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Short Reads

Google receives a second record fine of EUR 4.34 billion for imposing restrictions on Android device makers

Google receives a second record fine of EUR 4.34 billion for imposing

Google receives a second record fine of EUR 4.34 billion for imposing restrictions on Android device makers

01.08.2018 EU law

On 18 July 2018, the European Commission announced its decision to fine Google EUR 4.34 billion for abusing its dominant position in the general internet search market by imposing illegal restrictions on Android device manufacturers and mobile network operators.

Background

In 2005, Google acquired the developer of the Android mobile operating system, which it has since continued to develop. Although Android is an open-source mobile operating system, most smartphone and tablet manufacturers in Europe use the Android operating system in combination with various Google's proprietary applications and services. In order to obtain the right to install these applications and services on their Android devices, manufacturers are required to enter into agreements with Google which impose a number of restrictions as discussed below. Some of these restrictions were also included in contracts with mobile operators that have the ability to determine which apps and services are installed on devices.

Google's dominance

In Europe, 80% of smart mobile devices run on Android. The Commission concluded that Google is dominant in three relevant markets. First, in accordance with a 2017 decision, the Commission found that Google was dominant in each relevant national market for general internet search throughout the EEA. Google's share of internet searches exceeded 90% in most EEA countries [See our Google comparison shopping article in our July 2017 Newsletter].

Secondly, the Commission found that Google is dominant in the market for licensable smart mobile operating systems and app stores for the Android mobile operating system. Thirdly, party manufacturers of mobile devices can enter into licence agreements with Google to run Android on their devices. The Commission concluded that Google, with a market share of 95%, is dominant in the worldwide market (excluding China) for licensable smart mobile operating systems. The Commission noted that Android does not compete with operating systems used by vertically-integrated developers like Apple (iOS), because the latter are not available to be licensed by device manufacturers. Equally, competition for end users, in particular between Apple and Android devices, does not indirectly constrain Google's market power, according to the Commission.

Finally, the Commission concluded that Google is dominant in the worldwide market (excluding China) for app stores for the Android mobile operating system. Google's app store accounts for more than 90% of apps downloaded on Android services.

Google's abusive practices

The Commission's investigation indicated that Google imposed three types of restrictions on Android device manufactures and network operators:

  1. Tying of Google's search and browser apps: In order to license Google's app store, manufacturers were required to pre-install the Google Search app and browser app (Chrome). According to the Commission, users are not likely to download alternative search and browser apps and instead use those pre-installed on their devices. Therefore, tying Google's search and browser apps reduced the incentives of manufacturers to pre-install competing search and browser apps and also the incentives of users to subsequently download them.
  2. Illegal payments conditional on exclusive pre-installation of Google Search: Google made payments to certain large device manufacturers and mobile network operators on the condition that they pre-installed only the Google Search app on their devices, reducing their incentives to pre-install competing search apps.
  3. Illegal obstruction of the development and distribution of competing Android operating systems: Google prevented manufacturers wishing to pre-install Google apps from selling smart mobile devices running on alternative versions of Android that were not approved by Google (so-called "Android forks"). This harmed competition because it reduced the opportunity for devices running on Android forks to be developed and sold and also closed a relevant channel for competitors to introduce apps and services.

The Commission's record-setting fine underscores its aggressive stance in enforcing competition laws in technology-intensive industries [see our Facebook/Whatsapp and Intel Newsletter]. In addition, this decision will have an important impact on the way dominant undertakings implement licensing models. Although the decision has not yet been published, it has already prompted extensive debate.

This article was published in the Competition Law Newsletter of August 2018. Other articles in this newsletter:

  1. European Court of Justice dismissed Orange Polska’s appeal in abuse of dominance case
  2. General Court underlines importance of Commission's duty to state reasons
  3. General Court dismisses appeals by investor against power cable cartel fine
  4. European Commission issues a new Best Practices Code for State aid control
  5. District Court in the Netherlands rules on limitation periods in CRT case
  6. Court of Appeal in the Netherlands decides to appoint independent economic experts in TenneT v ABB
  7. Belgian Court of Cassation annuls decision prohibiting pharmacists from using Google Adwords

Team

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