tuesday, 27 june of 2017

EU fines Google €2.4bn over abuse of search dominance

Brussels has hit Google with a €2.42bn antitrust fine for abusing its dominance in search, a decision with potentially far-reaching implications for both the tech sector and already strained transatlantic relations.

The European Commission ended its seven-year competition investigation on Tuesday, concluding that the search group abused its near-monopoly in online search to “give illegal advantage” to its own shopping service.

Margrethe Vestager, the EU’s competition commissioner, said Google “denied other companies the chance to compete” and left consumers without “genuine choice”.

“Google’s strategy for its comparison shopping service wasn’t just about attracting customers by making its product better than those of its rivals. Instead, Google 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.”

The company has 90 days to make changes and must “refrain from any measure that has the same or an equivalent object or effect”, the commission said.

Shares in Alphabet, Google’s parent company, fell 1.5 per cent in pre-market trading in New York.

The Google probe is one of the most complex and politically charged ever undertaken by Brussels. Although the ruling orders Google to cease the anti-competitive practices, the precise changes required are expected to take months or even years to negotiate. Google can be hit with further non-compliance fines.

Google said it disagreed with the findings. “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,” it said.

The commission’s decision is the first time a big competition regulator has sanctioned the way Google operates and lays the foundations for cases about the company’s behaviour in other specialist search markets.

The commission found Google “systematically” gave prominent placement to its own in-house service, demoted rival comparison shopping services in search results, so “even the most highly ranked rival service appears on average only on page four of Google’s search results”.

The ruling defines a new type of anti-competitive behaviour, stipulating that companies with a dominant market share cannot favour their own adjacent products or services. It may mean that Google no longer has a free hand in giving preference to its own services in search results.

The EU investigation also looked at other services offered “in-house” by Google, such as travel services and local information. Under Ms Vestager the probe was narrowed down to focus on the shopping business. It is unclear whether the commission saw the other potential cases as too weak, or set them aside for later.

Findings of the investigation suggest that Google launched its shopping service in 2004 but was unhappy with its performance; internal emails said the product “simply doesn’t work”. From 2008, the company changed approach and adopted “a strategy that relied on Google’s dominance in general search”.

Google’s travails in Brussels included a failed attempt at a pre-charge settlement with Joaquín Almunia, Ms Vestager’s predecessor. The draft deals encountered a storm of political protest from France, Germany and European telecoms and media groups that see the US search giant as a threat.

Lawyers sceptical of the Google case have long argued that it could set a precedent with implications beyond Google’s ability to expand its business. Other companies that hold a dominant market position might face antitrust challenges if they market their own services as well as those of competitors.

Allegations of anti-American bias have been levelled at Brussels since the early 1990s, but tensions were ratcheted up last year after Ms Vestager’s decision to force Apple to pay €13bn in back taxes in Ireland.

However, leaders of six American companies — some of which are complainants in the European case — and the News Media Alliance, a trade association, wrote on Tuesday to Ms Vestager to express support for Europe’s enforcement and a hope that American authorities might look again at Google’s conduct in the US.

“We believe that decisive action is necessary to restore competition and once again open the internet to innovation and growth,” their letter said.

European officials deny they are targeting US businesses. They contend that they investigate large American technology companies because they make up most of the industry — three quarters of the largest 20 IT companies are American, according to S&P capital IQ.

However, Americans allege bias in Europe after the US Federal Trade Commission examined the same issues as Brussels and decided not to pursue charges in 2013.

The EU regulator’s decision opens the way for damages claims from shopping comparison competitors or customers. There are already two cases in the UK and one in France.

Google will probably appeal against the decision in the European courts, a process that could take several years.

The £2.4bn penalty was calculated as up to 30 per cent of Google Shopping revenues multiplied by the years of the abuse, capped at a maximum of €9bn. The cap represents 10 per cent of Alphabet’s total revenue last year.

Fines for delays in making changes ordered by Brussels can be up to 5 per cent of daily revenues — which would be roughly $12m daily. The company will need to change its services throughout the European Economic Area.

Google faces two other European antitrust cases. Brussels is also looking at whether Google unfairly banned competitors from websites that used its search bar and ads; and how it pays and limits mobile phone providers that use its Android software and the Play app store.

Thomas Vinje, lawyer for FairSearch, a complainant in two cases against Google, said the decision marked “a powerful precedent” that can be used “immediately to restore competition” in other specialised online search services such as travel, maps and local listings.

(Published by Financial Times - June 27, 2017)

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