Jonathan Rubin and Christian Berqvist published their comments in Global Competition Review regarding the upcoming decision by the European Commission regarding the DG-Competition investigation into Google’s smartphone operating system, Android.
Global Competition Review – July 13, 2018
Jonathan Rubin of MoginRubin and Christian Bergqvist, a law professor at the University of Copenhagen, conducted a comparative study on the different approaches antitrust authorities in the EU and US take when regulating dominant digital platforms such as Google. They observe that the EU in the Google shopping case applied a more encompassing legal standard for abuse than in past cases, which resembles the characteristically German ordoliberal approach, focused on impediments to the competitive market process and the preservation and promotion of consumer choice – rather than the consumer welfare standard that had heretofore been part of the transatlantic antitrust consensus.
In the coming days, the European Commission could again impose a multibillion-dollar fine against Google’s parent company, Alphabet. This time, it would be for Google’s policy of blocking access to its Play Store on Android devices that do not pre-install the Chrome browser and Google search engine. The penalty may even top the commission’s previous record-breaking fine of €2.42 billion ($2.7 billion), which was levied against Google last year for displaying its own shopping services in response to general searches, with the result that competitors’ shopping sites were less prominently displayed among the results. The commission could also order changes that could significantly alter the company’s popular smartphone ecosystem.
To gauge what might be anticipated – in this second in a series of expected decisions by the European Commission about the manner in which Google conducts its business, which in addition to the Android operating system also includes an investigation into Google’s AdSense search advertising service – it may be useful to consider the EU’s decision in the first matter, Google Search (Shopping). It rested upon four principal conclusions.
First, that comparison shopping services, and other sources that feed into the top or side product boxes that Google displays with its general search results, are separate, non-substitutable products. Thus specialised search and general search occupy different product markets. The European Commission did not consider the “universal” feature of presenting specialised search results in special display boxes to be an improvement to general search, as the US Federal Trade Commission did in its investigation into essentially the same allegations concluded in 2013. Even if the European Commission had, EU doctrine does not provide for a favourable assessment of such innovations when they lead to potential foreclosure in adjacent markets.
Second, the EU enforcer found that Google’s self-favouritism in the form of better positioning in the generic search results, exclusive display in the side boxes, and the evaluation of Google’s own links under a different, more lenient quality ranking algorithm, is an abuse of its dominance in search, if doing so impedes competitors and their position in the market.
Third, the European Commission was not required, before reaching its decision, to prove that the self-favouritism has the actual effect of foreclosing specific competitors nor that a certain percentage of the market has been foreclosed. It was sufficient that foreclosure might occur in the long run. Moreover, the absolute number of rival comparison shopping services remaining active was not probative of whether abuse had occurred, as the number and economic strength of market rivals might have been higher but for the self-favouritism.
Fourth, although it is possible for a dominant company to defend its behaviour as either objectively necessary or counterbalanced by efficiency gains that also benefit consumers, the European Commission did not find that such efficiencies applied in the case of Google search.
Across the Atlantic
The outcome of the EU’s Google search investigation is particularly interesting in light of a preceding US investigation, which closed in 2013 with a brief statement by the FTC with no findings of US antitrust law violations by Google. Despite nearly indistinguishable factual allegations to the effect that Google’s search results favoured its own affiliated shopping sites, the result was a record fine in the EU and essentially exoneration in the US. These diametrically opposed outcomes occurred despite the similarities at the core of the single-firm antitrust doctrine that prevails on both sides of the Atlantic.
We attribute the difference in the two outcomes, despite these similarities, to the combination of three principal factors.
First and foremost, the European Commission did not seem to consider itself particularly constrained by established case law nor the existing legal standards of single-firm abuse. Confronted with a form of self-favouritism by Google that affected competition, the EU enforcer apparently decided to expand the concept of abuse, presumably after concluding that the behaviour would have eluded other theories, such as discrimination. This manoeuvre imparts a sense of outcome-driven reasoning, in which the legal standard to be applied to alleged abuse depends on the facts of the case – resulting in this instance on an emphasis on the effects of the conduct on consumer choice and speculation about the dominant company’s malicious intent. By contrast, the FTC appears to have been cautious about moving beyond the customary consumer welfare standard of Section 2 of the Sherman Act. For example, it chose not to bring a standalone case under Section 5 of the FTC Act, in which it easily could have implemented such a broader notion of consumer welfare.
Certainly, the European Commission appears to have applied a more encompassing legal standard for abuse in the Google search case than in past cases, thereby moving away from the US consumer welfare standard that was likely to have been employed by the FTC in its consideration of self-favouritism by Google search. Instead, the EU seems to have applied a legal standard more closely resembling the characteristically German ordoliberal approach, which focuses on impediments to the competitive market process and the preservation and promotion of consumer choice. However, the European Commission’s reasoning is opaque, because it did not specify the legal standard on which it had relied. The result is that many of the same factual features motivating the FTC to close its investigation without action seem to have motivated the EU to move in precisely the opposite direction. For example, both the FTC and the European Commission’s Directorate-General for Competition confronted allegations of self-favouritism in which only Google-affiliated services were displayed in special side boxes, thereby blending specialised and general searches. The FTC interpreted this evidence to indicate that Google’s conduct was primarily a product improvement, while DG Comp regarded it as probative of monopoly leveraging, and therefore abuse of dominance.
It remains to be seen in the impending Android decision and other cases whether the more inclusive ordoliberal legal standard for abuse of dominance, that we infer to have been applied in the EU’s Google Search (Shopping) decision, is a one-off occurrence or instead prefigures a more significant departure by Europe’s competition authorities from the current post-Chicago transatlantic consensus. Outside the Google Search decision, transatlantic competition policy and enforcement priorities have continued to converge on legal standards informed by US-style welfare economics. The European Commission’s impending decision in its current Android proceeding presents an opportunity for it to impart greater clarity into the EU’s legal standards for abuse and how issues of consumer harm and harm to competition ought to be adjudicated.
The second factor influencing the differing outcomes involving Google search is that the statistical analysis of the alleged anticompetitive effects of Google’s conduct appears to have been far more developed by DG Comp than in the FTC’s deliberations. The European Commission decision is rich in statistical analysis demonstrating how Google’s conduct affected traffic to competing shopping sites, whereas a similar level of analytical detail is absent from the portions of the FTC’s internal staff memorandum inadvertently made public, if not from the deliberations as a whole. Moreover, by narrowly focusing only on comparison shopping sites, DG Comp could have had a simpler story of anticompetitive harm to substantiate through its statistical evidence.
However, such statistical evidence is only persuasive because it quantifies harm to competitors, which US enforcers do not regard as sufficient evidence of harm to competition. The heavy reliance by DG Comp on statistical evidence of the effect of changes to Google’s search results page on traffic to rival comparison shopping sites can be seen as yet another departure from a US approach – in which harm to competition, not harm to competitors, is the evil to be addressed by the antitrust laws.
The third principal reason for the disparate outcomes in the case of Google search was that the FTC, in contrast to DG Comp, was clearly more receptive to Google’s claims regarding dynamic efficiency and its characterisation of the universal results and the boxes as innovations that benefit end users. Thus, the consumer welfare effects and Google’s claimed countervailing efficiencies were given greater weight by the FTC, even though DG Comp acknowledged that Google’s innovations benefit consumers, at least in the short term. Only a few pages of the European Commission’s decision were devoted to consumer harm and the prospect of counterbalancing efficiencies. The FTC appears to have deliberated the matter far more extensively, if for no other reason than because the US agency would have had to convince a court of the likelihood of net anticompetitive effects had it chosen to proceed and not reached a settlement with Google.
It is also notable that DG Comp had no appetite for indicating how Google might have acted differently or could have ended its abuse, a burden the FTC would have taken into account in its evaluation of its chances of prevailing before a court. Although competition law in the EU and the US are two separate sets of rules with separate ancestral lineages, the fundamentally different evaluation of otherwise identical facts indicates some potential lacunas in DG Comp’s reasoning and calls into question its occasional lack of openness. Google’s appeal of the European Commission’s decision to the EU General Court will provide further insight into the case and its merits.
What could happen in Android
If it applied these same principles to its investigation into Google’s Android operating system, the European Commission could issue a decision untethered to accepted EU legal standards, overly protective of competitors and unreceptive to claims by Google that its conduct generates countervailing efficiencies or consumer benefits. That by itself bodes poorly for Google. However, the commission could confine itself to a more conventional approach this time, and still find that Google abused its dominance and impose penalties and corrective measures.
DG Comp might have declined to apply well-recognised legal standards in the Google Search (Shopping) case because none of the available categories for abuse of dominance – discrimination, tying or refusal to deal – seemed to fit the facts of the case particularly well. By contrast, DG Comp in the Android matter could frame Google’s policy of hinging access to Android applications available through the Google Play Store on the installation of Google Chrome and Google Search as an infringement based on tying or refusal-to-deal.
If the protection of competitors figures as prominently in the European Commission’s decision in the Android case as it did in Google Search (Shopping), it can be expected that the decision will rely heavily on a statistical analysis of the past performance of rivals claiming to have been harmed by Google’s policies. Developers of alternative search engines and other mobile device software may be able to demonstrate difficulty entering into the Android ecosystem as a result of Google’s Search and Chrome policies. If so, the European Commission could find an infringement.
The first time around, DG Comp was not persuaded by Google’s claimed efficiencies or the consumer benefits of the design of its results page, despite good reasons to regard blended search results – even if they favored Google-affiliated properties – as a cognisable product improvement that creates a net consumer benefit, as the FTC had done in declining to pursue Google in 2013. It will be even more difficult for Google to muster cognisable efficiency claims in the Android case. An attempt by Google to portray the “free but mandatory” functionality it builds into Android as a net consumer benefit will fall on deaf ears, provided that Google’s rivals can demonstrate that it is somehow overly difficult for them to compete.
Finally, if the European Commission is as vague about the remedy in the Android case as it was in Google Search (Shopping), the company will be left to figure out the conditions under which it may license its Android operating system. While it may be a simple matter for the commission to prohibit the precise policies in question, it will be more challenging to develop alternative policies that strike a similar balance between investment and return, unless the commission does more than simply prohibit an existing arrangement. It makes sense for companies such as Google to make large investments in software to be licensed royalty-free if, by doing so, commercial opportunities for affiliated products and services on millions of devices are thereby created. For that calculus to be ignored or underappreciated by the competition authority threatens to undermine innovation. If an infringement is found, therefore, DG Comp should be obliged to explain the principles on which the policy is condemned, so that dominant companies can pursue their own agendas lawfully within clear boundaries.
Of course, the commission need not proceed in the same vein in the Android case as it did in the prior shopping case. But it is more likely to want to be perceived as consistent than as inconstant or unstable. With recent history as a guide, Google may be facing yet another large fine and another intervention by the EU into the company’s business policies.
To read the article online, please visit Global Competition Review here.