EU Probes Alleged Antitrust Breaches by Google Shopping, Android

The European Commission is investigating Google's comparison shopping service and its Android mobile operating system. It alleged Wednesday the company abused its dominant position in the markets for general Internet search services in Europe by favoring its own comparison site over rivals', and that Google may have signed anticompetitive agreements or abused its possible dominant position in smartphone operating systems, apps and services.

Competition Commissioner Margrethe Vestager said at a press briefing that she'll approach the matter "in a fair and objective way" that seeks to resolve the issues via principles, not forced changes to Google's website or algorithms, and will continue to look into complaints about other services. Google disputed the claims. Its rivals cheered Vestager's action, but some sided with the Internet giant.

EC objections to Google's comparison shopping service arise from concerns that users don't necessarily see the most relevant results in response to their queries because Google puts its own comparison shopping product first, it the EC said in a fact sheet. The EC said preliminarily that Google systematically positions and has prominently displayed its own service in its general search results pages, regardless of its merits, since 2008. The search engine doesn't apply to its own service the system of penalties it uses for rival comparison shopping service on the basis of defined parameters, which can lead to results being ranked lower in Google's general search page, the EC said.

The result of such systematic favoring of its own service has been higher growth rates for Google's products, to the detriment of competitors' services, it said. The conduct has also harmed consumers and innovation, because users may not see the best results and other businesses know that however good their product, they won't benefit from the same prominence as Google's, it said. Google should treat its own comparison search the same way it treats its rivals, Vestager said. The company has 10 weeks to respond to the statement of objections, she said.

The EC took a harder line on Google's Android operating system, opening a formal antitrust investigation. It's looking at whether, by signing anticompetitive agreements and/or abusing its dominant market position, Google has illegally hampered the development and market access of rival mobile operating systems, application and services, it said in a fact sheet. The probe will examine whether Google: (1) Hindered competitors' development and market access by requiring or incentivizing smartphone and tablet manufacturers to exclusively pre-install its apps or services. (2) Prevented tablet and smartphone makers wishing to install its applications and service on some of their Android devices from creating and marketing modified and potentially competing versions of Android on other devices. (3) Hampered development and market access of competitive applications and service by tying or bundling certain Google apps and services distributed on Android devices with other Google applications, service and/or application programming interfaces.

One in four companies griping about Google search services is American, and those companies also play major roles in the various organizations that filed complaints, said Vestager. Google has more than a 90 percent market share in search in most European countries, she said. Consumers use Google because it "has very good products," she said. Dominance isn't a problem, but major players have a responsibility not to use their market power to restrict competition in markets where they lead or in related markets, she said.

Vestager focused on Google Shopping because it's the first issue on which the EC received complaints, she said. But the EC will keep looking at Google's conduct in others areas, such as mapping, hotels and flight search markets, and will also keep probing earlier concerns involving copying of rivals' Web content, advertising exclusivity and undue restrictions on advertisers, it said.

Both investigations will be "fact based," said Vestager, who said she's willing to impose fines if Google's response is unsatisfactory. Any solution should be based on principles rather than on ordering Google to change its website or algorithms, she said. The design of the screen that greets a consumer is in itself an innovative process, so insisting it have a certain look isn't necessarily the solution, she said.

Google accused the EC of searching for harm. "While Google may be the most used search engine, people can now find and access information in numerous different ways -- and allegations of harm, for consumers and competitors, have proved to be wide of the mark," wrote Senior Vice President-Google Search Amit Singhal in the company's Europe blog. People have more choice than ever, he said. Contrary to their claims, the "vociferous complainants" to the EC have all boosted their traffic, revenue and profits, Singhal wrote: "It's why we respectfully but strongly disagree with the need to issue a Statement of Objections and look forward to making our case over the weeks ahead.”

Android "has helped create more choice and innovation on mobile than ever before," Hiroshi Lockheimer, Android vice president-engineering, posted Wednesday on the company blog. Its partner agreements are voluntary, and Android can be used without Google, he said. But anti-fragmentation contracts ensure that apps work across different Android devices and app distribution agreements make sure that users "get a great 'out of the box' experience" with useful applications right on their home screens, he wrote. That helps makers of Android devices compete with Apple, Microsoft and other mobile ecosystems that come preloaded with baseline apps, he said. And the distribution contracts aren't exclusive, he said: In comparison to Apple, there are "far fewer Google apps pre-installed on Android phones than Apple on iOS devices."

'Terrible, Horrible' Day for Google

FairSearch Europe applauded the EC action but stressed it also must address other problem areas. The EC might be trying to set a precedent, along the lines of what it did in the Microsoft antitrust case, said FairSearch legal counsel Thomas Vinje. If it finds abuses relating to comparison shopping searches, the EC could then apply it to other cases of Google's anticompetitive conduct, he said. FairSearch Europe members include Microsoft. The Initiative for a Competitive Online Marketplace praised Vestager's "bold decision," saying it "will be greeted by relief among complainants, harmed businesses and consumers across Europe." It has long been clear that minus effective enforcement action, "Google will continue to ignore European competition law," said ICOMP, whose membership also includes Microsoft.

The EC "must rigorously enforce a 'non-discrimination principle' to ensure European consumers get fair and neutral search results," said European Consumer Organisation (BEUC) Director General Monique Goyens. BEUC has been encouraging recognition of a nondiscrimination principle since proceedings began, BEUC spokesman John Phelan said. In practice, this seems to mean the EC "is not endeavouring to tinker with the algorithms under Google's bonnet [hood], but rather to closely monitor how it gets to the destination of more neutral search results," he emailed.

“It's a terrible, horrible, no good, very bad day for Google," said ACT-The App Association President Jonathan Zuck. "After five years of successfully squashing every investigation into alleged abuses of its market dominance, the European Commission just punched a giant hole in Google's entire strategy," he said. The association represents small and midsize software companies in the mobile app community. The EU is "wise to laser-focus on the part of its case that is open-and-shut strong and foundational for follow-on charges involving other market verticals," wrote Scott Cleland, who consults for some Google competitors, on his Precursor blog.

The European Publishers Council said it's counting on Vestager "to consider the outstanding issues of concern" to it." Google's virtual monopoly in search remains a major issue for publishers who want consumers to get access to news, creative content and information, it said.

Attempts by former Competition Commissioner Joaquín Almunia to reach a deal with Google without filing formal charges produced three unacceptable proposals, Consumer Watchdog Privacy Project Director John Simpson emailed Tuesday. Without the statement of objections to motivate Google, "the company engages in lengthy settlement talks" while continuing its anticompetitive behavior, he said.

Balancing Test

Only the EC has the confidential information on which its probes rest, but based on publicly available evidence, the Computer & Communications Industry Association is suspicious of the charges because of the dynamic market that's evolving in online information services, said Vice President-Public Policy Daniel O'Connor in an interview. From what CCIA has seen so far from the FTC and EC, it has sided with Google, he said. Regulators must decide if rivals are being hurt by anticompetitive action or good, old-fashioned competition, he said. The FTC, faced with the same documents the EC has, decided not to pursue Google, O'Connor said. The EU case is interesting in that the EC has confined its investigation to the shopping service -- a big win for Google, which fears its basic algorithm will be taken over, he said. Google and Microsoft are CCIA members.

Regulators are "still fighting the last war," said Geoffrey Manne, International Center for Law & Economics director. In the nearly four years it has taken the EC to bring this case, traditional search engines have "lost their central relevance, especially for comparison shopping," he said. "Brusselcrats don't know a good thing for consumers when they see it -- at least, if it's 'Made in the USA,'" said TechFreedom President Berin Szoka, saying Android is the most open operating systems on the market today.