EU Commission tackling Silicon Valley practices

On 20 March 2019, the European Commission fined Google €1.49 billion for abusing its dominant position in the market and therefore breaching EU competition rules. The European Commission is continuing its investigations into Google following the previous €2.42 billion fine that was issued for abusing its dominant position by giving Google’s own comparison shopping website an advantage in its search engine in June 2017, as well as a further fine in July 2018 of €4.34 billion which concerned how Google operated Android mobile devices to give its own search engine prominence. The EU Commission’s investigations were part of a larger review of the conduct of both Google LLC (Google Inc.) and Google's parent company, Alphabet Inc., in what is known as the Google Search Investigation.

Here, we take a look at what the latest fine means for more widely for businesses who are dominant in their market.

The Fine

Article 102 of the Treaty on the Functioning of the European Union (TFEU) and Article 54 of the EEA Agreement prohibit the abuse of a dominant position, both of which Google has been found guilty in numerous EU decisions. Google was the prominent company in online search advertising intermediation in the European Economic Area, having over 70% market share from 2006 to 2016.

The latest fine relates to the market of online advertising, whereby Google inserted clauses into contracts with third-party websites, which prevented the third-party websites from placing adverts on one of Google’s rival search engines, including Yahoo and Microsoft. The restrictive anti-competitive clauses protected Google from its competition. Margrethe Vestager, the EU Competition Commissioner stated: “This is illegal under EU antitrust rules. The misconduct lasted over 10 years and denied other companies the possibility to compete on the merits and to innovate - and consumers the benefits of competition.”

The fine amounts to 1.29% of Google’s annual turnover in 2018 and was calculated by following the EU Commission’s guideline on fines and calculated on the value of Google’s revenue from the market in the EEA. Google ceased operating this illegal activity three years ago, however may still face civil court action for damages in the courts of the Member States, which can be brought by a business or individual, who were affected by their practices.

How did it occur?

It is well known that most websites have a search function, resulting in both adverts and search results appearing. Google used “AdSense for Search” as an online search advertising intermediation platform and through this, acted as an intermediary which was able to control the space around the search results and benefit from the most profitable areas for their adverts.

In providing the online search advertising service, particularly to the most important publishers, Google used contractual agreements to enforce its practices. Throughout its investigation, the European Commission viewed hundreds of the agreements in question and discovered that Google included exclusivity clauses, meaning competitors’ adverts could not be published on the search result pages.

In 2009, Google replaced the exclusivity with premium placement, also known as an exclusive obligation. This meant that the publishers reserved the most profitable space on the results page for Google’s adverts and had to display a minimum amount of Google’s adverts. This evidently allowed Google to control their competitors' adverts as Google prevented any competitors from appearing prominently on the most visible search results pages on websites. Adding to this, Google also included clauses within the agreements requiring the third-party websites to obtain approval from Google before amendments were made to rival advert placings, alienating their competitors even further and leaving them unable to compete. The Commission deemed this “relaxed exclusivity.”

Conclusion

It is clear that the EU Commission considered that Google abused its dominant position as it restricted competition by ensuring that its own services and/or adverts were placed above those of competitors. Whilst market dominance itself is not illegal under EU competition rules, dominant companies have a duty not to abuse their position by restricting competition for others in the market. It must be noted that the EU Commission has yet to receive any money from Google as they are currently appealing the 2017 and 2018 rulings and Google has yet to announce whether this latest fine will also be appealed.

It is not only global companies who are falling foul of the dominant position rules. Even small, national companies who hold a significant and/or dominant market share can breach competition law by abusing such a position and stifling competition in the market as a result. It is fundamental that any business which may have a dominant market share ensures that it does not engage in any activity which could prohibit competition and result in the business abusing its dominant position.

This article was co-written by Rachel Gillan.

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