GGoogle Android-ruling: Commission flunks AEC test once again

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EU Law

The ‘As Efficient Competitor’ (AEC) test has by now likely assumed mythic status at the European Commission with the EU courts striking down its AEC analysis a third time for errors of reasoning (see our February 2022 and July 2022 newsletters). The General Court annulled part of the Google Android decision for failure to prove the alleged foreclosure effects of Google’s exclusivity payments. According to the General Court, the Commission should have better substantiated its market coverage analysis and dug deeper into cost data when using the AEC test. Moreover, Google’s right of defence had been infringed by the Commission’s denial of a hearing on the AEC test. As a result, Google’s fine was reduced from EUR 4.34 billion to EUR 4.125 billion.

No reason for the Commission to discontinue its Big Tech quest, since the General Court left its analysis of Google’s alleged abusive leveraging conduct intact. The Commission will therefore consider itself on the right track to tackling abuse of dominance in the digital sector, with the upcoming Digital Markets Act is expected to smooth the path even further (see our April 2022 newsletter).

The Commission decision

In 2018, the Commission imposed a EUR 4.34 billion fine on Google for abusing its dominant position in the general internet search market by imposing illegal restrictions on Android device manufacturers and mobile network operators (see our August 2018 newsletter). 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 through mobile application distribution agreements: As a condition for licensing 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 ones. Therefore, this tying practice reduced the incentives of manufacturers to pre-install competing search and browser apps as well as the incentives of users to subsequently download them.
  2. Illegal obstruction of the development and distribution of competing Android operating systems by concluding anti-fragmentation agreements: 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"). The Commission considered this to harm competition because it reduced the opportunity for devices running on Android forks to be developed and sold. It closed a relevant channel for competitors to introduce apps and services.
  3. Illegal payments conditional on exclusive pre-installation of Google Search based on portfolio-based revenue share agreements: 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 a set of mobile devices in predefined portfolio. This reduced their incentives to pre-install competing search apps.

The AEC test

On appeal, the General Court (GC) upheld the Commission’s decision regarding the first two types of restrictions, but annulled the findings on the abusive nature of the portfolio-based revenue share agreements.

After agreeing with the Commission that the portfolio-based revenue share agreements qualified as exclusivity agreements, the GC found fault with the Commission’s market coverage analysis and its application of the AEC test to prove their exclusionary effects. The GC considered the market coverage of these agreements not to be ‘significant. Rather, Google’s plausible calculation showed that the exclusivity agreements covered less than 5% of the relevant market.  As to the application of the AEC test, the GC identified several errors of reasoning relating to, for instance, the estimated costs of an at least ‘as efficient competitor’  and the estimated likely revenue based on the age of mobile devices in use. As a result, the Commission had not sufficiently established the abusive nature of the portfolio-based revenue share agreements and the GC annulled that part of the Commission’s decision.

Rights of defence

Additionally, the GC identified grounds for annulment of that part of the Commission’s decision for procedural mishaps. The GC found Google’s rights of defence had been infringed because the Commission had refused an oral hearing after sending out two letters of facts that substantially supplemented the AEC test analysis, initially set out in the statement of objections.

Google’s complaint that its rights of defence had also been infringed by belated and incomplete interview notes was, however, less successful. The GC reiterated its Qualcomm-decision by ruling that the Commission has to draw up records of each interview conducted to collect information on its investigation. The GC added in this context that this also applies to meetings held with Commissioner Vestager or members of her cabinet. In fact, it would be appropriate for the Commission to draft such interview records “at the time when that interview is held or shortly afterwards so as to be added to the file as quickly as possible”. Even so, Google failed to establish that, had these notes been complete and shared on time, it would have been better able to defend itself.

Conclusion

The GC’s ruling confirms that strict standards apply to the antitrust assessment of exclusivity arrangements. After three AEC strikes, the Commission may resort to different assessment methods, although the AEC test could be part of the game again once the Commission manages to follow the Intel-criteria to the letter (see our February 2022 newsletter). Dominant companies under the Commission’s scrutiny are bound to see to that. Just as they will keep a close eye on the Commission’s record keeping activities and other potential procedural mishaps in the context of antitrust investigations.

Nevertheless, the Commission will likely regard this as only a minor setback, now that its antitrust assessment of Google’s dominant position and tying arrangements stands tall (so far; it is not yet clear whether Google intends to appeal the General Court’s ruling). The upcoming Digital Markets Act will further help the Commission to keep Big Tech in check with its ex ante supervision on data access, interoperability and self-preferencing (see our April 2022 newsletter).