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Is the European Union out to get Google?

Paul Hodgson | August 1, 2017

By now, everyone knows that the European Commission (EC) has fined Google a record €2.42 billion (U.S.$2.86B) for breaching EU antitrust rules. The judgement found that Google had “abused its market dominance as a search engine by giving an illegal advantage to another Google product, its comparison shopping service.” The company must now end this conduct within 90 days, before the end of September, or face penalty payments of up to 5 percent of the average daily worldwide turnover of Alphabet, Google’s parent company. Google disagrees with the decision and is considering an appeal.

But this isn’t the only case against Google. The EC has already come to the preliminary conclusion that Google has abused a dominant position in two other cases, which are still being investigated. The first of these concerns the Android operating system, where there are concerns that “Google has stifled choice and innovation in a range of mobile apps and services by pursuing an overall strategy on mobile devices to protect and expand its dominant position in general internet search.” The second is the case surrounding AdSense, which addresses concerns that Google has reduced choice for consumers by preventing third-party Websites from sourcing search ads from Google’s competitors. The €2.42 billion antitrust decision, said the EC, “is a precedent which establishes the framework for the assessment of the legality of this type of conduct.” Decisions in these other two cases would seem to be foregone conclusions. Not only that, but the European Union is also continuing its investigation into antitrust behaviour in Google’s treatment in its search results of other specialised Google search services, including its maps product and YouTube for example.

While it might seem as if the European Union has it in for Google, even a cursory search of its open cases indicates that this is not true. Since the beginning of June, the European Commission has opened investigations into brake manufacturer Knorr-Bremse’s takeover of competitor Haldex; into three separate licensing and distribution cases at Nike, Sanrio, and Universal Studios; into Qualcomm’s acquisition of competitor NXP; into the distribution practices of clothing company Guess; and into gas exports from Romania.

There are hundreds of open investigations over mergers, cartels, and antitrust behaviour in the IT sector alone, as well as many hundreds of other cases in other industries. Some of the biggest are over Gazprom’s anti-competitive behaviour and the two open cases at Qualcomm—the most recent one noted above over its acquisition of semiconductor maker NXP and the other, open since 2015, over having driven another chipset maker out of business through anticompetitive behaviour.

As can be seen, the Google antitrust case was opened in 2010, and these cases can drag on for years.

“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.”

Margrethe Vestager, Commissioner in charge of EU competition policy

The 2015 Qualcomm case stated that since 2011, the company had paid significant amounts to a major smartphone and tablet manufacturer (it does not disclose which one) on the condition that it exclusively use Qualcomm baseband chipsets in its smartphones and tablets. In the more recent case, a combination between Qualcomm and rival NXP would allow the combined players to “have the ability and incentive to exclude their rival suppliers from … markets through practices such as bundling or tying.”

The Gazprom case also dates from 2015, when the European Commission sent a statement of objection to the company saying that, in its view, Gazprom had been breaking EU antitrust rules by “pursuing an overall strategy to partition Central and Eastern European gas markets.” The company has recently made commitments “to better integrate Central and Eastern European gas markets, facilitating cross-border gas flows at competitive prices.” The European Commission is soliciting comments from all countries involved to help it make a decision as to whether these commitments are sufficient.

And while the recent Facebook fine—over being economical with the truth around its acquisition of WhatsApp—and the Google fine are big ones, there are other mega fines out there, as can be seen in the boxes to the right. And the fines in the first box are just the fines imposed under Article 102. The list excludes procedural fines, such as the Facebook fine and those that were imposed for breach of commitments or non-compliance with remedies, such as those that Google might face if it doesn’t comply with the ruling.

TOP FINES

Under Article 102 TFEU, that addresses abuse of dominance, the other top 5 fines are:

  1. Intel (2009): €1060 million
  2. Microsoft (2004): €497 million
  3. Servier (2014): €428 million
  4. Telefonica Broadband (2007): €152 million
  5. Lundbeck (2013): €146 million

Source: EU Press Office

Clearly there are damaging amounts of money involved in not complying with or ignoring EU competition regulations. Google’s shares have dropped 3 percent, and its profits fell in the latest quarter for the first time since 2008. Analysts are warning that if the firm comes under more EU anticompetition pressure, investors are likely to see further losses. And it is not only money. Back in 2009, Internet Explorer had 55 percent of the global browser market, until the European Commission decided that Microsoft had abused the dominance of its Windows operating system to force people to use its browser. Now, Internet Explorer is used by only 21 percent of the market. That decision actually benefited Google, whose Chrome browser went from 6 percent of the market around that time to more than half today. Such changes in market dominance are a likely result of the latest decision on Google. As Google’s response notes, changing its shopping search function could just open the door for another major player, like Amazon, to take control of the market, rather than provide an open and well-functioning market.

“Given the evidence, 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 spokesperson

But what does this mean for compliance professionals? This case is certainly part of a wider swath of bombshell EU fines laid down on various global firms. The same official to have overseen the Google case, Margrethe Vestager, the commissioner in charge of competition policy, is also responsible for ordering Apple to pay €13 billion (U.S.$15.9B) in back taxes to Ireland. The EC’s contention is that Apple is not really paying taxes anywhere, but that since it is reputedly headquartered in Ireland, that is where it should pay taxes. While Apple is apparently complying with Irish tax law and even U.S. tax law (allowing it to offshore its profits and not pay any taxes in that country), the European Union says that Ireland’s tax laws do not comply with EU tax law.

FINES FOR CARTELS

The top five fines for running cartels are:

  1. Daimler Trucks (2016) €1,008.8 million
  2. DAF Trucks (2016) €752.7 million
  3. Saint Gobain Carglass (2008) €715 million
  4. Philips TV and computer monitor tubes (2012) €705.3 of which €391.9 million jointly and severally with LG Electronics
  5. Volvo/Renault Trucks (2016) €670.4 million

Source: European Commission

Compliance departments must clearly be aware of the regulations in every country and jurisdiction in which the company operates and ensure that their employer is complying with all of them that apply. There are hundreds of cases out there still running and new ones every week, so a great deal can be learned about how to comply with those regulations through a review of the cases that might be applicable in particular situations; mergers, acquisitions, moving into new markets, for example. Setting up a cartel to control the production or sale of a particular product is illegal wherever it is operated, and in such instances compliance professionals should act as detectives and, potentially, whistleblowers if they see management engaging in such behaviour.

But the European Union is not the only regulator that has jurisdiction over multinational businesses. However, under the new U.S. administration, deregulation is the current policy, although many attempts to ditch regulations have actually been blocked by Congress or the review process. The European Union, on the other hand, is not interested in deregulation, but rather it is engaged in strengthening its regulatory and enforcement regime. And cases such as those involving Google, Apple, Qualcomm, and Gazprom indicate that it is very serious about the enforcement end of that regime. Because of the size of the European Union, and the presence there of virtually every major multinational, it is, much like the United States, a de facto global regulator. What this means for companies having to deal with the increasingly divergent priorities of the United States and the European Union is that compliance cannot ignore either regime. But with shrinking harmony between them, the compliance role becomes yet more difficult.

So what does this divergence mean for Google? Will the EU’s order to have them comply with the ruling cause the company to change its product worldwide? Or just in Europe? According to the EC enforcement rules, the basic principle is that, within 90 days of the decision, Google must stop favouring its own comparison shopping service. As long as it complies with this core principle, the European Commission cannot specify or speculate on the precise way that it must do so. Since it would seem more than impractical for it to code its shopping service differently in the European Union from the United States, the EU’s rules look likely to trump those in North America.

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