News Update Competition
18 October 2022
On 14 September 2022, the General Court of the European Union ("GC") delivered its judgment in case T-604/18, Google Android. The European Commission ("Commission") had adopted a decision on 18 August 2018 fining Google a record EUR 4.34 billion for imposing restrictions on Android device manufacturers (“OEMs”) and mobile network operators (“MNOs”).The restrictions aimed to consolidate Google's dominant position in general internet search services, infringing Article 102 of the Treaty on the Functioning of the European Union ("TFEU"). The GC partly annulled the Commission’s decision but only slightly reduced the fine to EUR 4.125 billion as the annulment does not affect the overall validity of the finding of exclusionary effects.
BACKGROUNDAnticipating a shift from desktop PCs to mobile internet, Google acquired the Android mobile operating system in 2005. Android is open-source software, allowing third parties to download and modify the code and create their own 'Android forks'. However, MNOs and OEMs need to enter into contracts with Google if they wish to obtain Google's proprietary Android services such as the Google Play Store. The Commission found that contracts concluded by Google with OEMs and MNOs were intended to preserve and advance Google' dominant position in general search services, and were abusive. The Commission identified three types of abusive contracts:
- Anti-Fragmentation Agreements (“AFAs”): OEMs had to sign these contracts before being authorised to distribute Google apps on their smart mobile devices. The contracts also banned OEMs and MNOs from supporting Android versions (forks) not authorised by Google.
- Mobile Application Distribution Agreements (“MADAs”): When OEMs wanted to pre-install the Google Play Store – where users can buy apps – on their devices they also had to pre-install other Google apps, including Google Search and Google Chrome.
- Portfolio-based Revenue Sharing Agreements (“RSAs”): OEMs and MNOs received payments from Google if they had the Google Search app exclusively pre-installed on smart mobile devices.
GENERAL COURTThe GC largely upheld the Commission's decision. The four most interesting takeaways are as follows:
- Ecosystem markets: The GC made a few interesting general comments on the digital economy and the requirement of defining the market under Article 102 TFEU. According to the GC, since in the digital economy (a) traditional competition parameters such as prices or market shares may be less relevant and (b) digital ecosystems are interconnected, ‘a multi-level and multi-directional’ analysis may be required. This entails a detailed assessment of all internal and external competitive constraints that an allegedly dominant company faces. In the case of Google this would include the constraint posed by the competing Apple ecosystem. The GC held that the Commission was correct to conclude that the pressure exerted by the Apple ecosystem was limited.
- Pre-installation tying (MADAs): With regard to the pre-installation tying of the Search app and Chrome browser to the Google Play Store, the Commission based its assessment on the similar Microsoft case that involved pre-installation of Internet Explorer by Microsoft. The GC upheld the Commission's finding that pre-installation of the Search app and Chrome browser would lead to a ‘status quo bias’, dissuading consumers from using apps other than those pre-installed on their device. The means available to Google’s competitors did not enable them to counterbalance the competitive advantage derived by Google from the pre-installation conditions. Crucial to this reasoning was that users would not want a phone without Google Play Store – which would be the case if OEMS and MNOs would not sign the MADAs – and that Google effectively leveraged this.
- Exclusivity payments (RSAs): To investigate whether the exclusivity payments for pre-installation of the Google Search app could restrict competition, the Commission applied the ‘As Efficient Competitor' (“AEC”) test. The test measures whether a competitor which hypothetically is equally efficient (i.e. has the same costs) would be able to viably compete in the market given Google's conduct. The GC did not fundamentally criticise the use of the AEC test but found some methodological and quantitative errors in the application of the test. One issue was that the Commission had simply ignored factual evidence submitted by Google which would likely have altered the Commission's conclusion on competitors' pre-installation costs. The GC found that the Commission did not sufficiently substantiate the abusive nature of the RSAs, and therefore annulled the decision in this respect.
- Infringement of the rights of the defence: After issuing the Statement of Objections (“SO”), the Commission sent two letters to Google substantially supplementing the substance and the scope of the evidence in relation to the AEC test. By sending these letters the Commission tried to avoid supplementing the SO as to do so would have granted Google the right to additional oral hearings. The GC ruled that the Commission was wrong to deny Google an additional hearing, which would have been of significant added value given the complexities surrounding the Commission’s application of the AEC test.