Google $2.7B Fine
Google was fined a record 2.4 billion euros ($2.7 billion) by European antitrust officials on June 27. The fine was levied against the search giant for competition abuses related to its shopping business.
According to the European Commission, the executive arm of the European Union, Google has leveraged its monopoly online search status to unfairly skew specialized search results to give its shopping services preferential treatment at the expense of its rivals. The EC, itself not a court, can nevertheless issue a ‘prohibition decision’ without a court order, unlike American antitrust agencies.
More specifically, the antitrust violation asserts that since 2008, Google has integrated its vertical search products, for example Google Catalogs or Google Flights, into its search algorithms to appear more prominently in search results, thereby demoting the visibility and traffic of rival services.
Having such control to do so, Google could theoretically identify its greatest competitors and bury their content deep within search outputs. The commission’s evidence has identified incidents of 90% click declines in some rival websites after Google applied demotions.
These allegations were articulated by Margrethe Vestager, the Danish European Commissioner for Competition. “Google has come up with many innovative products and services that have made a difference to our lives. That’s a good thing. But Google’s strategy for its comparison shopping service wasn’t just about attracting customers. It wasn’t just about making its product better than those of its rivals. Instead, Google has abused its market dominance as a search engine by promoting its own comparison shopping service in its search results, and demoting those of competitors. What Google has done is illegal under EU antitrust rules. It has denied other companies the chance to compete on the merits and to innovate. And most importantly, it has denied European consumers the benefits of competition, genuine choice of services and innovation.”
The European Commission’s decision was rendered following a seven-year investigation which was originally prompted by complaints of rival European, as well as American, companies. Its fine, reflecting “the serious and sustained nature of Google’s violations,” is more than double the largest antitrust penalty formerly imposed in the E.U., that belonging to Intel’s 2009 fine of 1.06 billion euros.
“This decision requires Google to change the way it operates and face the consequences,” Vestager added, giving the company 90 days to adjust the perceived illegal practices. And while the headline fine would put just a dent into the company’s more than $90 billion cash hoard, failure to comply could result in penalties as severe as “up to 5% of the average daily worldwide turnover of Alphabet, Google’s parent company, for each day of non-compliance.” Vestager also invited private litigants, who believe they have been victimized by Google’s behavior, to claim compensation before national courts.
However, the commission provided no recourse specificity, leaving the responsibility to determine the actual nature and course of compliance with Google, yet indicating that it will closely monitor the company’s chosen remedies. In her press release, Vestager acknowledged Google as a dominant company with over 90% search engine market share in most European countries, and stressed the need for extra vigilance in monopolized markets to enable fair competition. In this decision, the European Commission places Google under legal obligation, pending appeals, to change its conduct in order to realize a principle of “equal treatment to rival comparison shopping services and its own.”
The lead and initial complainant in the case is Foundem, an English comparison-shopping company. Its co-founders, advocates for search neutrality, assert that Google intentionally compromised traffic to its vertical search service by applying a penalty due to fear of competition. Co-founder Shivaun Raff commended the commission for its decision. “For well over a decade, Google’s search engine has played a decisive role in determining what most of us read, use and purchase online. Left unchecked, there are few limits to this gatekeeper power. Google can deploy its insidious search manipulation practices to commandeer the lion’s share of traffic and revenues in virtually any online sector of its choosing, quietly crushing competition, innovation, and consumer choice in the process.”
“The bias at the moment is absolutely brazen,” Raff added. “Put in almost any travel query and you will almost always see Google surge to the top of search services.”
Responding to the charges, Kent Walker, Google general counsel stated, “We respectfully disagree with the conclusions announced today. We will review the Commission’s decision in detail as we consider an appeal, and we look forward to continuing to make our case.” Google has consulted with at least five top Brussels law firms as it prepares for its appeal, which will ensure a protracted legal process.
In the past couple years, Google has responded to inquiries of the investigation, refuting the notion of its monopolistic shopping position by pointing to the successes of eBay and Amazon, which it has specifically labeled “by far the largest player in the field.” According to Walker, “There is simply no meaningful correlation between the evolution of our search services and the performance of price comparison sites. Meanwhile, over those same ten years, a rapidly increasing amount of traffic flowed from our search pages to popular sites like Amazon and eBay as they expanded in Europe.”
But the commission has subsequently rejected these Google defenses, particularly the concept that general search engines are in competition with the Amazon universe.
Conclusion
Perhaps the most important takeaway from the European Commission’s decision against Google is its willingness to take an aggressive stance and action against Silicon Valley, which might reflect its unease of the dominance that American tech giants maintain over the online interactions of the bloc’s 500 million citizens. Just in the past several years, the European Commission has ruled that Apple repay $14.5 billion in back taxes in Ireland, has fined Facebook for misleading data stemming from its acquisition of WhatsApp, and has launched an investigation into Amazon’s tax practices.
Google itself is facing two additionally outstanding European antitrust investigations against its Android mobile operating system and AdSense, its online advertising platform, over exclusivity arrangements. Foreshadowing forthcoming conclusions, Vestager hinted, “Our preliminary — and this is of course important, these are preliminary — conclusions in relation to both practices is that they breach EU antitrust rules.” Each of these cases represents significant business risks to Google.
This spate of European actions against American multinationals has generated pushback from within the United States as being unfair and unlawful. In response to Apple’s back taxes fine, House Speaker Paul Ryan said, “slamming a company with a giant tax bill — years after the fact — sends exactly the wrong message to job creators on both sides of the Atlantic.” In 2015, President Obama accused the E.U. of targeting American companies simply due to the inability to compete. Some have even suggested that the commission has imposed retroactive financial penalties to fill European budget gaps.
As it pertains to Google Shopping, if the European motives are to curtail the sweeping dominance of American tech giants, its efforts would ultimately prove more paradoxical than fruitful. Even if the European Commission were successful in compelling Google to abdicate its advantageous placement of its shopping service, the prime beneficiary would almost certainly not be fettered European competitors, but rather another American giant, Amazon, the already everything-outlet that hardly needs further fortification.
The Day After
And if June 27 wasn’t bad enough for Google, June 28 might have been worse. Just the day after it received the European Commission’s largest ever antitrust fine, Google received an adverse ruling by the Canadian Supreme Court. In a 7–2 decision, Canada’s top court ruled that Google needs to pull certain search results worldwide.
The decision stems from allegations of intellectual property theft lodged by Equustek Solutions, a Canadian network device manufacturer. Equustek claimed that another Canadian company, Datalink, was selling imposter products through Google. The Canadian Supreme Court, citing the borderless nature of the internet, compelled Google to delist Datalink search results not just in Canada, but globally, in order to ensure its injunction served as a comprehensive remedy to the complaint.
Google argued the case on the basis of free speech, fearing of its potential future implications. Free speech advocates warn that the ability of a single foreign nation to claim global jurisdiction could result in a race to the bottom whereby any corporation could bring a matter to jurisdictions of weak speech protections, thereby fashioning a pathway to edit the entire internet.
So as it fights a triumvirate of anticompetitive investigations by an ambitious European Commission, Google is now also confronted by the troubling precedent delivered by the Canadian Supreme Court which might have just opened the floodgates for onerous regulations of any jurisdiction worldwide to seize online censorship of Google.
