On September 14, 2022, the General Court partially annulled the Commission’s 2018 infringement decision which fined Google €4.3 billion for abusing its dominant position by imposing restrictions on Android device manufactures (“OEMs”) and mobile network operators (“MNOs”).[1] The General Court also found that the Commission’s investigation suffered from procedural errors and reduced the fine by €200 million.
Background
Google’s business model depends on the distribution of its revenue-generating services on smart phones produced by OEMs. Beyond its revenue-generating services, Google also offers OEMs and MNOs its open-source operating system (“OS”), Android, free of charge. Google’s business model therefore significantly differs from that of Apple, a vertically integrated company that generates revenue primarily from the sales of its devices.
On July 18, 2018, following a four year investigation, the Commission fined Google €4.3 million for abusing its alleged dominant position in four interconnected markets: (i) the market for the licensing of smart mobile device OSs, in which Google’s Android was found to be dominant; (ii) the market for Android app stores, in which Google’s Play store was found to be dominant; (iii) the market for online general search services, in which Google Search was found to be dominant; and (iv) the market for non-OS-specific mobile web browsers, in which Google Chrome was found to be dominant. [2]
The Commission considered that Google’s agreements with OEMs and MNOs formed part of an overall strategy to anchor Google’s dominant position in the online general search market. In particular, the Commission found that:
- Google unlawfully tied several of its revenue-generating services together in its Mobile Application Distribution Agreements (“MADAs”) with Android OEMs. In particular, it tied the Google Search app to Play and Google Chrome to Play and the Google Search app.
- Google anticompetitively prevented Android OEMs that wished to preinstall Google’s apps from selling smart phones that did not comply with Android’s baseline compatibility standard through its Anti-Fragmentation Agreements (“AFAs”). The Commission considered that absent the AFAs, versions of open-source Android that did not meet Google’s compatibility requirements (so-called “forks”) could have supported the distribution of rival search engines.
- Google acted anticompetitively through its portfolio-based Revenue Share Agreements (“RSAs”) by paying OEMs and MNOs a portion of Google’s advertising revenue if the Google Search app was the sole preinstalled search app across an agreed portfolio of Android devices.
In its appeal before the General Court, Google challenged the Commission’s market definition and finding of dominance, as well as the abuses listed above and the fines imposed. Google also claimed that the Commission’s investigation infringed its procedural rights.
The General Court Judgment Largely Upheld The Commission’s Findings…
The General Court largely affirmed the Commission’s findings on market definition, dominance, and the abuses related to MADAs and AFAs. In particular:
- The General Court upheld the Commission’s finding that Android and iOS belonged to separate relevant product markets, that iOS at best posed an indirect constraint on Android, and that Google Play was not sufficiently constrained by Apple’s App Store.
- The General Court upheld the Commission’s finding that MADAs contained unlawful tying arrangements.[3] In doing so, the General Court rejected Google’s argument that the preinstallation conditions were necessary for Google to recoup its investments in maintaining the free Android platform.[4]
- The General Court also upheld the Commission’s finding that AFAs restricted competition from Android forks, which in turn protected Google’s search dominance.[5]
… But Annulled the RSA-Based Infringement…
The Commission had found that Google’s payments to OEMs and MNOs as part of the portfolio-based RSAs constituted exclusivity payments that could foreclose as-efficient competitors (“AEC”). The General Court overturned this finding for two main substantive reasons:
- First, the Commission failed to consider the full scope of the relevant markets in its assessment of the coverage of the challenged practice. In particular, the General Court ruled that the Commission’s coverage assessment was limited to a too narrow segment of the market and that the Commission failed to show that the coverage of the challenged practice was significant. It was more convinced by the coverage figure that Google offered, of less than 5% of the relevant market.
- Second, the Commission erred in its AEC analysis. Following its recent precedents, the General Court affirmed the importance of the AEC assessment in establishing the ability of a practice to foreclose competitors that are at least as efficient as the dominant undertaking. While the Commission is not under an obligation to conduct an AEC test, in line with its recent Intel judgment, the General Court held that, when conducted, the AEC test “must be conducted rigorously.” The General Court agreed with Google that the Commission’s analysis contained vitiating errors.
… And Ruled That Google’s Rights of Defense Were Infringed
The General Court accepted Google’s submissions that the Commission had infringed its rights of defense during the administrative procedure by denying an oral hearing regarding essential aspects of the Commission’s case on portfolio- based RSAs and the AEC assessment by failing to adopt a supplementary Statement of Objections. In particular, the General Court acknowledged that the Commission’s AEC test had “played an important role” in the Commission’s assessment, and Google could have developed its defense “more easily orally” had the supplementary Statement of Objections been issued.
While the General Court also noted that the Commission’s failure to provide notes of meetings with third parties also infringed Google’s rights of defense, it found that the infringement did not have an impact on the Commission’s finding of abuse, as Google had not established that the disclosure would enhance its defense.
Implications
The judgment is interesting for two main reasons:
- First, the judgment marks the third instance in 2022 where the EU courts have partially annulled a decision on grounds of procedural errors or the Commission’s failure to establish competitive effects.[6] The judgment, therefore, affirms the importance of the Commission’s obligation to conduct investigations rigorously and free of procedural defects.
- Second, the General Court’s assessment suggests that the requirement to establish anticompetitive effects applies in both pricing and non-pricing abuse of dominance cases. On the facts, the General Court was persuaded that the Commission had established actual anticompetitive effects of Google’s tying arrangements by reference to evidence of OEM and user behavior regarding Google’s actual rivals. In other words, it was sufficient for the General Court that, in practice, OEMs did not preinstall, and users did not download, rival search engines. For the exclusivity abuse, the General Court took a different approach. It demanded evidence of anticompetitive effects on hypothetical as-efficient competitors and concluded that the Commission had failed in this exercise. While the judgment sheds light on what competitive effects are not, it remains to be seen what the relevant threshold for assessing effects should be.
[1] Google LLC and Alphabet, Inc. v. European Commission (“Google Judgment”)(Case T-604/18) EU:T:2022:541.
[2] Google Android (Case COMP/AT. 40099) Commission decision of July 18, 2018.
[3] Google Judgment, para. 295.
[4] Ibid., paras. 608–609, 619.
[5] Ibid., paras. 866–891.
[6] See Intel v. Commission (Case T-286/09 RENV) EU:T:2022:19; and Qualcomm v. Commission (Case T-235/18) EU:T:2022:358.