Commission imposes antitrust fine of 4.34 billion euros on Google!

Abuse of market power in Android mobile devices

The European Commission today (Wednesday) imposed a fine of €4.34 billion on Google. Google had imposed illegal restrictions on Android device manufacturers and mobile network operators since 2011 to consolidate its dominant position in the market for general Internet search services.

“So Google used Android to consolidate the dominant position of its search engine. These practices deprived Google’s competitors of the opportunity to innovate and compete,”

said Competition Commissioner Margrethe Vestager.

“European consumers have also been denied the benefits of effective competition in the crucial market for mobile internet services. This is unlawful under EU antitrust rules.”

18/07/2018

Google must now permanently stop this behavior within 90 days, otherwise it will face fines of up to 5 percent of the average global daily sales of Alphabet, Google's parent company.

“Mobile Internet now accounts for more than half of global Internet traffic. It has changed the lives of millions of Europeans. "This case concerns three types of unlawful restrictions that Google has imposed on Android device manufacturers and mobile network operators to ensure that Internet traffic on Android devices goes through the Google search engine."

continued Vestager.

In particular, Google has:

• requires all manufacturers to pre-install the Google Search application (“app”) and Google’s own browser app (Chrome) on their devices as a condition for licensing the Google App Store (Play Store),
• Payments made to certain major manufacturers and mobile network operators if they only pre-installed the Google Search app on their devices, and
• Manufacturers who wanted to pre-install Google apps on their devices were prevented from selling even a single smart mobile device that runs on an alternative version of Android not approved by Google - a so-called Android fork.

Google's strategy and scope of the Commission's investigations

Google generates a majority of its revenue through its best-known product, the Google search engine. The company understood early on that the transition from desktop PCs to mobile Internet services that began in the mid-2000s would represent a fundamental change for Google search. Google therefore developed a strategy to adapt to the impact of this change and to ensure that users continue to use Google Search on their mobile devices.

Google acquired the original manufacturer of the Android mobile operating system in 2005 and has been developing Android ever since. Today, around 80 percent of smartphones and tablets in Europe and the rest of the world are equipped with Android.

When Google develops a new version of Android, it publishes the source code on the Internet. This allows third parties to download the source code and develop Android forks from it. Such open Android source code contains the basic features of a smart mobile device operating system, but does not include Google's own Android apps and services. Mobile device manufacturers who want to use Google's proprietary Android apps and services must enter into a contract with Google under which a number of restrictions are imposed on them by Google. In addition, Google has also entered into agreements with certain major mobile network operators, placing restrictions on those operators because they can also determine which apps and services are pre-installed on devices sold to end users.

The Commission's decision concerns three specific types of contractual restrictions that Google has imposed on mobile device manufacturers and mobile network operators. These restrictions allowed Google to use Android to consolidate its search engine's dominant position. In its decision, the Commission does not question the open source model or the Android operating system as such.

Google's dominant position

The Commission's decision concludes that Google has a dominant position general Internet search services , licensed operating systems for smart mobile devices and Android app stores

General Internet search services

Google holds a dominant position in national markets for general Internet search services throughout the European Economic Area (EEA), i.e. in all 31 EEA states. In most EEA countries, Google has a market share of over 90 percent. High barriers to entry apply to these markets. The Commission also reached this conclusion in its decision in the “Google Search (Shopping)” antitrust case from June 2017.

Licensed operating systems for intelligent mobile devices

Android is a licensed operating system for intelligent mobile devices. This means that third-party smart mobile device manufacturers can obtain an Android license and use the operating system on their devices.

Through its control of Android, Google holds a dominant position in global markets (excluding China) for licensed operating systems for smart mobile devices, with a market share of over 95 percent. These markets have high barriers to entry, which are partly due to network effects. The more users use a particular smart mobile device operating system, the more developers write apps for that system - which in turn attracts more users. In addition, significant resources are required to develop a successful licensed operating system for intelligent mobile devices.

As a licensed operating system, Android differs from operating systems used exclusively by vertically integrated developers (such as Apple's iOS or Blackberry). These do not belong to the same market as they are not allowed to be used by third-party mobile device manufacturers.

Nevertheless, the Commission examined the extent to which competition - in particular between Apple and Android devices - for (downstream) end users could indirectly limit Google's market power in the area of ​​Android licenses to (upstream) mobile device manufacturers. The Commission concluded that this competition does not sufficiently restrict Google in the upstream market for various reasons, some of which are set out below:

• End-user purchasing decisions are influenced by a number of different factors (such as the hardware characteristics or the brand of the device) that are independent of the operating system.
• Apple devices are typically sold at higher prices than Android devices and may therefore be inaccessible to a large proportion of Android device users.
• Users of Android devices face various disadvantages when switching to an Apple device; For example, they lose their saved apps, data and contacts and have to learn how to use a new operating system.
• Even if end users were to switch from an Android to an Apple device, it would have a limited impact on Google's core business, since Google Search is the default search engine on Apple devices and the likelihood that Apple users will also be able to Others use Google search for their search queries, which is why it is large.

Android app stores

Google has a dominant position in the global markets (excluding the Chinese market) for Android app stores. Over 90 percent of apps downloaded to Android devices in the EEA come from Google's Android app store, the Play Store. Another feature of the market is the high barriers to entry. For reasons similar to those already outlined, Google's dominant position in the app store market is not undermined by Apple's App Store, as it is available exclusively on iOS devices.

Violation of EU antitrust law

A dominant position in itself is not prohibited under EU antitrust rules.
However, dominant companies have a special responsibility and must not abuse their strong market position by restricting competition in the market they dominate or in other markets. Google engaged in three independent sets of practices, all designed to consolidate Google's dominant position in the market for general Internet search services.

1) The illegal coupling of Google search and browser apps

Google offers mobile device manufacturers its mobile apps and services as a bundle that includes the Google Play Store, the Google Search app, and the Google Chrome browser. Due to Google's licensing terms, manufacturers cannot preinstall certain apps on their devices without also preinstalling other apps.

As part of the Commission's investigations, mobile device manufacturers confirmed that the Play Store is an "essential" app because users assume that it is pre-installed on their devices (not least because they cannot legally download it themselves). ).

In its decision, the Commission concludes that Google used illegal coupling in two cases:

• First, pairing the Google Search app . Through this, Google was able to ensure that its Google Search app is pre-installed on almost all Android devices sold in the EEA. Search apps represent an important access point for internet searches on mobile devices. The Commission considers that these tying practices have been illegal since 2011, as Google has held a dominant position in the Android app store market since that year.
• Secondly, the connection of the Google Chrome browser . This enabled the company to ensure that its mobile browser is pre-installed on almost all Android devices sold in the EEA. Browsers are also an important entry point for Internet searches on mobile devices, and Google Search is used as the default search engine through the Google Chrome browser. According to the Commission, these coupling practices have been illegal since 2012, as Google included the Chrome browser in its app bundle that year.

Pre-installations can lead to “status quo thinking”. Users of mobile devices that have apps pre-installed often continue to use these apps. For example, the Commission found evidence that the Google Search app is used significantly more frequently on Android devices where it is pre-installed than on Windows Mobile devices where users have to download it themselves. This also shows that users are not downloading competing apps at a rate that would offset the significant business advantage Google receives from pre-installs.

For example, in 2016

• On Android devices that have Google Search and the Chrome browser preinstalled, over 95 percent of all Internet searches come from Google Search, and
• On Windows Mobile that do not have Google Search and the Chrome browser preinstalled, less than 25 percent of all Internet searches come from Google Search. Over 75 percent of search queries were made via the Microsoft search engine Bing, which is preinstalled on Windows Mobile devices.

Therefore, through these practices, Google has provided manufacturers with fewer incentives to pre-install competing search engine and browser apps on their devices and consumers with fewer incentives to download such apps. This hindered competitors' ability to compete effectively with Google.

After a detailed examination of Google's argument that the coupling of the Google Search app and the Chrome browser was necessary, in particular to enable Google to generate revenue from its investment in Android, the Commission concluded that this argument is not sufficiently justified. Google generates billions of dollars in annual revenue from the Google Play Store alone; The company uses this to collect large amounts of data, which represent great added value for search engine advertising services via Android devices. However, even without the restrictions, search engine advertising would have represented a significant and stable source of income for the company.

2) Illegal payments linked to the exclusive pre-installation of Google Search

only Google Search on all Android devices in their range This significantly reduced competition by giving manufacturers less incentive to pre-install competing search engine apps on their devices.

The Commission's investigations have shown that a competing search engine would not have been able to offset Google's revenue sharing payments to mobile device manufacturers or mobile network operators. This is because a mobile device manufacturer or a mobile network operator would have to be compensated for the loss of revenue sharing with Google for all devices even if the competing search engine was only pre-installed on some devices.

In line with the recent judgment of the Court in the Intel , the Commission took into account, inter alia, the conditions under which the incentives were granted, the size of those incentives, the market share covered by those agreements and their duration.

Taking into account this case law, the Commission classified Google's conduct as unlawful for the period 2011 to 2014. In 2013 (after the Commission started looking into the matter), Google began to lift this “exclusivity condition”. This illegal practice was finally stopped in 2014.

The Commission also examined in detail Google's argument that it was necessary to provide financial incentives for the exclusive pre-installation of Google Search on all Android devices from a manufacturer's range. In this regard, the Commission rejected Google's objections that the exclusivity payments were necessary to persuade mobile device manufacturers and mobile network operators to produce devices for the Android ecosystem.

3) Illegally obstructing the development and distribution of competing Android operating systems

Google has blocked mobile device manufacturers from using any alternative versions of Android that have not been approved by Google (Android forks). In order to pre-install protected Google applications such as the Play Store or Google Search on their devices, manufacturers had to commit not to develop or sell a single device powered by an Android fork. The Commission considers that this behavior has been abusive since 2011, as Google has been dominant in the Android app store market since that year.

This practice has led to a reduction in the ability to develop and sell devices powered by an Android fork. For example, the Commission found evidence that Google's conduct prevented a number of major manufacturers from developing and selling devices powered by Amazon's Fire OS fork of Android.

At the same time, Google has deprived its competitors of an important opportunity to introduce apps and services (especially general search services) that could be pre-installed on Android forks. Google's behavior therefore had a direct impact on users by blocking their access to further innovations and smart mobile devices based on other versions of the Android operating system. So these practices have led to circumstances in which it wasn't users, app makers, or the market that decided which operating systems thrived, but rather Google itself.

After a detailed examination of Google's argument that these restrictions were necessary to prevent possible fragmentation of the Android ecosystem, the Commission concluded that this argument was not sufficiently substantiated. First, Google could have ensured that Android devices running Google's proprietary apps and services complied with Google's technical regulations without simultaneously preventing the emergence of Android forks. Second, Google failed to provide any substantive evidence that Android forks would experience technical glitches and app support errors.

Impact of Google's illegal practices

In its decision, the Commission concludes that these three types of abuse should be seen as part of a comprehensive strategy with which Google sought to consolidate its dominant position in the market for general Internet search services at a time when mobile Internet services are becoming increasingly important .

First, through these practices, Google denied its competitors the opportunity to compete on merit. Through its pairing practices, the company ensured the pre-installation of the Google search engine and Chrome browser on almost all of Google's Android devices; the payments linked to the exclusivity condition significantly discouraged manufacturers from installing competing search engines on their devices. Google has also hindered the development of Android forks that could have provided competing search engines with a platform to access increased Internet traffic. Through its strategy, Google has also prevented competing search engines from collecting more data, such as mobile location data, via smart mobile devices; This also enabled Google to consolidate the dominant position of its search engine.

In addition, Google's practices have harmed competition and stifled innovation in mobile services beyond simple Internet search services. This is because it has prevented other mobile browsers from effectively competing with the pre-installed browser, Google Chrome. Finally, Google has hindered the development of Android forks that would have given other app developers an opportunity to develop successfully.

Consequences of the decision

When setting the fine of EUR 4.34 billion, the Commission took into account the duration and seriousness of the infringement. In accordance with the Commission's 2006 guidelines on fines (see press release and MEMO ), the fine was calculated on the basis of Google's revenue from search advertising services on Android devices in the EEA.

According to the Commission's decision, Google must definitively put an end to this illegal behavior within 90 days of the decision.

Google must at least stop the three practices set out in the decision and may not resume them. According to the decision, Google must also refrain from any measures that are aimed at the same or equivalent goals and effects as the practices mentioned above.

This decision does not prevent Google from establishing a reasonable, proportionate and objective system to ensure the proper functioning of Android devices powered by Google's protected apps and services, without compromising the freedom of mobile device manufacturers to produce devices powered by an Android fork.

Compliance with the provisions set out in the Commission's decision is Google's sole responsibility. The Commission will closely monitor compliance and Google must keep the Commission informed of how it intends to comply with its obligations.

In the event of non-compliance with the provisions set out in the Commission's decision, Google would be subject to penalty payments of up to 5 percent of the average global daily turnover of Alphabet, Google's parent company. Such non-compliance would have to be established by the Commission by a separate decision; the payments would be made retroactively from the start of the non-compliance.

Finally, Google is also threatened with civil claims for damages, which persons or companies affected by its anti-competitive behavior could bring before the courts of the Member States. The new EU directive on damages claims for antitrust violations makes it easier for victims of anti-competitive practices to obtain compensation .

Further research on Google

In June 2017 , the Commission fined Google €2.42 billion for abusing its market dominance by giving Google's price comparison service illegal advantages through its search engine. The Commission is currently examining in detail Google's compliance with this decision.

The Commission is also continuing its investigation into the restrictions imposed by Google on certain third parties' ability to display search engine advertising from Google's competitors on their websites (the AdSense case). In July 2016, the Commission reached the preliminary conclusion that Google had abused its dominant position in the AdSense case.

background

Today's decision is directed at Google LLC (formerly Google Inc.) and Alphabet Inc., Google's parent company. In April 2015, the Commission opened an investigation into Google's conduct in relation to the Android operating system and Android apps; the statement of objections was sent to Google in April 2016 .

Article 102 of the Treaty on the Functioning of the European Union (TFEU) and Article 54(link is external) of the EEA Agreement prohibit the abuse of a dominant position.

Further information on this cartel case can be found on the website of the Directorate-General for Competition See this link in another language EN Commission's publicly accessible under number 40099 .

Additional Information:

Press release in the Commission's Rapid database

Recording of the press conference with Competition Commissioner Vestager on EbS Open this link in another language