The European Commission has fined Google €4.34 billion for
breaching EU antitrust rules. The Commission states that, since 2011, Google
has imposed illegal restrictions on Android device manufacturers and mobile
network operators to cement its dominant position in general internet search.
Google must now bring the conduct effectively to an end
within 90 days or face penalty payments of up to 5% of the average daily
worldwide turnover of Alphabet, Google’s parent company.
Commissioner Margrethe Vestager, in charge of
competition policy, said:
‘Today, mobile internet makes up more than half of global
internet traffic. It has changed the lives of millions of Europeans. Our case
is about three types of restrictions that Google has imposed on Android device
manufacturers and network operators to ensure that traffic on Android devices
goes to the Google search engine. In this way, Google has used Android as a
vehicle to cement the dominance of its search engine. These practices have
denied rivals the chance to innovate and compete on the merits. They have
denied European consumers the benefits of effective competition in the
important mobile sphere. This is illegal under EU antitrust rules.’
In particular, the Commission findings state that Google:
- has required manufacturers to pre-install the Google Search
app and browser app (Chrome), as a condition for licensing Google’s app store
(the Play Store); - made payments to certain large manufacturers and mobile
network operators on condition that they exclusively pre-installed the Google
Search app on their devices; and - has prevented manufacturers wishing to pre-install Google
apps from selling even a single smart mobile device running on alternative
versions of Android that were not approved by Google (so-called ‘Android forks’).
Google will appeal the findings and fine. A spokesman said:
‘Android has
created more choice for everyone, not less. A vibrant ecosystem, rapid innovation and lower prices are
classic hallmarks of robust competition. We will appeal the commission’s decision.’
Set out below are details taken from the EU Commission press
release which give its detailed allegations.
Google’s strategy and the scope of the Commission investigation
Google obtains the vast majority of its revenues via its
flagship product, the Google search engine. The company understood early on
that the shift from desktop PCs to mobile internet, which started in the
mid-2000s, would be a fundamental change for Google Search. So, Google
developed a strategy to anticipate the effects of this shift, and to make sure
that users would continue to use Google Search also on their mobile devices.
In 2005, Google bought the original developer of the Android
mobile operating system and has continued to develop Android ever since. Today,
about 80% of smart mobile devices in Europe, and worldwide, run on Android.
When Google develops a new version of Android it publishes
the source code online. This in principle allows third parties to download and
modify this code to create Android forks. The openly accessible Android source
code covers basic features of a smart mobile operating system but not Google’s
proprietary Android apps and services. Device manufacturers who wish to obtain
Google’s proprietary Android apps and services need to enter into contracts
with Google, as part of which Google imposes a number of restrictions. Google
also entered into contracts and applied some of these restrictions to certain
large mobile network operators, who can also determine which apps and services
are installed on devices sold to end users.
The Commission decision concerns three specific types of
contractual restrictions that Google has imposed on device manufacturers and
mobile network operators. These have enabled Google to use Android as a vehicle
to cement the dominance of its search engine. In other words, the Commission
decision does not question the open source model or the Android operating
system as such.
Google’s dominance
The Commission decision concludes that Google is dominant in
the markets for general internet search services, licensable smart
mobile operating systems and app stores for the Android mobile operating system.
General search services
Google is dominant in the national markets for general
internet search throughout the European Economic Area (EEA), i.e. in all 31 EEA
Member States. Google has shares of more than 90% in most EEA Member States.
There are high barriers to enter these markets. This has also been concluded in
the Google
Shopping decision of June 2017.
Smart mobile operating systems available for licence
Android is a licensable smart mobile operating system. This
means that third party manufacturers of smart mobile devices can license and
run Android on their devices.
Through its control over Android, Google is dominant in the
worldwide market (excluding China) for licensable smart mobile operating
systems, with a market share of more than 95%. There are high barriers to entry
in part due to network effects: the more users use a smart mobile operating
system, the more developers write apps for that system – which in turn attracts
more users. Furthermore, significant resources are required to develop a
successful licensable smart mobile operating system.
As a licensable operating system, Android is different from
operating systems exclusively used by vertically integrated developers (like
Apple iOS or Blackberry). Those are not part of the same market because they
are not available for licence by third party device manufacturers.
Nevertheless, the Commission investigated to what extent
competition for end users (downstream), in particular between Apple and
Android devices, could indirectly constrain Google’s market power for the
licensing of Android to device manufacturers (upstream). The Commission found
that this competition does not sufficiently constrain Google upstream for a
number of reasons, including:
- end user purchasing decisions are influenced by a variety of
factors (such as hardware features or device brand), which are independent from
the mobile operating system; - Apple devices are typically priced higher than Android
devices and may therefore not be accessible to a large part of the Android
device user base; - Android device users face switching costs when switching to
Apple devices, such as losing their apps, data and contacts, and having to
learn how to use a new operating system; and - even if end users were to switch from Android to Apple
devices, this would have limited impact on Google’s core business. That’s
because Google Search is set as the default search engine on Apple devices and
Apple users are therefore likely to continue using Google Search for their
queries.
App stores for the Android mobile operating system
Google is dominant in the worldwide market (excluding China)
for app stores for the Android mobile operating system. Google’s app store, the
Play Store, accounts for more than 90% of apps downloaded on Android devices.
This market is also characterised by high barriers to entry. For similar
reasons to those already listed above, Google’s app store dominance is not
constrained by Apple’s App Store, which is only available on iOS devices.
Breach of EU antitrust rules
Market dominance is, as such, not illegal under EU antitrust
rules. However, dominant companies have a special responsibility not to abuse
their powerful market position by restricting competition, either in the market
where they are dominant or in separate markets.
Google has engaged in three separate types of practices,
which all had the aim of cementing Google’s dominant position in general
internet search.
1) Illegal tying of Google’s search and browser apps
Google offers its mobile apps and services to device
manufacturers as a bundle, which includes the Google Play Store, the Google
Search app and the Google Chrome browser. Google’s licensing conditions make it
impossible for manufacturers to pre-install some apps but not others.
As part of the Commission investigation, device
manufacturers confirmed that the Play Store is a ‘must-have’ app, as users
expect to find it pre-installed on their devices (not least because they cannot
lawfully download it themselves).
The Commission decision has concluded that Google has
engaged in two instances of illegal tying:
- First, the tying of the Google Search app. As a result,
Google has ensured that its Google Search app is pre-installed on practically
all Android devices sold in the EEA. Search apps represent an important entry
point for search queries on mobile devices. The Commission has found this tying
conduct to be illegal as of 2011, which is the date Google became dominant in
the market for app stores for the Android mobile operating system. - Second, the tying of the Google Chrome browser. As a
result, Google has ensured that its mobile browser is pre-installed on
practically all Android devices sold in the EEA. Browsers also represent an
important entry point for search queries on mobile devices and Google Search is
the default search engine on Google Chrome. The Commission found this tying
conduct to be illegal as of 2012, which is the date from which Google has
included the Chrome browser in its app bundle. - Pre-installation can create a status quo bias.
Users who find search and browser apps pre-installed on their devices are
likely to stick to these apps. For example, the Commission has found evidence
that the Google Search app is consistently used more on Android devices, where
it is pre-installed, than on Windows Mobile devices, where users must download
it. This also shows that users do not download competing apps in numbers that
can offset the significant commercial advantage derived through
pre-installation. For example, in 2016: - on Android devices (with Google Search and Chrome
pre-installed) more than 95% of all search queries were made via Google Search;
and - on Windows Mobile devices (Google Search and
Chrome are not pre-installed) less than 25% of all search queries were made via
Google Search. More than 75% of search queries happened on Microsoft’s Bing
search engine, which is pre-installed on Windows Mobile devices.
Google’s practice has therefore reduced the incentives of
manufacturers to pre-install competing search and browser apps, as well as the
incentives of users to download such apps. This reduced the ability of rivals
to compete effectively with Google.
The Commission also assessed in detail Google’s arguments
that the tying of the Google Search app and Chrome browser were necessary, in
particular to allow Google to monetise its investment in Android, and concluded
that these arguments were not well founded. Google achieves billions of dollars
in annual revenues with the Google Play Store alone, it collects a lot of data
that is valuable to Google’s search and advertising business from Android
devices, and it would still have benefitted from a significant stream of revenue
from search advertising without the restrictions.
2) Illegal payments conditional on exclusive
pre-installation of Google Search
Google granted significant financial incentives to some of
the largest device manufacturers as well as mobile network operators on
condition that they exclusively pre-installed Google Search across
their entire portfolio of Android devices. This harmed competition by
significantly reducing their incentives to pre-install competing search apps.
The Commission’s investigation showed that a rival search
engine would have been unable to compensate a device manufacturer or mobile
network operator for the loss of the revenue share payments from Google and
still make profits. That is because, even if the rival search engine was pre-installed
on only some devices, they would have to compensate the device manufacturer or
mobile network operator for a loss of revenue share from Google across all
devices.
In line with the recent EU court ruling in Intel, the
Commission has considered, amongst other factors, the conditions under which
the incentives were granted, their amount, the share of the market covered by
these agreements and their duration.
On this basis, the Commission found Google’s conduct to be
illegal between 2011 and 2014. In 2013 (after the Commission started to look
into this issue), Google started to gradually lift the requirement. The illegal
practice effectively ceased as of 2014.
The Commission also assessed in detail Google’s arguments
that the granting of financial incentives for exclusive pre-installation of
Google Search across the entire portfolio of Android devices was necessary. In
this regard, the Commission dismissed Google’s claim that payments based on
exclusivity were necessary to convince device manufacturers and mobile network
operators to produce devices for the Android ecosystem.
3) Illegal obstruction of development and distribution of
competing Android operating systems
Google has prevented device manufacturers from using any
alternative version of Android that was not approved by Google (Android forks).
In order to be able to pre-install on their devices Google’s proprietary apps,
including the Play Store and Google Search, manufacturers had to commit not to
develop or sell even a single device running on an Android fork. The Commission
found that this conduct was abusive as of 2011, which is the date Google became
dominant in the market for app stores for the Android mobile operating system.
This practice reduced the opportunity for devices running on
Android forks to be developed and sold. For example, the Commission has found
evidence that Google’s conduct prevented a number of large manufacturers from
developing and selling devices based on Amazon’s Android fork called ‘Fire OS’.
In doing so, Google has also closed off an important channel
for competitors to introduce apps and services, in particular general search
services, which could be pre-installed on Android forks. Therefore, Google’s
conduct has had a direct impact on users, denying them access to further
innovation and smart mobile devices based on alternative versions of the
Android operating system. In other words, as a result of this practice, it was
Google – and not users, app developers and the market – that effectively
determined which operating systems could prosper.
The Commission also assessed in detail Google’s arguments
that these restrictions were necessary to prevent a ‘fragmentation’ of the
Android ecosystem, and concluded that these were not well founded. First,
Google could have ensured that Android devices using Google proprietary apps
and services were compliant with Google’s technical requirements, without
preventing the emergence of Android forks. Second, Google did not provide any
credible evidence that Android forks would be affected by technical failures or
fail to support apps.
The effects of Google’s illegal practices
The Commission decision concludes that these three types of
abuse form part of an overall strategy by Google to cement its dominance in
general internet search, at a time when the importance of mobile internet was
growing significantly.
First, it is stated that Google’s practices have denied
rival search engines the possibility to compete on the merits. The tying
practices ensured the pre-installation of Google’s search engine and browser on
practically all Google Android devices and the exclusivity payments strongly
reduced the incentive to pre-install competing search engines. Google also
obstructed the development of Android forks, which could have provided a
platform for rival search engines to gain traffic. Google’s strategy has also
prevented rival search engines from collecting more data from smart mobile
devices, including search and mobile location data, which helped Google to
cement its dominance as a search engine.
Furthermore, Google’s practices also harmed competition and
further innovation in the wider mobile space, beyond just internet search.
That’s because they prevented other mobile browsers from competing effectively
with the pre-installed Google Chrome browser. Finally, Google obstructed the
development of Android forks, which could have provided a platform also for
other app developers to thrive.
Consequences of the decision
The Commission’s fine of €4,342,865,000 takes
account of the duration and gravity of the infringement.
In accordance with the Commission’s
2006 Guidelines on fines (see press
release and MEMO),
the fine has been calculated on the basis of the value of Google’s revenue from
search advertising services on Android devices in the EEA.
The Commission decision requires Google to bring its illegal
conduct to an end in an effective manner within 90 days of the decision.
At a minimum, Google has to stop and to not re-engage in any
of the three types of practices. The decision also requires Google to refrain
from any measure that has the same or an equivalent object or effect as these
practices.
The decision does not prevent Google from putting in place a
reasonable, fair and objective system to ensure the correct functioning of
Android devices using Google proprietary apps and services, without however
affecting device manufacturers’ freedom to produce devices based on Android
forks.
It is Google’s sole responsibility to ensure compliance with
the Commission decision. The Commission will monitor Google’s compliance
closely and Google is under an obligation to keep the Commission informed of
how it will comply with its obligations.
If Google fails to ensure compliance with the Commission
decision, it would be liable for non-compliance payments of up to 5% of the
average daily worldwide turnover of Alphabet, Google’s parent company. The
Commission would have to determine such non-compliance in a separate decision,
with any payment backdated to when the non-compliance started.
Finally, Google is also liable to face civil actions for
damages that can be brought before the courts of the Member States by any
person or business affected by its anti-competitive behaviour. The new EU Antitrust
Damages Directive makes it easier for
victims of anti-competitive practices to obtain damages.
