On Thanksgiving, the EU Parliament voted to “break-up” Google – effectively separating its search advertising business from its other commercial services. While the Parliament’s vote will have no legal effect on Google, it is still significant – because of the influence it could have on the European Commission’s ongoing antitrust investigation against the company (which was reopened in September 2014).
To date, the EU Commission investigation has mostly focused on the alleged anticompetitive effects of “search bias” in Google search. But the Commission has signaled that it also wants to investigate the preferential placement that Google services (Search, Maps) have on Android smartphones.
Should we care about the EU’s aggressive stance against Google? We should. Under the guise of competition law, the EU is prescribing how Google designs its products, while insisting that the company not utilize intrinsic advantages in its platform to create features – even when those features improve the user experience.
The Case Against Search Bias
The Commission’s case against Google began in 2010, and for much of that time has centered around “search bias” – the allegation that Google gives preferential treatment to its search results, and even demotes or deletes competitors’ results on the Google search results page. An example of search bias is Google’s “Universal Search,” which provides results in the specific category you are looking for (airline tickets, hotels), but in doing so may displace sponsored listings from Google’s vertical search competitors, e.g. Expedia.
The US FTC investigated Google’s alleged search bias as part of their larger antitrust investigation against Google, which was settled in January 2013.
The FTC specifically declined to bring an antitrust claim based on search bias, because it found that while Google does provide prominent placement to its results, it does so because it wants to provide the user the most relevant answer in the quickest amount of time. The FTC concluded that it didn’t want to “second-guess” Google’s product design choices, as search bias in this instance clearly benefitted consumers and was so popular, it had also been adopted by all of Google’s horizontal search competitors (such as Microsoft’s Bing).
There’s also the question of the remedy – breaking up a company is usually reserved for the most egregious of antitrust offenders.
One alternative is imposing compulsory licensing requirements on Google. In fact, as part of their January 2013 antitrust settlement with the FTC, Google has already started licensing patents for critical standardized technologies on reasonable terms, allowing competitors access to needed IP. It has also relaxed conditions around use of the AdWords API, allowing companies to more easily coordinate marketing campaigns across AdWords and other platforms.
Clearly, compulsory licensing is one alternative EU officials could pursue to address the competitive concerns from Google’s behavior. This was, after all, one of remedies that Microsoft was forced to comply with in its 2002 antitrust settlement with the United States and certain State AGs. In that case, the Department of Justice specifically declined to seek “divestiture” (more perspective in this 1999 Businessweek article).
And arguably, the US approach has worked. Forcing Microsoft to license key APIs from Windows and Internet Explorer to competitors, has helped spur the growth of the Internet and mobile ecosystems we have today and provided the channel for companies like Google to flourish (in the interest of full disclosure, I worked as an antitrust attorney for Microsoft between 2006 – 2009).
Protecting Competition vs. Competitors
It’s possible that EU officials are seeking a more extreme remedy against Google because of the differences between EU competition law and US antitrust law. While the US system protects competition, the EU system protects competitors (some additional explanation in this 2005 Grazadio Business Review article).
But even under a standard that protects competitors, we can’t categorize Google’s attempts to provide their users the most relevant results in the shortest time possible, as anticompetitive. And given the remedial practices Google has adopted after its 2013 FTC settlement, the justification to break up Google becomes even weaker.
So for all these reasons, the EU’s actions against Google should be very troubling for companies building products and services for the European market.
At a speech in Berlin last October Google Chairman Eric Schmidt said: “Google isn’t useful because it’s popular; we’re popular because we’re useful.”(emphasis added)
This is an ethos that I think most consumer-facing companies would subscribe to – developing products that are useful to your users, is the key to success – not developing products that also allow competitors to build upon your innovations. It is this distinction that is at the heart of the EU’s case against Google, and one of the reasons why I think it’s important to pay close attention to the continued developments in the EU v. Google.
Will Google, its Competitors or the Commission Act Next?
One of the things I’ll be paying attention to is how Google responds to the Parliament vote. Will the company engage its many EU users in its response? Perhaps an energetic and informed European Google user is the antidote to the current situation. It’s unlikely that the Parliament or the Commission would have the appetite to pursue Google so aggressively if there was a greater consumer outcry. And luckily for Google, consumers have already voted with their fingers; Google remains one of the most popular consumer brands in Europe, with 90-95% of the online search market, with Android representing close to 75% of the smartphone market (this Business Insider article provides some more details on Google’s global and EU market share).
Also interesting to watch will be the response from Google’s EU and US competitors. Ironically, even though the Parliament and Commission’s actions are intended to benefit EU competitors, it’s US companies that stand to benefit the most from a Google break-up. This article explores that tangent further, noting that most of Google’s EU challenges are being driven by US competitors like Microsoft and Expedia.
For now, all eyes are on the EU Commission. Joaquín Almunia, the recently departed Commissioner, who oversaw the Google antitrust investigation for the last 4 years, publicly stated last September that the company posed a much bigger antitrust threat than its sometime rival Microsoft. His successor, Margrethe Vestager previously indicated that she wanted to re-consider the evidence against Google given the issues, and the “potential impact on many players.”
May saner heads prevail.
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