Google has ranked #1 on the European Commission’s hit-list this week.
After an investigation that started in November 2010, the EC has recently issued Google with a Statement of Objections (SOO) containing a preliminary finding of an abuse of dominance by Google favouring its own non-search products (specifically, comparison shopping services) in its search engine results over comparable rival products.
This marks the first formal charge by an antitrust regulator against Google for abuse of dominance. If that wasn’t enough, the EC has since separately formally commenced an investigation into whether Google’s Android mobile operating system falls short of EU antitrust regulations as well.
Scope of the EC’s investigation
The investigation into Google’s core search business was triggered in 2010 by competitor complaints, and explored whether Google treats its own non-search products, such as Google Shopping, more favourably than competitors’ comparable products, such as NexTag, regardless of merit. The EC investigation identified four matters of concern:
- unfavourable treatment of competitors in search results (the only concern addressed by the SOO)
- competitor website scraping
- advertising exclusivity, and
- restrictions on advertisers.
While the EC’s preliminary finding in the SOO relates only to comparison shopping services, there has already been speculation that the charge could eventually be broadened to include other products (for instance, travel services and maps).
A market for general search services
The SOO distinguishes the market for general search services from the market for specialised search, such as comparison shopping services. In the former, the EC alleges that Google is a clear dominant player (after all, to ‘google’ is officially a verb in the Oxford Dictionary) but recognises that in the latter market, Google faces competition which the EC considers is not accurately reflected by the company’s current practices.
The EC is not the first regulator to probe into an abuse of dominance by Google in the general search space: the US Federal Trade Commission previously looked into the issue and concluded there were no competition concerns in Google’s practices but the EC justified its investigation by outlining the position Google has in the European market (capturing a 90% market share) and contrasting this with the significant competition Google faces in the US from providers such as Yahoo and Bing.
The ACCC chairman, Rod Sims, has indicated that the Australian regulator will be watching the EU’s investigation and will subsequently determine whether or not to pursue action in Australia against Google. It is useful to note that any investigation would be specific to the local environment and require fresh analysis of whether Google has substantial market power in any Australian market. It is possible that competing search providers such as Bing and Yahoo might be shown to have a sizeable share of the market of general search and that domestic competitors may be within the market for specialised search services. In a similar vein, the ACCC’s Priorities 2015 (discussed further in our earlier alert) set out that the online marketplace will be an area of focus for the year ahead, specifically that the ACCC will concentrate on emerging systemic consumers issues in the online marketplace.
In reaching its conclusion, the EC considered the interplay between sponsored search results as well as algorithm based natural search results. Right next to the whereabouts of the holy grail, the Google algorithm is possibly one of the modern world’s biggest mysteries with an industry around optimizing websites to rank higher in Google natural results. The SOO takes the preliminary view that in order to remedy the alleged abuse, Google will only be required to treat competitors’ products in the same way as it treats its own products which are provided prominent space in Google results and that this would not require a modification of Google search algorithms.
However, any defence by Google that it does favour its own services over those of its rivals may require the company to divulge its most closely guarded secret. The EC acknowledged the issue earlier in its investigation, but the impact of an equal treatment requirement remains uncertain, and has the potential to lead to consumer detriment if rival products are not as developed (or meritorious) as Google’s own services but are displayed alongside Google services comparably. Going further, a restriction on how Google displays its search results or modifications to its algorithm to comply with equal treatment requirements rather than site merit may harm Google’s bottom line a lot more than any penalties if consumers vote with their feet.
The SOO comes after years of negotiation between Google and the EC in an attempt to extract acceptable binding commitments from Google. In 2014, Vice President of the EC Joaquin Almunia stated that the EC preferred to seek binding commitments rather than proceed in an adversarial manner in order to most speedily allow consumers to benefit from competition, highlighting that adversarial proceedings will take many years, will be ripe with uncertainty and not have immediate impact.
For more on the EC investigation, see the article published by our London colleagues last week here.