Google and the Antitrust of "Free"



By Frank Fine

Head of International Antitrust, DeHeng Law Offices


It is astonishing that the business and legal media accounts of the EU’s investigations into Google’s “vertical search” services and Android have given so much attention to Google’s alleged abusive practices and such short-shrift to Google’s alleged dominance. Even the Commission has been conspicuously terse on the dominance issue.  Google’s dominance as a search engine seems to be presumed, with over 90% of EU Internet users perusing Google and some 80% of smartphones integrating the Android operating system.  


What the press is overlooking in this saga is that Google’s liability for any infringement of Article 102 TFEU (abuse of dominant position) depends upon a finding of dominance in respect of relevant markets.  Here, the Commission faces a conceptual dilemma.  Both the Google browser and Android are available to consumers and smartphone manufacturers, respectively, for free.  As regards Android OS, try as the Commission might to question its “open-source-”ness, (e.g. by discouraging the creation of so-called “forks”), it accepts that Google does not charge manufacturers a cent for their use of Android. 


Why is this so important?  Because Article 102 orthodoxy requires a finding that the firm in question is capable of exercising “market power” on relevant markets.  But relevant markets imply an economic world in which suppliers of the same product or service are competing with each other on price.  What if no one charges for the product or service in question?   In the case of search engines, the public takes for granted the fact that no supplier charges for access.  This is not an immutable law of nature.  It has simply been universal practice until now.   But until it changes, it is hard to envisage a real “market” in browsers or search engines. 


Market power is predicated on the firm’s ability to unilaterally raise prices. If loyalty would shift to competitors in the face of a supra-competitive price increase, then there should be no dominance, thus ending the query under Article 102.  But where no one (including Google) charges for search engine access, it stretches belief that Google has market power (in the traditional sense) in respect of its search engine.  It would make no sense for the Commission to consider whether loyalty would shift from Google to other browsers if it introduced an access fee, given that Google (at least publicly) has no plan to introduce such a fee.   


The analysis with regard to Android is more complex, but if one assumes that there is a market for mobile operating systems, the Commission must somehow demonstrate that Google is dominant even though it does not charge for Android.   The Commission seems to address this issue by claiming that Google is dominant on the market for “licensable” mobile operating systems (Press Release of 20 April 2016).  But if Android is not licensed for a fee (as is also the case with iOS, which is available only for Apple devices), how does the Commission characterize Google’s market power?  Once again, if Google’s business plan calls for Android to remain open-source, it is futile to speculate on the effects of a hypothetical price “increase.”


The business and legal press have suggested that the EU’s Microsoft decision of 2004 has precedential value.  In that case, Microsoft was found to have bundled Media Player into Windows OS.  However, the finding that Microsoft was dominant in the market for PC operating systems implicitly rested on the foundation that Microsoft charged a fee to OEMs for Windows.   


As regards the vertical search case, it also seems questionable for the Commission to find that Google’s dominance lies on the market for online search advertising.  In a 2013 press release, the Commission indicated that Google is dominant on that market.   Under EU law, it is not necessary for the abuse to take place on the same market on which dominance exists—the abuse can take place on a separate market.  But there must be a link between these two markets, and in this case, the link is not obvious.  To the contrary, Google’s business model has been to monetize or leverage the ubiquity of its search engine into other products and services, and into online search advertising.  We are back to the search engine as the only reliable source of dominance upon which to build an abuse of dominance case relating to Google Shopping and other Google services that show up in search results.  


The Commission does have recourse to another legal theory.  It could seek to characterize the Google search engine and Android as “essential facilities.” The thinking would be that access to Google search is indispensable to Google Shopping’s competitors and that access to Android is essential for rival app stores and apps.  Use of this legal theory would enable the Commission to avoid finding relevant markets where search engines and Android are accessible for free, or that Google is dominant on a putative market in search engines or for mobile OS.  Indeed, the Commission’s use of the word “licensable” in the characterization of mobile OS already suggests that this legal avenue is being considered.  In its 2001 IMS decision, the Commission found that IMS, the global pharmaceutical data services firm, had breached Article 82 of the EU Treaty [now Article 102] by refusing all competitors access to its “1860 brick structure,” a copyrighted “map” ofGermanyconsisting 1860 geographic segments in which each segment contained a minimum number of pharmacies. Access to this “facility” (which was the only one acceptable to German pharmaceutical manufacturers) was deemed indispensable to IMS’s competitors in the German market for regional pharmaceutical sales reports, and accordingly, it was unnecessary for the Commission to find a relevant market with regard to the map or for it to carry out an analysis of IMS’s market power in relation to the map.   


However, it would be an uphill battle for the Commission and for Google’s competitors to assert that their economic survival depends on access to Google’s search results. Google has made it abundantly clear that comparative shopping websites have access to several other search engines, not to mention Amazon and E-Bay.   Rival app stores and apps might, however, have a better chance with this legal theory—provided that they are able to show that they are, in fact, excluded from gaining access to Android-driven smartphones—an issue that both sides are hotly contesting. 


Arguably, an unconventional approach will be needed to tackle the unorthodox approach of Google and other Internet companies such as Facebook and LinkedIn, which also provide free services which are monetized by advertising and ancillary/premium services.   


One head of a leading national competition authority recently suggested that EU legislation may be necessary to provide bullet-proof antitrust regulation of Internet platforms such as Google, although this would not address the problem of Android.   However, the legislative avenue poses its own risks.  It would be daunting for the Commission to determine the scope of the legislation and how it would operate in practice.  For example, if the Commission sought to broaden access of rival comparative shopping websites, how many competing sites must be displayed in the search results?  What would be the rules for inclusion and exclusion and who would supervise enforcement? Would the Commission get involved in revising algorithms?   Would there be a standard imposed for the all the sites displayed?  


It will be important for any EU regulatory tampering with Google’s business model, whether via antitrust investigation or legislation, to benefit consumers.  It would be a great pity if we woke up one morning and found that access to Google Chrome required a license, or that we had to begin paying, indirectly, for the use of Android.  Ironically, the ability of Google to hold on to its users/customers in these circumstances might provide a reliable test of Google’s market power.  EU regulators, at least, would be relieved that Google finally joined the ranks of “normal” industrial companies.  



QR Code

Scan QR Code
Share With My Friends