TR Daily EC Sets $5B Fine on Google for Android App Arrangements
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Wednesday, July 18, 2018

EC Sets $5B Fine on Google for Android App Arrangements

The European Commission today fined Google LLC 4.34 billion euros (US$5.05 billion) for antitrust violations with respect to granting device manufacturers and wireless network operators access to Google’s proprietary Android-based apps and services in exchange for pre-installation of Google Search and Chrome browser and barring device makers that pre-install Google apps from selling other devices with alternative versions of the Android operating system (OS).

It also directed Google to cease the activities cited in the decision within 90 days and “to refrain from any measure that has the same or an equivalent object or effect as these practices.” Failure to ensure compliance could result in “non-compliance payments of up to 5% of the average daily worldwide turnover of Alphabet, Google's parent company. The Commission would have to determine such non-compliance in a separate decision, with any payment backdated to when the non-compliance started,” the EC said.

“Google is also liable to face civil actions for damages that can be brought before the courts of the Member States by any person or business affected by its anti-competitive behavior,” it added.

European Competition Commissioner Margrethe Vestager said, “These practices have denied rivals the chance to innovate and compete on the merits. They have denied European consumers the benefits of effective competition in the important mobile sphere. This is illegal under EU antitrust rules.”

Specifically, the decision imposing the fine cites three types of restrictions imposed by Google: “require[ing] manufacturers to pre-install the Google Search app and browser app (Chrome), as a condition for licensing Google's app store (the Play Store); [making] payments to certain large manufacturers and mobile network operators on condition that they exclusively pre-installed the Google Search app on their devices; and … prevent[ing] manufacturers wishing to pre-install Google apps from selling even a single smart mobile device running on alternative versions of Android that were not approved by Google (so-called ‘Android forks’).”

“The Commission decision concludes that Google is dominant in the markets for general internet search services, licensable smart mobile operating systems and app stores for the Android mobile operating system,” the EC said in a press release. It concluded that competition from Apple and other for end users “does not sufficiently constrain Google upstream for a number of reasons, including: end user purchasing decisions are influenced by a variety of factors (such as hardware features or device brand), which are independent from the mobile operating system; Apple devices are typically priced higher than Android devices and may therefore not be accessible to a large part of the Android device user base; Android device users face switching costs when switching to Apple devices, such as losing their apps, data and contacts, and having to learn how to use a new operating system; and even if end users were to switch from Android to Apple devices, this would have limited impact on Google's core business. That's because Google Search is set as the default search engine on Apple devices and Apple users are therefore likely to continue using Google Search for their queries.”

The practices constitute illegal tying of Google’s search and browser apps, illegal payments conditional on exclusive pre-installation of Google Search, and illegal obstruction of development and distribution of competing Android operating systems, the EC said.

In a blog post today, Google Chief Executive Officer Sundar Pichai said that the company plans to appeal the decision and implied that if it stands, it could lead Google to start charging for the use of the Android OS.

The decision “ignores the fact that Android phones compete with iOS phones, something that 89 percent of respondents to the Commission’s own market survey confirmed. It also misses just how much choice Android provides to thousands of phone makers and mobile network operators who build and sell Android devices; to millions of app developers around the world who have built their businesses with Android; and billions of consumers who can now afford and use cutting-edge Android smartphones,” he said.

Mr. Pichai added that while manufacturers must comply with “technical compatibility” rules if they want their phones to be able to run standard Android apps, they can choose instead to “modify Android in any way they want, just as Amazon has done with its Fire tablets and TV sticks.”

“To be successful, open-source platforms have to painstakingly balance the needs of everyone that uses them,” he added.

“In fact, a typical Android phone user will install around 50 apps themselves. Last year, over 94 billion apps were downloaded globally from our Play app store; browsers such as Opera Mini and Firefox have been downloaded more than 100 million times, UC Browser more than 500 million times,” he said.

Mr. Pichai pointed out that Google has allowed device makers and mobile network operators to use Android at no charge “because we can offer phone makers the option of pre-loading a suite of popular Google apps (such as Search, Chrome, Play, Maps and Gmail), some of which generate revenue for us …. Phone makers don’t have to include our services; and they’re also free to pre-install competing apps alongside ours. This means that we earn revenue only if our apps are installed, and if people choose to use our apps instead of the rival apps.”

This approach is efficient for device makers and network operators, and “it’s of huge benefit for developers and consumers. If phone makers and mobile network operators couldn’t include our apps on their wide range of devices, it would upset the balance of the Android ecosystem. So far, the Android business model has meant that we haven't had to charge phone makers for our technology, or depend on a tightly controlled distribution model,” he said.

“[W]e are concerned that today’s decision will upset the careful balance that we have struck with Android, and that it sends a troubling signal in favor of proprietary systems over open platforms,” he continued, adding, “Today’s decision rejects the business model that supports Android, which has created more choice for everyone, not less. We intend to appeal.”

Party differences were evident in congressional reaction to the announcement.

Sen. Mike Lee (R., Utah), chairman of the Senate Judiciary antitrust, competition policy, and consumer rights subcommittee said, “Today’s decision by the European Commission to fine Google over $5 billion and require significant changes to its business model to satisfy EC bureaucrats has the potential to undermine competition and innovation in the United States. Moreover, the decision further demonstrates the different approaches to competition policy between U.S. and EC antitrust enforcers. As discussed at the hearing held last December before the Senate’s Subcommittee on Antitrust, Competition Policy & Consumer Rights, U.S. antitrust agencies analyze business practices based on the consumer welfare standard. This analytical framework seeks to protect consumers rather than competitors. A competitive marketplace requires strong antitrust enforcement. However, appropriate competition policy should serve the interests of consumers and not be used as a vehicle by competitors to punish their successful rivals.”

Sen. Richard Blumenthal (D., Conn.), a member of the antitrust subcommittee, issued a statement urging the Federal Trade Commission to follow Commissioner Vestager’s lead (see separate story). “The FTC should end its decade of inaction and deference, and confront the mounting evidence that Google’s business practices have stifled robust competition in a market that is critical to our economy and society. Europe should not be alone setting the agenda,” he said.

Off Capitol Hill, reaction to the EC decision was also mixed, with much of the tech sector taking a negative view.

Computer & Communications Industry Association President and Chief Executive Officer Ed Black said, “Today’s decision punishes the most open, affordable and flexible operating system in the mobile ecosystem. Android brought more competition, innovation, and consumer choice to the market. These are precisely the things competition authorities are tasked to promote rather than jeopardize.”

Jakob Kucharczyk, CCIA’s Europe vice president–competition and EU regulatory policy, said, “The result of today’s decision is bizarre. It will make it more difficult to successfully compete using a free and more affordable open source business model. In a world where the iPhone is the main competitor, any company wanting to compete must ensure their ecosystem is as appealing as possible to attract app developers and consumers alike. It seems today’s decision lost sight of these big picture dynamics and misses the forest for the trees.”

Mr. Kucharczyk added, “The mobile economy is thriving. Consumers have never had so much choice at the tap of a button, at competitive prices. Android has been one of the drivers behind this vibrant competition and innovation. To say that consumers are harmed because of a couple of pre-installed apps is to ignore the billions of app downloads every year. That in itself is testimony to empowered consumers exercising their freedom of choice made available by Android — not blocked by Android.”

TechFreedom President Berin Szóka was also strongly critical of the decision. “This may go down in history as the stupidest antitrust suit of all time,” he said. “The EC’s last antitrust suit against Google turned on the preposterous claim that Google’s product search didn’t compete with Amazon, the obvious market leader. Here, again, the EC has defined the market to make Google seem like a monopoly — by excluding Apple. That Google and Apple compete directly would be obvious to any teenager in even the most remote village in Transylvania.”

“All three of Google’s supposedly anti-competitive practices are, in fact, vital to sustaining Android as a competitive alternative to Apple,” Mr. Szóka said. “None has the anti-competitive effects the EC claims. If anything, the biggest problem with the Android ecosystem is that it is too fragmented. Encouraging fragmentation will make users more vulnerable to security threats and degrade their experience.”

“For all her technocratic polish and lofty rhetoric, Vestager is channeling the same populist whirlwind driving President Trump’s own protectionist demagoguery. Where Trump plays on middle America’s deep anxieties about globalization and technological change, Vestager is channeling Europe’s resentment at its best and brightest tech innovators moving to San Francisco. Both conjure fantasies about a renaissance in the heartland if only the protectionist wall were high enough, if only they were ‘tough’ enough. Both are more concerned with scoring headlines than with the actual effects of their policies,” Mr. Szóka said.

Competitive Enterprise fellow Ryan Young said, “The European Union's $5 billion antitrust decision against Google's Android operating system could cause immense consumer harm by requiring Google to provide an inferior product for no good reason. The decision is reminiscent of the EU's similarly baseless crusade against Microsoft in the 1990s and 2000s. Not only are Google's Android operating system, Chrome browser, Maps, Calendar, and other applications already available free of charge to consumers, but Google provides consumers easy access to competitors' software through its Google Play app store.”

CEI Vice President–policy Wayne Crews said, “Dominance and popularity are not the same as a coercive monopoly. The European Commission is behaving in protectionist fashion, not in a manner benefitting consumers, and the fines are inappropriate, unwarranted, and plain wrong.”

A number of consumer and public interest groups offered support for the EC antitrust decision.

In a joint letter sent to Commissioner Vestager today, the Open Markets Institute, the Electronic Privacy Information Center, the Center for Digital Democracy, Consumer Watchdog, and Fight for the Future said, “We write to strongly support your decision today to fine Google for abusing the dominance of its Android mobile operating systems. Last year, many of us also endorsed your fine against the corporation for abusing its search monopoly to favor its own shopping comparison engine over those of its competitors. We hope U.S. enforcers of competition law will follow your lead in both of these cases. In recent years, U.S. government agencies have been way too slow to enforce American anti-monopoly (and anti-merger) laws against powerful technology firms. As a consequence, competition and innovation are diminishing.”

They added, “We also write today to encourage you to speed up and broaden your investigations against Google and other dominant online firms including Facebook. … The most pressing issue is the growing power Google and Facebook exert over the online platforms where people exchange news and ideas. One result, as was made clear in Open Markets’ ‘Breaking the News’ event in Washington on June 12, is a destructive diversion of advertising revenue away from trustworthy news organizations. Another result, made clear in hearings in the EU Parliament and in the U.S. Congress, is the abuse of these poorly run monopoly communications systems by foreign powers to spread propaganda and disinformation. These corporations have also acquired vast amounts of personal data with little regard for its possible misuse.”

In a separate statement, Consumer Watchdog called for U.S. antitrust enforcement officials to take action against Google. “Google has clearly used its monopoly power by bundling its apps and services on devices that use its Android operating system. Decisive action by European antitrust authorities benefits consumers around the world,” said John Simpson, director of Consumer Watchdog’s Privacy and Technology Project. “The U.S. Federal Trade Commission or Department of Justice should also act to end Google’s monopolistic abuses, instead of letting the Europeans be the only cop on the antitrust beat.”

In a statement, Public Knowledge Senior Counsel John Bergmayer said, “We’re glad to see Europe vigorously enforce its antitrust laws. Dominant firms should not use their control in one market or product to gain unfair advantages in others. While we do not know all the facts of this specific case, in general, interoperability, compatibility, and affordable options for consumers must not come at the cost of competition.” —Lynn Stanton, lynn.s[email protected]

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