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Google’s antitrust fine – just small change or a sea change?

Friday, June 30, 2017

The Headline

The European Commission grabbed the headlines this week when it issued Google with a record fine of €2.42 billion on Tuesday, 27 June. This is the largest fine for an antitrust breach ever levied on a single firm, smashing the previous record of €1.06 billion imposed on Intel.

The Commission found that Google abused its dominance as a search engine by giving illegal advantage to its own comparison shopping service.

The Investigation

The decision concludes a landmark inquiry which lasted seven years. The inquiry initially started when rival product comparison websites filed EU antitrust complaints against Google saying their sites were being purposely demoted by Google’s algorithms.

The Commission’s decision found Google to be dominant across all 31 EEA countries, being responsible for approximately 90% of all internet searches in Europe. The Commission’s review concluded that, starting from 2008 onwards (depending on the country), Google used its dominant position to stifle competition and significantly increase traffic to its own shopping service in the 13 EEA countries which were the focus of the review. The detailed inquiry found that Google systematically manipulated its results page to promote its own Google Shopping service and demote smaller rival services down its search rankings.

The Appeal

Google is currently considering its position. It has a two month window within which to appeal following receipt of the Commission’s decision, and it seems highly likely that an appeal will be launched during this time.

Aside from payment (or appeal) of the fine, Google now has 90 days to make key changes to the way it does business throughout Europe. Failing that, the Commission may issue additional daily fines (reported as being capped at around €12.5 million per day by reference to Google’s turnover).

The Effect

The significant level of the fine is intended to reflect the “duration and gravity of the infringement”. But while the figure is eye-catching, it needs to be considered in its full light. €2.42 billion constitutes about 3% of the annual turnover of Alphabet Inc., Google’s parent company. The Commission had powers to levy a higher amount, but decided that the fine reflected the value of Google’s revenue from its comparison shopping service in the 13 EEA countries concerned.

There’s no doubt that Google has the resources to meet the fine. But of greater danger to the tech giant is the concern that the decision sets a precedent that may facilitate adverse findings in the Commission’s other ongoing investigations into Google. Two of those investigations are significantly advanced, one relating to Google’s Android operating system and the other to its “AdSense” advertising business.

There may also be a spill over into reviews of other specialised Google search services such as Google Maps, which will now be considered in light of the finding that Google is dominant in internet searches. The European Commissioner for Competition, Margrethe Vestager, implied this during the press conference announcing the fine when she said that the decision “is a precedent which can be used as a framework to analyse the legality” of other Google services.

The Politics

Google and European Commission officials tried but failed to settle the Commission’s investigation on at least three occasions in the past number of years. However, they were faced with significant business and political opposition. The result is another European finding against an American tech firm – following hot on the heels of the Apple State aid decision, Facebook’s fine arising out of its WhatsApp merger and the Commission’s ongoing State aid investigation into Amazon’s tax affairs.

With this Google decision, the European Commission has confirmed its position as the leading regulatory authority willing to take on the mammoth tech giants that now dominate the internet economy. By contrast, the US authorities have not sought to make any real intervention in such matters and there is an increasing chasm between the continents’ regulatory positions.

President Trump has yet to comment, or tweet, on the matter. But he has previously espoused the need for aggressive US antitrust regulation, suggesting that he is unlikely to heed calls from Silicon Valley for his administration to intervene and protect the interests of American businesses. Neither, however, does the president have direct influence over any potential investigation by either the Federal Trade Commission or the US Justice Department – the two American regulatory agencies who could investigate Google. So only time will tell if the European position is a blip on the radar for how technology businesses are run in the context of a global market.

The Last Word

As it stands, the Commission’s decision may have substantial wider implications for Google. Payment of the fine is unlikely to be the issue – rather, the obligation to change how its runs its business will have more profound implications, particularly if other regulators follow suit and find the practices considered in the Commission’s decision (and any subsequent decisions on other Google services given the number of ongoing investigations) to be objectionable in their territories too. And that’s the great known unknown, to paraphrase another recent American politician.

Of course the decision against Google also has implications for a multitude of other businesses, particularly its rivals but also potentially significant internet players like Amazon. Given the Commission’s finding that Google abused its dominance as a search engine, it may now face follow-on claims for damages from those parties who can establish that they suffered loss as a result of Google’s practices over the past number of years.

Whatever happens next, this is certainly not the last of the European Commission’s antitrust battle with Google. A business that can turn its brand name into an eponymous verb within less than twenty years will surely want to continue to push the boundaries of what the internet means and consumers want, setting up lots of future regulatory clashes to keep competition lawyers busy!


Ronan Dunne