Google strongly rejects EU antitrust charges and now gets ready for the worst to come

Visit by Margrethe Vestager, Member of the EC in charge of Competition, traveled to Paris where she gave a press conference at the EC representation about how competition serves citizens. Date: 15/09/2016 Reference: P-032353/00-16 Location: Paris - EC/Representation. © European Union , 2016 / Source: EC - Audiovisual Service / Photo: Silvère Gérard.

Visit by Margrethe Vestager, Member of the EC in charge of Competition, traveled to Paris where she gave a press conference at the EC representation about how competition serves citizens.
Date: 15/09/2016 Reference: P-032353/00-16 Location: Paris – EC/Representation. © European Union , 2016 / Source: EC – Audiovisual Service / Photo: Silvère Gérard.

Last Thursday Google officially responded to the antitrust charges by the European Union relating to its shopping search and AdSense. Having been given an extra week to formally respond to allegations by the Commission, Google produced the strongest reply of its give-and-take history with European Regulators. The US technology giant this time is hitting back at the bloc by saying all the accusations lack evidence and have no solid base, while it gets ready for the toughest match with the EU regarding the outstanding Android case.

Background

Two weeks ago, the European Commission gave Google an extra week to respond to its allegations that it was blocking rivals in online search advertising, extending the deadline from October 26 to November 3. European Commission spokesman Ricardo Cardoso said in an email: “Google asked for additional time to review the documents in the case file. In line with normal practice, the commission analysed the reasons for the request and granted an extension allowing Google to fully exercise its rights of defence”.

The charges were officially filed against Google in July, the third antitrust case raised by the EU against the Mountain View, California-based tech firm. The European Commission formally accused the world’s most popular internet search engine of having abused its market position in the placement of search advertising on third-party websites. Specifically, the case concerned Google’s AdSense for Search product: the Commission’s Statement of Objections claimed that AdSense was hindering innovation and competition in the market, potentially breaking European antitrust rules.

Google’s hit back

Perfectly in time after the extension, Google’s general counsel Kent Walker gave a formal response to the Commission, and said on the company’s official blog that the accusations are wrong “as a matter of fact, law, and economics”. “We never compromised the quality or relevance of the information we displayed. On the contrary, we improved it”, said Mr. Walker. “That isn’t ‘favouring’ – that’s listening to our customers”, he added.

Mr. Walker said the Commission has failed to take into account Amazon and other media platforms like social networks as competitors, as well as the “broader dynamics of online shopping”. “The Commission’s original SO drew such a narrow definition around online shopping services that it even excluded services like Amazon”, Google’s Walker said. “It claimed that when we offered improved shopping ads to our users and advertisers, we were ‘favouring’ our own services — […] but it failed to take into account the competitive significance of companies like Amazon”.

The EU’s “careful” consideration

Reuters reported last week that the EU executive said it had received Google’s response. “In each case, we will carefully consider Google’s response before taking any decision on how to proceed and cannot at this stage prejudge the final outcome of the investigation”, underscored Ricardo Cardoso in an email to Reuters. However, the feeling is that it will be quite difficult for Google to convince EU regulators that no unfair advantage has ever been taken. Michael Carrier, professor at New Jersey-based Rutgers Law School, has no doubt. “Google has a point that its search results help consumers by allowing them to directly buy the item. But the Commission worries about the effect on rivals. This likely will outweigh the consumer point”, he told Reuters last week.

Highly-priced risks

If found guilty of breaching EU rules, Google surely risks notable fines. The Apple case, where the Cupertino-based company had to pay $14.5 billion in back taxes, is a concrete example. Google indeed could not only face billions of dollars in fines – which according to Reuters could total up to $7.4 billion or 10 percent of the company’s global turnover for each case – but could also receive demands to change completely how it runs its shopping comparison and AdSense businesses in the Old Continent; something that Google doesn’t want to event take into consideration. Google has also pushed back a proposal by the Commission which would let the company charge rivals for displaying their services prominently.

Pending Android case

Even more worrying for Google is the still outstanding Android case. Earlier this year, in April, the Commission accused Google of using its dominant Android mobile operating system to block competitors. The formal accusation was that Google was exploiting consumers by pre-installing Android apps on their smartphones, something that may harm end-users and competition. At those times, Margrethe Vestager, European Commissioner for Competition, said that Google had pursued an overall strategy on mobile devices to protect and expand its dominant position in internet search”, “by imposing unjustified restrictions and conditions on manufacturers of devices running its Android mobile operating system as well as on mobile network operators”.

The Android “system”

Android apps and Smartphones are a very lucrative business for Google; thus risks here may be even higher for the Californian firm. Google’s requirement that mobile phone manufacturers pre-install Google Search and Google’s Chrome browser have guaranteed the US tech giant preferential position in online search and most of all millions of accesses to the Google Play Store, the largest source of Android apps with more than two millions available.

Google says those obligations and bonds are necessary to create a sort of Android “ecosystem” that ultimately triggers innovation and benefits consumers, without harming competition. “We’re confident these cases will ultimately be decided based on the facts and that this analysis will show our product innovations have benefited consumers and merchants, and expanded competition”, Google’s general counsel Walker said about the case.

Leaked truth?

Google’s response to the Android accusations will be very interesting to see although according to a leaked document obtained by Reuters early last month, history should have already been written. The EU would be indeed planning to order Google to stop giving incentives to smartphone makers to pre-install Google contents, apps and search engines exclusively on their devices. According to Reuters, a fine is expected. “The Commission intends to set the fine at a level which will be sufficient to ensure deterrence”, the document reportedly said.

“We look forward to showing the European Commission that we’ve designed the Android model in a way that’s good for both competition and consumers, and supports innovation across the region”, Google said at those times, although the Android file seems to be a very thorny one for the tech giant.
Google has until November 11 to respond to the charge sheet regarding Android, after having received a deadline extension for this case as well. Mr. Walker said Google will respond to the Statement of Objections about Android operating system “in the days to come”.

The whole world is awaiting now to see how strong Google’s formal reply may be in that case.

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