European Court upholds abuse of dominance in Google/Android

This widely anticipated judgment provides a significant boost to digital antitrust enforcement in Europe, but does underline the degree of judicial scrutiny into Commission procedure and the need for the Commission to robustly demonstrate the anticompetitive effect of abusive conduct.

As consumers transitioned their internet searches from PCs to mobile phones, Google looked for a way to preserve the centrality of its core search engine product. In a 2018 decision, the European Commission concluded that aspects of Google’s strategy consolidated its position in general search services, and amounted to an illegal abuse of a dominant position under Article 102 of the Treaty of the Functioning of the European Union:

• Google’s licensing conditions prevented mobile manufacturers from obtaining a license to Play Store unless they pre-installed its general search (Google Search) and browser (Chrome) applications. The Commission found that this reduced the incentives of manufacturers to pre-install competing search and browser apps, as well as the incentives of users to download them;
• Google entered into Revenue Sharing Arrangements with certain phone manufacturers and network operators through which Google shared some of its advertising revenue on the condition that no competing general search services would be pre-installed on a pre-determined portfolio of their devices. Again, the Commission found that this reduced their incentives to pre-install competing search apps; and
• phone manufacturers that wanted to pre-install Google apps were prevented from selling devices running on Android OS forks that were not approved by Google. This prevented potential competitors from using the Android platform to develop their own apps to compete with Google’s.

In a judgment of September 14, 2022, the General Court upheld the Commission’s decision. In doing so, the Court rejected Google’s arguments with regards to the tying of Chrome and Google Search to Play Store, and the antifragmentation obligations linked to Play Store. The Court did overturn the Commission’s findings as regards the Revenue Sharing Arrangements, though this resulted in a relatively small reduction of the fine imposed, from €4.34bn to €4.125bn.

The judgment represents an important vindication for the Commission’s antitrust enforcement in the tech sector and more broadly deals with several issues that are integral to antitrust enforcement in the digital space.

• Ecosystem level competition. Google had contested its dominance in the markets for licensable OS and Android app stores, including on the basis of indirect competitive pressure from Apple’s iOS ecosystem. Similar issues commonly arise in digital antitrust disputes, as the largest firms enjoy significant positions in their core markets but are arguably embroiled in broader competition with other ecosystems. The Court did recognize this dynamic but supported the Commission’s focus on Google’s position in tightly defined product markets where Apple was not present, including by validating its use of an innovative “SSNDQ” test (Small but Significant and Non-Transitory Decrease in Quality) to demonstrate that users would not switch to Apple in response to a small decrease in the quality of the Android OS.
• Effect-based analysis. There has been significant debate in recent years as to whether, when, and how the Commission should assess the extent to which abusive conduct has an anticompetitive effect. This recently led to seminal judgments in appeals against other infringement decisions against Intel and Qualcomm. The Court followed a similar approach here, holding that the Commission did need to demonstrate the anticompetitive effect of the Revenue Sharing Arrangements, and that the Commission had erred in doing so. Specifically, the Commission had used an “As Efficient Competitor” test (which assesses whether the conduct could foreclose a hypothetical competitor that was equally efficient to Google), but erred in its methodology, in particular through not properly engaging with Google on the relevant cost data. As a result of that error, the Court overturned the Commission’s finding that the Revenue Sharing Arrangements infringed Article 102.
• Procedural scrutiny. Finally, the General Court sided with aspects of Google’s criticism of the Commission’s procedure. First, the Court ruled that the Commission had erred in denying Google a right to an oral hearing to contest a revised analysis on the “As Efficient Competitor” test, and held that this circumvented Google’s rights of defence. This resulted in a second basis to annul the Revenue Sharing abuse. Second, and building on similar commentary in its recent Qualcomm judgment, the Court criticised the Commission for not taking proper records of third-party interviews during the investigation (though the Court found that this had not materially impacted Google’s rights of defence in this case).

The judgment is an important win for the Commission. It is a very welcome development for Commissioner Vestager, especially in the wake of Qualcomm having successfully appealed a €997m fine in June for chipset exclusivity payments. Nevertheless, as that case also showed, the increasing need to demonstrate the effects of anticompetitive conduct, and the Court’s focus on procedural rigour, will continue to be thorns in the Commission’s side.