The
European Commission has fined Google €2.42 billion for breaching EU antitrust
rules. The Commission claims that Google has abused its market dominance as a
search engine by giving an illegal advantage to another Google product, its
comparison shopping service.
The company must now end the conduct 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:
“Google has come up with many
innovative products and services that have made a difference to our lives.
That’s a good thing. But Google’s strategy for its comparison shopping service
wasn’t just about attracting customers by making its product better than those
of its rivals. Instead, Google abused its market dominance as a search engine
by promoting its own comparison shopping service in its search results, and
demoting those of competitors. What
Google has done is illegal under EU antitrust rules. It denied other companies
the chance to compete on the merits and to innovate. And most importantly, it
denied European consumers a genuine choice of services and the full benefits of
innovation.“
The
EU Commission case, summarised in its press release, is set out below. The SCL site will
cover the fine and its basis – and the objections to it – in a more rounded post
at a later point.
Google’s strategy for its comparison
shopping service
Google’s
flagship product is the Google search engine, which provides search results to
consumers, who pay for the service with their data. Almost 90% of Google’s
revenues stem from adverts, such as those it shows consumers in response to a
search query.
In
2004 Google entered the separate market of comparison shopping in Europe, with
a product that was initially called “Froogle”, re-named “Google
Product Search” in 2008 and since 2013 has been called “Google
Shopping”. It allows consumers to compare products and prices online and
find deals from online retailers of all types, including online shops of
manufacturers, platforms (such as Amazon and eBay), and other re-sellers.
When
Google entered comparison shopping markets with Froogle, there were already a
number of established players. Contemporary evidence from Google shows that the
company was aware that Froogle’s market performance was relatively poor (one
internal document from 2006 stated “Froogle simply doesn’t work“).
Comparison
shopping services rely to a large extent on traffic to be competitive. More
traffic leads to more clicks and generates revenue. Furthermore, more traffic
also attracts more retailers that want to list their products with a comparison
shopping service. Given Google’s dominance in general internet search, its
search engine is an important source of traffic for comparison shopping
services.
From
2008, Google began to implement in European markets a fundamental change in
strategy to push its comparison shopping service. This strategy relied on
Google’s dominance in general internet search, instead of competition on the
merits in comparison shopping markets:
·
Google has systematically given
prominent placement to its own comparison shopping service: when a consumer enters a query into the Google
search engine in relation to which Google’s comparison shopping service wants
to show results, these are displayed at or near the top of the search results.
·
Google has demoted rival comparison
shopping services in its search results:
rival comparison shopping services appear in Google’s search results on the
basis of Google’s generic search algorithms. Google has included a number of
criteria in these algorithms, as a result of which rival comparison shopping
services are demoted. Evidence shows that even the most highly ranked rival
service appears on average only on page four of Google’s search results, and
others appear even further down. Google’s own comparison shopping service is
not subject to Google’s generic search algorithms, including such demotions.
As
a result, Google’s comparison shopping service is much more visible to
consumers in Google’s search results, whilst rival comparison shopping services
are much less visible.
The
evidence shows that consumers click far more often on results that are more
visible, i.e. the results appearing higher up in Google’s search results. Even
on a desktop, the ten highest-ranking generic search results on page 1 together
generally receive approximately 95% of all clicks on generic search results
(with the top result receiving about 35% of all the clicks). The first result
on page 2 of Google’s generic search results receives only about 1% of all
clicks. This cannot just be explained by the fact that the first result is more
relevant, because evidence also shows that moving the first result to the third
rank leads to a reduction in the number of clicks by about 50%. The effects on
mobile devices are even more pronounced given the much smaller screen size.
This
means that by giving prominent placement only to its own comparison shopping
service and by demoting competitors, Google has given its own comparison
shopping service a significant advantage compared to rivals.
Breach of EU antitrust rules
Google’s
practices amount to an abuse of Google’s dominant position in general internet
search by stifling competition in comparison shopping markets.
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.
·
Today’s Decision concludes that Google is dominant in general internet search
markets throughout the European Economic Area (EEA),
i.e. in all 31 EEA countries. It found Google to have been dominant in general
internet search markets in all EEA countries since 2008, except in the Czech
Republic where the Decision has established dominance since 2011. This
assessment is based on the fact that Google’s search engine has held very high
market shares in all EEA countries, exceeding 90% in most. It has done so
consistently since at least 2008, which is the period investigated by the
Commission. There are also high barriers to entry in these markets, in part
because of network effects: the more consumers use a search engine, the more
attractive it becomes to advertisers. The profits generated can then be used to
attract even more consumers. Similarly, the data a search engine gathers about
consumers can in turn be used to improve results.
·
Google has abused this market dominance
by giving its own comparison shopping service an illegal advantage. It gave prominent placement in its search results
only to its own comparison shopping service, whilst demoting rival services. It
stifled competition on the merits in comparison shopping markets.
Google introduced this practice in all 13 EEA countries where Google has rolled
out its comparison shopping service, starting in January 2008 in Germany and
the United Kingdom. It subsequently extended the practice to France in October
2010, Italy, the Netherlands, and Spain in May 2011, the Czech Republic in
February 2013 and Austria, Belgium, Denmark, Norway, Poland and Sweden in
November 2013.
The effect of Google’s illegal
practices
Google’s
illegal practices have had a significant impact on competition between Google’s
own comparison shopping service and rival services. They allowed Google’s
comparison shopping service to make significant gains in traffic at the expense
of its rivals and to the detriment of European consumers.
Given
Google’s dominance in general internet search, its search engine is an
important source of traffic. As a result of Google’s illegal practices, traffic
to Google’s comparison shopping service increased significantly, whilst rivals
have suffered very substantial losses of traffic on a lasting basis.
·
Since the beginning of each abuse,
Google’s comparison shopping service has increased its traffic 45-fold in the
United Kingdom, 35-fold in Germany, 19-fold in France, 29-fold in the
Netherlands, 17-fold in Spain and 14-fold in Italy.
·
Following the demotions applied by
Google, traffic to rival comparison shopping services on the other hand dropped
significantly. For example, the Commission found specific evidence of sudden
drops of traffic to certain rival websites of 85% in the United Kingdom, up to
92% in Germany and 80% in France. These sudden drops could also not be
explained by other factors. Some competitors have adapted and managed to
recover some traffic but never in full.
In
combination with the Commission’s other findings, this shows that Google’s
practices have stifled competition on the merits in comparison shopping
markets, depriving European consumers of genuine choice and innovation.
Evidence gathered
In
reaching its Decision, the Commission has gathered and comprehensively analysed
a broad range of evidence, including:
1)
contemporary documents from both Google and other market players;
2)
very significant quantities of real-world data including 5.2 Terabytes of
actual search results from Google (around 1.7 billion search queries);
3)
experiments and surveys, analysing in particular the impact of visibility in
search results on consumer behaviour and click-through rates;
4)
financial and traffic data which outline the commercial importance of
visibility in Google’s search results and the impact of being demoted; and
5)
an extensive market investigation of customers and competitors in the markets
concerned (the Commission addressed questionnaires to several hundred
companies).
Consequences of the Decision
The Commission’s fine of €2 424 495 000
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 its comparison shopping service in the 13 EEA
countries concerned.
The Commission Decision requires Google
to stop its illegal conduct within 90 days of the Decision and refrain from any
measure that has the same or an equivalent object or effect. In particular, the
Decision orders Google to comply with the simple principle of giving equal treatment to rival comparison shopping
services and its own service:
Google
has to apply the same processes and methods to position and display rival
comparison shopping services in Google’s search results pages as it gives to
its own comparison shopping service.
It
is Google’s sole responsibility to ensure compliance and it is for Google to
explain how it intends to do so. Regardless of which option Google chooses, the
Commission will monitor Google’s compliance closely and Google is under an
obligation to keep the Commission informed of its actions (initially within 60
days of the Decision, followed by periodic reports).
If
Google fails to comply with the Commission’s 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.
Other Google cases
The
Commission has already come to the preliminary conclusion that Google has
abused a dominant position in two other cases, which are still being
investigated. These concern:
1) the Android operating system, where the Commission is concerned
that Google has stifled choice and innovation in a range of mobile apps and
services by pursuing an overall strategy on mobile devices to protect and
expand its dominant position in general internet search; and
2) AdSense, where the Commission is concerned that Google has
reduced choice by preventing third-party websites from sourcing search ads from
Google’s competitors.
The
Commission also continues to examine Google’s treatment in its search results
of other specialised Google search services. Today’s Decision is a precedent
which establishes the framework for the assessment of the legality of this type
of conduct. At the same time, it does not replace the need for a case-specific
analysis to account for the specific characteristics of each market.
