The European Commission announced on 18 July that it had fined Google a record £3.9 billion for abuse of a dominant market position in connection with Android phones.
The fine follows (and breaks the record set by) a separate Commission decision on 27 June 2017 – which we blogged about here – which fined Google £2.1 billion for abusing its dominant position in the search engine market to promote its own shopping services.
What has Google done?
The Commission found that Google is dominant in the market for Android app stores, because the Google Play store accounts for over 90% of apps downloaded on Android devices. Manufacturers need to include the Play store on Android phones because, effectively, an Android phone without Google Play would not be attractive to consumers. That gives Google dominance in the market for Android app stores.
Google abused that dominance, the Commission has concluded, by only allowing manufacturers of Android phones and tablets to put Google’s Play Store on their devices if they:
- made Google their default search option;
- made Chrome their default browser; and
- used Google-approved versions of Android (as opposed to, for example, Amazon’s “Fire OS” version).
But Android users aren’t forced to use Google search or Chrome, are they?
It is true that a consumer using Android could use another search engine or browser, but competition law assesses the evidence of what actually happens in practice. The Commission noted that, in reality, only 1 in 10 users actually downloaded an alternative browser, and only 1 in 100 downloaded a competing search app. When something is presented as a default, the end user will rarely shop around.
In reality, the choice of what browser or search engine to make the default, or whether to have a default at all, is made by manufacturers of Android devices (i.e. the “upstream” producers) rather than by the end-customer. It is their choice, not a choice made by consumers, that Google was restricting by threatening to withhold access to the Play store.
Can’t consumers just buy non-Android phones instead?
The Commission did consider this argument, but found that Google would not be constrained by the threat of this. The operating system is not often the most influential consideration for a consumer making a phone purchase, much less the default search app and browser. The Commission also noted that Apple devices in particular tend to sit at a higher price point in the market than many Android devices, and a lot of Android users might not be able to afford them.
Moreover, there are considerable costs to switching, not only in terms of the potentially higher cost of competing products, but also the cost of re-purchasing lost apps (which are often non-transferable) and non-financial costs such as lost contacts and data and time spent learning a new operating system.
Even if consumers did switch, the Commission pointed out, Google search is also the default on Apple products.
Dominance can support dominance. The Commission noted that incentivising users of Android phones to use Google search reinforces the dominant position Google has in online search. As the Commission concluded in the shopping decision, Google can use that dominant position to give itself an advantage over competitors in other markets, as with the previous decision on online shopping comparison services.
Abuse of dominance
It is not illegal to be dominant in a given market – it is the abuse of that dominance that is prohibited. As a dominant company, Google has a responsibility not to use that market power in a way that restricts competition, either in the market in which it is dominant or in related markets.
Some anti-competitive conduct by dominant players can be allowed where it results in an overall benefit to consumers, for example by encouraging innovation that would not otherwise happen. Accordingly, Google argued that requiring manufacturers to use Chrome and Google search as their defaults was necessary to allow Google to realise the value of its investment in Android, and without this consumers would not benefit from its investment in innovative new Android developments. However, the Commission was not convinced that the “tying” of manufacturers was necessary for Google to realise its investment in this case.
Instead, the Commission found that consumers were more likely to have suffered from Google using its dominant position to inhibit competitors from developing their own search engines, browsers and Android versions.
What next for Google?
Google has 90 days to change the relevant business practices or the Commission may impose further fines amounting to 5% of the average global daily turnover of its parent company, Alphabet.
However, Google has already said that it will be appealing the Commission’s decision to the EU’s General Court. It is already appealing the decision which resulted in the £2.1bn fine it received for abuse of dominance in the shopping services case.
Google also faces the possibility of private damages claims from any businesses who can show they have lost money as a result of the actions in question (consumers can also claim, though it is harder to see how any consumer losses might be established and quantified). Often the damages sought in these claims can far exceed the Commission’s original fine.
While the massive fines imposed on tech companies such as Google, Intel, Qualcomm and Microsoft for abusing dominant positions attract the most media attention, dominance issues can also affect much smaller companies. For example, a petrol station in a rural area could be dominant if it is the only petrol station for many miles. It all depends on the size and definition of the “market”, which is not always an easy thing to pin down.