On July 18, 2018, the EU Commission released a Press Statement,[1] announcing that it had fined Google €4.34 billion (approximately $5.1 billion) for illegal practices concerning Google’s Android mobile operating system. This is a record fine imposed by the EU Commission, and probably a milestone in a series of antitrust fines against U.S.-based technology companies.[2] The Commission also ordered Google to alter its practices within 90 days to comply with EU antitrust law and announced that the company’s failure to do so would result in penalty payments of up to 5 percent of the average daily worldwide revenue of its parent company, Alphabet.

The Commission concluded, “Google has imposed illegal restrictions on Android device manufacturers and mobile network operators to cement its dominant position in general internet search, since 2011.” This is similar to a Section 2 violation of the Sherman Act.

According to the findings of the Commission, Google dominates general internet search services, licensable smart mobile operating systems, and app stores for the Android mobile operating system markets in each of the 31 EU member states with more than a 90 percent share. The Commission held that, in addition to its strong positioning, Google applies illegal restrictions to protect its dominance in internet searches by: (1) requiring manufacturers to pre-install Google search and Google Chrome in Android devices; (2) making payments to manufacturers and operators to pre-install Google Search exclusively; and (3) restricting developments of new open source versions of Android.

The Press Release emphasizes that the consequences of the pre-installment are huge. In 2016, of all search queries, Google’s share was 95% in Androids, in which the Google app (and Chrome) were pre-installed; whereas Google had less than a 25% share in Windows Mobile devices in which Microsoft Bing was pre-installed. This means that in absence of requirements or exclusive payments to the manufacturers and operators, Google would not pursue high market shares and enjoy that strong market power.

The EU Commissioner in charge of competition policy, Margrethe Vestager reported, “Today, mobile internet makes up more than half of the global internet traffic.” This fact also implies a high growth rate of the mobile search market. Given the record high fine, the Commission will likely monitor the progress of Google’s termination of anti-competitive practices and its compliance with EU legislation and not hesitate to levy daily fines should Google fail.

It is apparent that Google will lose market share as the company complies with the decision. It is implicitly expected in the Commission release that not only will competitors gain more shares, but the market will attract new entrants as well.

History of antitrust law includes many examples of the interventions of antitrust authorities, which in turn reversed the market share growth of dominant companies and triggered the growth of others. Though most of those examples are U.S.-based, we all may be witnessing an EU-based one.

Dr. Kemal Su is an industrial organization economist with expertise in antitrust, regulations, and compliance issues. He is a graduate of Middle East Technical University (Business Administration B.S. 1997), the University of Illinois at Urbana-Champaign (M.S. in Policy Economics 2002), and Hacettepe University (Ph.D. in Economics, 2008).

Dr. Su began his career at the Turkish Competition Authority in 1997, where he served for eight (8) years. He consulted international companies in antitrust/competition law and economics, regulations, and compliance for more than ten (10) years until late 2016. During that time, he led many projects and compliance programs, submitted tens of written testimonies, represented tens of clients in antitrust investigations, filed hundreds of M&As and exemption/negative clearance cases, and taught hundreds of seminars. He taught competition law and practices at the Middle East Technical University to undergraduate and graduate students from 2009 – 2016.

Dr. Su is currently a visiting scholar at Duke University School of Law.

[1] Press Release is available at http://europa.eu/rapid/press-release_IP-18-4581_en.htm.

[2] This is the second fine in the last couple of years imposed by the EU Commission to Google. The Commission fined Google 2.42 billion on June 27th, 2017 due to abusive practices in shopping services. That decision is widely known as the ‘Google Shopping Decision’.

October 2, 2018/by International Practice