EU: EC rules Google abused OS power, fined €4.3b

Commissioner Margrethe Vestager, in charge of the European Union’s antitrust body, announced on Wednesday, July 18, that Google “engaged in illegal practices to cement its dominant market position in internet search.” The European Commission decided to impose a fine of €4.3 billion (US$5.0 billion) and called on the company to put an effective end to these practices within 90 days, or face penalty payments.

Although the amount of the fine sets a new record, the main impact of the ruling is that it threatens the hold that Google has on the internet search market, from which it derives its main sources of revenue. Further to this, pundits have claimed that these remedies may come too late and that the company must be broken up.

The announcement had been anticipated for some weeks and took place after a meeting of national competition agencies that the Commission rescheduled from July 10 to July 17, apparently to avoid controversy over US President Donald Trump’s presence at the NATO summit held from July 9 to July 12.

In her announcement, Commissioner Vestager referred to “three types of restrictions that Google has imposed on mobile device manufacturers and network operators to ensure that traffic goes to Google Search:

First, Google has required manufacturers to pre-install the Google search and browser apps on devices running on the Android mobile operating system. Manufacturers had to do this if they wanted to be able to sell devices with the Google app store.

Second, Google paid manufacturers and network operators to make sure that only the Google search app was pre-installed on such devices.

Third, Google has obstructed the development of competing mobile operating systems. These could have provided a platform for rival search engines to gain traffic.”

“In this way, Google has used Android as a vehicle to cement the dominance of its search engine,” said Vestager.

The ruling is expected to force Google to offer new terms that give handset makers and phone carriers more freedom to feature their own apps, strike deals with Google’s rivals or even charge Google for pre-installing its apps. The ruling also forces Google to permit phone makers to offer their own tailored operating systems based on Android’s open source version. That requirement could make it harder for Google to offer a single, standardized version of its mobile software on which all Android apps can be used.

Google argues that its OS, which manufacturers don’t have to pay to install on mobile devices, actually boosted competition among smartphones and resulted in lower prices. It also said the allegation that it hurt third-party apps by highlighting its own is untrue because manufactures install all sorts of apps on the devices and consumers have the option to download any apps they want.

“Today’s decision rejects the business model that supports Android, which has created more choice for everyone, not less,” Sundar Pichai, Google’s chief executive, said in a blog post following the decision. Google has announced they will appeal the decision.

Please see below for a publishable quote in relation to today’s decision from Alec Burnside, an Antitrust partner at Dechert based in the Brussels office who has been advising numerous third-party complainants in this ongoing litigation for over 10 years. I would also be happy to connect you with Alec for a call if you want some additional commentary from him about this.

There is concern, however, that the fallout of these practices may be greater for Google and its parent, Alphabet Inc. Said Alec Burnside of Dechert: “This may be a record fine, but the money won’t worry Google. What matters is the European Commission’s order to abandon the practices that Google has used until now to ensure that mobile search traffic gets funnelled to Google Search. The concern must be though[,] that this action comes too late—that Google has entrenched itself so well that rivals may never recover. That’s why some people say the only solution is to break the company up.”

Full Content: The Wall Street Journal, PYMNTS, EC Press Release, Commissioner Vestager’s Statement

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