Could the EU Commission’s Google Trio Impact Google’s US Operations?

Sunday, October 8th, 2017 at 4:15 pm, by Phillip Andriole

On June 27th, 2017, the European Commission, the EU’s supranational executive authority, fined Google €2.42 billion (approximately $2.85m) for breaching EU antitrust rules by using its market dominance as a search engine to give an illegal advantage to another Google product, Google Shopping.  While the fine is a record sum for such an antitrust case, it amounts to little more than a financial blip for Google’s parent conglomerate, Alphabet, which, on July 24th, 2017, released Q2 2017 revenues of $26b.  More significant than the fine itself was the aggressive posture the European Commissioner for Competition, Margrethe Vestager, assumed in her statement accompanying the ruling.  After detailing the facts of the Google Shopping case, the established breaches of EU antitrust rules, and the consequences of the decision, Commissioner Vestager concluded with something of a warning shot to Google. The Commissioner noted that “[the EU Commission is] also making good progress with our two other pending inquiring into certain Google practices concerning Android as well as search advertising.  Our preliminary conclusion in relation to both practices is that they breach EU antitrust rules.”

Commissioner Vestager referenced Google Shopping as one of three on-going antitrust claims the EU Commission is investigating against Google.  The scope of the alleged illegal practices, and the breadth of the potential remedies Commission may hand down, could have profound implications on how Google does business in and out of the EU.

The EU Commission’s Google Trio

Google Shopping

The first, and most advanced case against Google stems from the preferential treatment it gives to its own comparison-shopping product, Google Shopping, on its general search results page, as compared to competitors’ comparison-shopping products and search results.  The Commission raised concerns that this practice prevented users from seeing the most relevant results and stifled potential innovation of competitors.   As noted above, the Commission recently ruled that this practice was an abuse of Google’s dominant position in general Internet search and comprised an illegal advantage for its own comparison shopping service.

Perhaps more significant than the record fine, however, was the Commission’s finding that Google must comply with the principle of “equal treatment” to rival comparison shopping services, meaning, according to the remarks of Commissioner Vestager: “Google has to apply the same processes and methods to position and display rival comparison shopping services in Google’s search results pages as it gives to its own comparison shopping service.”

As Commissioner Vestager alluded to, Google may similarly give an illegal advantage to its own products “other than its comparison shopping service” (e.g. Google’s restaurant reviews vs. Yelp reviews).  Commissioner Vestager notes, “we have been looking into these,” and the Google Shopping decision is “a precedent, which can be used as a framework to analy[z]e the legality of such conduct [in applications beyond Google Shopping].”

 Google AdSense

Google’s AdSense for Search is a search advertising intermediation platform that places ads alongside search results on Google and third-party websites.  The crux of the Commission’s objections to Google’s AdSense practices is that Google is using its dominant position in online search advertising to extract unfair conditions when contracting with third parties who wish to place advertisements through AdSense.

The EU Commission has not yet issued a decision on the AdSense investigation.  Given that Google has already decided to change some of the problematic contractual conditions, commentators believe that Google may be able to meet any further EU AdSense objections by making “relatively modest changes” to its system.

 Google Android

 Google Android is a mobile operating with a market share of 90% and above in most EU Member States.  The EU Commission has three primary concerns with Google’s Android practices.  First, Google Search and Google Chrome are pre-installed on most of the Android devices sold in the EEA as a result of Google requiring manufacturers who wish to pre-install Google’s app store to also pre-install Search and Chrome.  Second, Google requires “Anti-Fragmentation Agreements” if a manufacturer wishes to pre-install Google Apps on any of its devices, which prohibit the manufacturer from selling devices running on Android “forks”: modified Android operating systems.  Finally, Google grants significant financial incentives to manufactures on a condition that they exclusively pre-install Google Search on their devices.

While Google will likely face a significant fine once the EU Commission hands down its Android decision, commentators note that a decision requiring “unbundling” of Google apps from Android would be much more detrimental, and potentially trigger a decline in usage of Google’s services.

 Taken together, the Google Trio shows the EU Commission attacking several facets of Google’s operations and crafting, at least in the case of Google Shopping, broad remedies that may force Google to re-shape many aspects of its business.  A natural question arises, then: will the EU Commission’s Google Trio have any extraterritorial impact on Google’s US operations?

 Could the Google Trio Impact Google’s US Operations?

Google will likely be willing and able to isolate the effects of the EU Commission’s Shopping and Android rulings to its European operations.  This suggestion is consistent with popular commentary’s exclusive focus on the impact of the rulings in the EU, and non-acknowledgement to date of any potential extraterritorial effects beyond the fines’ nominal damage to Google’s finances.

Two recent examples illustrate the feasibility of tailoring on Google’s part, or dividing its production to meet the EU’s new regulatory approach and requirements only within the EU’s jurisdiction.

First, in 2004, Microsoft faced an EU Commission antitrust investigation similar to the Google Android case. In response to the Commission’s judgment that Microsoft’s bundling of Windows Media Player and Internet Explorer with Windows XP was contrary to EU anti-trust regulations, Microsoft released a special version of Windows for the EU, Windows N, without the application.  Microsoft also included a “browser ballot” to allow users to select a default browser besides Internet Explorer. Microsoft also introduced un-bundled versions of XP in South Korea.  The imposition of a similar remedy (although likely coupled with a larger fine) in the Android case would have no operational impact on Google in the US.

Second, in 2014, as a result of a new Spanish copyright law, Google both closed its Google News service in Spain, and adjusted its global Google News product to remove Spanish publishers. The move was in response to a statutory fine commentators believed would not exceed €600,000.  This suggests a divisibility of Google services that would make complying with EU regulations, with respect to, for example, Shopping or AdSense, only necessary within the EU, and not extraterritorially.

The EU Commission’s rulings may impose costly fines, force Google to restructure its EU operations, and even create grounds for civil damages suits.  The rulings will likely have substantial effects on Google’s operations and market power in Europe.

However, these examples suggest that Google will be willing and able to limit the impact of the EU Commission rulings to the EU itself, and will not implicate its crucial US operations.  The rulings’ non-impact on US operations supports Alphabet’s continued financial health and ability to withstand record-breaking EU Commission fines in the future: while Europe accounted for $8.54b of Alphabet’s revenue in Q2, 2017, US revenues were $12.32b in the same period. 

Finally, some commentators suggest that the EU Commission’s decisions may influence regulators around the world to follow suit.  This is unlikely to occur in the US, as there is no indication that the FTC, which last explored a lawsuit against Google over unfair business practices in 2012, will match the EU Commission’s aggression against Google.  In fact, some commentators suggest that the EU’s aggressive approach towards regulating US companies like Google will serve to entrench regulatory differences between the two powers, making any such proposed mirroring of the EU Commission’s approach to Google less likely.