case, the extent to which the undertaking concerned cooperates with the Commission and the exercise of the rights of defence.

The European Commission (EC) has opened formal proceedings against Google to investigate in-depth if the company’s conduct in relation to its Android mobile operating system as well as applications and services for smartphones and tablets has breached EU antitrust rules, the EC said on April 15 2015.

“The Commission will assess if, by entering into anticompetitive agreements and/or by abusing a possible dominant position, Google has illegally hindered the development and market access of rival mobile operating systems, mobile communication applications and services in the European Economic Area (EEA),” the EC said.

This investigation is distinct and separate from the Commission investigation into Google’s behaviour in internet search, the statement said.

Since 2005, Google has led the development of the Android mobile operating system, the Commission said.

In recent years, Android has become the leading operating system for smart mobile devices in the EEA, to the extent that today, the majority of smartphones in Europe are based on Android. Other mobile operating systems include Apple’s iOS (which is proprietary to Apple and runs only on iPhones and iPads) and Windows Phone (which is used on Microsoft’s and other manufacturers’ smartphones and tablets), the statement said.

Android is an open-source mobile operating system, meaning that it can be freely used and developed by anyone. Most smartphone and tablet manufacturers, however, use the Android operating system in combination with a range of Google’s proprietary applications and services. In order to obtain the right to install these applications and services on their Android devices,manufacturers need to enter into certain agreements with Google.

The EC said that following the receipt of two complaints, as well as an initial investigation carried out by the Commission on its own initiative, the EC had now opened a formal investigation to assess if certain conditions in Google’s agreements associated with the use of Android and Google’s proprietary applications and services breach EU antitrust rules.

More specifically, on the basis of the information currently available to the Commission, the investigation will at this stage focus on the following three allegations.

The first was whether Google has illegally hindered the development and market access of rival mobile applications or services by requiring or incentivising smartphone and tablet manufacturers toexclusively pre-install Google’s own applications or services.

The second was whether Google has prevented smartphone and tablet manufacturers who wish to install Google’s applications and services on some of their Android devices from developing and marketing modified and potentially competing versions of Android (so-called “Android forks”) on other devices, thereby illegally hindering the development and market access of rival mobile operating systems and mobile applications or services.

The third was whether Google has illegally hindered the development and market access of rival applications and services by tying or bundling certain Google applications and services distributed on Android devices with other Google applications, services and/or application programming interfaces of Google.

“The opening of formal proceedings does not prejudge the outcome of the investigation,” the EC said.

Article 101 of the Treaty on the Functioning of the European Union (TFEU) prohibits anticompetitive agreements and decisions of associations of undertakings.

Article 102 TFEU prohibits the abuse of a dominant position, which may affect trade and prevent or restrict competition. The Antitrust Regulation (Council Regulation No 1/2003) sets out how the Commission and the national competition authorities apply this provision.

Article 11(6) of the Antitrust Regulation provides that once the Commission has opened proceedings the national competition authorities can no longer apply the EU competition rules to the practices concerned. Moreover, Article 16(1) of the Antitrust Regulation provides that national courts must not take any decision, which would conflict with a decision contemplated by the Commission in the context of formally opened proceedings.

There is no legal deadline to complete inquiries into anti-competitive conduct. The duration of an antitrust investigation depends on a number of factors, including the complexity of the case, the extent to which the undertaking concerned cooperates with the Commission and the exercise of the rights of defence.

The Commission has informed Google and the national competition authorities that it has opened proceedings in this case, the EC said.

(Photo: Enrique Dans)

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