Google gives illegal advantage to own comparison shopping service

google shopping violates EU antitrust lawIn the matter of the case n. 39740 and following two separate Statements of the Objections relating to illegal advantage given by Google Inc. to own comparison shopping service, on 27th June 2017, the EU Commission addresses a decision to Google Inc and its holding company Alphabet.

As reported with the official Press Release, the Commission decision sets a fine of euro 2.424.495.000 on the basis of the gravity of the infringement for abuse of a dominant position and anticompetitive conducts under Article 102 of the Treaty on the Functioning of the European Union (TFEU) and under Article 54 of the EEA.

EU Commission fines Google 2.4 billion € and imposes compliance measures

The Commission orders Google to end the illegal conduct within 90 days of the Decision and to submit periodic reports to the EU Commission to prove compliance otherwise it would be liable for a penalty up to 5% of the average daily worldwide turnover of Alphabet.

 google antitrust anticompetitive action

The Commission states that Google is liable to face civil actions that any person or business affected by its anti-competitive practices would bring before the Member States courts.

The principle of equal treatment

Furthermore, the Commission orders Google to give respect to the principle of equal treatment between its own comparison shopping product, Google Shopping, and rival comparison shopping products, by applying “the same processes and methods to position and display rival comparison shopping services in Google’s search results pages as it gives to its own comparison shopping service”.

A European investigation of seven years

Following to complaints filed by search service providers against Google for the alleged unfavoureable treatment of their services, on 30th July 2010 EU Commission issues an Opening of proceedings against Google due to probes of antitrust violations.

After Google offers proposed commitments pursuant to Article 9 of Regulation EC n. 1/2003 on April 2014 the EU Commission launches market test notice to seek feedback on Google’s changes of comparable display of specialized search rivals.

Antitrust concerns having not been addressed with Google's proposed commitments submitted to market test, on April 2015 the EU Commission separates comparison shopping and advertising practices related investigation from the Android related one and sends Statement of Objections to Google. The investigation against Google Shopping goes further until the EU Commission on 27th June decides to fine Google for breaching antitrust EU rules with its abuse of dominant position by giving illegal advantage to its own shopping services.

EU Commissioner Vestager believes in Google breach of antitrust law

The toughest charge against Google regards its method of display shopping search results on its pages and it represents the common core of all claimants’ accusations.

The original claim was set by Foundem hereafter joined by other important companies like TripAdvisor or Microsoft.

The EU Commission competition policy commissioner Margrethe Vestager, finding probes of antitrust violation in the pointed practices, outlines how Google’s strategies for its comparison shopping service go far beyond the product’s overall quality improvement, unveiling a market dominance that Google uses to abuse.

A dominant position to abuse for Google

Taking advantage of its leading position among search engine, Google is alleged to promote “its own comparison shopping service in its search results, demoting those of competitors” and EU commissioner Vestager finds this practice deeply detrimental for EU competition on the merits and for innovation with adverse effects on consumers.

Impact of practices on user clicks and traffic

The Commissioner, by collected evidence, considers proved that users tend to click more often on more visible results and that the higher a result appears the more visible it is and this turns out to be extremely significant to the competition in comparison shopping markets.

The collected evidence to whom she refers, are tests on real-world consumer behavior, surveys and eye-tracking studies demonstrating that results at top or near the top of the first results page are a lot more clicked than lower results. The first result of the first page receives 35% of all clicks on generic search results and conjoined to the first ten accumulates 95% of all clicks. On the other hand, the first result of the second page, receives 1% of all clicks.

The prove of some infringement is, by commissioner Vestager words, that moving the first result from top of the page to a lower rank (the third) halves the number of clicks, demonstrating that relevance for users cannot be the reason behind the ranking.

By maliciously displaying its own results on top of page, Google allowed itself to receive at least the 95% of all clicks on generic search results, with consequences in terms of revenues from ads.

Google’s defendant access to Commission file

Google, whose defendant has granted the right to access to non-confidential Commission file, responds to Statement of Objections and stands to oral hearing before the Commission.

The main counterclaim is set on the basis of the usefulness of its product both for advertisers and consumers. In its defence it states that promotion of certain results ends up with an improved user satisfaction for they link directly to the products and not to intermediate websites (they say: fast and simple).

And advertisers are more incline to buy slots for ads on the pages showing more relevant results.

Why the Commission finds its concerns still unaddressed

Having gathered sufficient evidence and considering allegations of antitrust probed, the EU Commission fines Google for its method of comparison shopping service.

Under commissioner Vestager consideration came documents, analysis of billion search queries entered to Google, experiments and rates on how the method of displaying results affects click-through rates, financial data on effects of promotion and demotion, market investigation throughout customers and competitors as far as they are concerned.

Premises are that Google’s core business is its search engine and selling spaces for adverts, spaces that advertisers are paying for to fill up with ads shown to users along with search results.

Google Shopping service

Google entered the EU market of comparison shopping with its product formerly known as “Froogle” then named “Google Shopping”, that allows users to compare items and prices and to pick up the more convenient from a large array of products and whose revenues source from retailers that pay to list their product.

Commissioners assume that high ranked rivals related results appear only pages down of Google’s search results while Google Shopping ones are always appearing on top and that it results in an illegal advantage in the separate comparison shopping market.

EU’s opinion about design of Google search algorithm

Does EU Commission suspect that Google’s algorithm system is manipulated in order to demote rival comparison shopping services?

Google’s results are displayed in a rich format at the top of the page or in a reserved space anyway above that results considered most relevant by Google’s generic search algorithms. Because this display happens when a product-related query is typed into the general search box, they believe that Google’s comparison shopping service is not subject to Google’s generic search algorithms.

On the contrary, they strongly believe that rival comparison shopping services are subject to Google’s generic search algorithms that demote rivals lowering their rank in Google’s search results. By means of two different algorithms, Google is proved to show the most highly ranked rival comparison shopping service by page four downward.

Nevertheless, Commissioner do not object the design of Google’s generic search algorithms, not the demotion or the display of its comparison shopping results in a rich and attractive box. They object the leverage of its dominance in the general internet search market, into the separate market of comparison shopping. In other words, Google takes advantage of being a leader search engine to promote its own comparison shopping service to the detriment of rivals.

Prominent placement of own services and demotion of rival services

In other words, two are the practices raising concern from Google’s conduct: systematically giving prominent placement to its own comparison shopping service and demoting rival comparison shopping services in its search results.

The EU Commission outlines how these practices are consistent to an abuse of dominant position that stifles competition within comparison shopping market and considers that while market dominance is not illegal per se, antitrust EU rules prohibit abuse of that dominance when it ends up with a restriction of competition.

Dominance allowed without abuse

First requiring dominance to assess abuse, the EU Commission finds Google to be dominant since 2008 in all the European Economic Area countries, where it holds even over 90% of shares in the general internet search relevant market, affected by high barriers to enter because of network effects that make advertiser more likely to pay for spaces on those search engines more attractive for users.

EUvsGoogle GoogleShopping

 

Second, Google’s some rival shopping services traffic dropped up to 92% after Google entered into promoting its own shopping service.

Legal background of EU Commission’s decision

There is no rule under EU antitrust provisions prohibiting dominance. Indeed, the outcome reflects the prohibition to abuse such position of dominance within a specific market.

The Commission could initiate antitrust proceedings against Google’s holding company Alphabet pursuant to Article 11 of Council Regulation n. 1/2003 in conjunction with Article 2 of Commission Regulation n. 773/2004 which entitle Commission to adopt any measure acknowledged useful to bring to an end antitrust infringements as relieving national competition authorities from their competence once the proceedings is initiated.

The abuse has been sanctioned under Article 102 of the Treaty on the Functioning of the European Union, that prohibits any abuse of dominance able to affect trade and prevent or restrict competition as implemented and defined by the Antitrust Regulation or Council Regulation n. 1/2003.

Because of anticompetitive practices are observed in 13 Member States, an infringement of Article 54 of the EEA Agreement has been found by Commission. Pursuant to this last provision, it is prohibited any abuse of dominant position within the territory covered by the Agreement affecting trade between Contracting Parties that, among other definitions of abuse, may limit production, markets or technical development to the prejudice of consumers and may apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage.

EU tracks the path for dominant undertakings

It was since 2004 that EU Commission did not raise world opinion so high.

Last time EU Commission stirred up was with the Microsoft decision, that left the internet giant with a 497 million euro fine to pay for breaching antitrust EU rules.

Today Google is supposed to pay an amount calculated pursuant to EU Guidelines on the value of Google’s revenue from Google Shopping in all the EEA countries concerned in so far.

Following years of investigation, commissioner Vestager issued a press release in which outlines the role that dominant undertakings must play in the market, recalling them to vigilance and responsibility in order to respect antitrust rules.

A lot of antitrust issues for Google

Antitrust issues were a prediction for Google, as some scholars pointed out referring to FTC cases (Google and antitrust: five approaches to an evolving issue, M. A. Carrier, Harvard Journal of Law and Technology, 2013) and to other abroad courts decisions that, although finding Google's violations of antitrust, never have reached such a record fine.

Scholars have set disputes about the final EU decision. A lot of them called for a different outcome, although arguing that refocusing antitrust issues related to search engines from search neutrality to a more standard allegation of “exclusionary abuse” (Searching for harm or harming search? A look at the European Commission’s antitrust investigation against Google, A. Renda, Ceps S.R., 2015), introduced by commissioner Vestager, would have made a favorable decision more difficult.

The hope they shared was that EU Commission would have not confused emphasizing policy and media law arguments with protecting that peculiar cyber-competition pursuant to antitrust EU rules (see also Search a rationale for search neutrality in the age of Google, Falce – Granieri).

Few other scholars argued against Google before EU Commission issued the decision, pointing at the exclusions and barriers as the biggest adverse effect of Google’s anticompetitive practices, even experiencing tests and studies to demonstrate the impact on users (Is Google degrading search? Consumer harm from consumer search, M. Luca, T. Wu, Yelp Data Science Team, 2015).

In any case, the vast majority of scholars, even those less indulgent to Google, urged a revision of the traditional method to assess dominance and abuse, unreliable in such a modern and dynamic market as the one of search engine is.

Another point of discussion is whether a retailer like Amazon or eBay, that Google assumes as its direct rivals while EU Commission not, actually could be considered entering competition with shopping comparison services (Haucap, Justus e Heimeshoff, Ulrich, Google, Facebook, Amazon, eBay: Is the Internet Driving Competition or Market Monopolization?, 2013).

Microsoft was ordered to pay a high fine

The present case in the matter of Google has been sectioned in further investigations still pending. One is about Google’s search advertising practices and the other is about the alleged bundling of Google’s products with its Android mobile OS. Furthermore, other alleged anticompetitive practices are under outstanding investigations before EU Commission, regarding general search, specialized search services, agreements with advertisers, copying of rivals' web content.

Regarding antitrust concerns of EU against worldwide undertakings into internet market, the leading case is the one involving Microsoft Corporation’s licensing practices started in 1993. At the end, the EU commission orders Microsoft to unbundle Windows from Media Player and divulge information about its product.

The long way from college for Google’s founders

Larry Page and Sergey Brin have come a long way from the college room they shared. Two Stanford University students tied up together by mutual friendship and a crush for technology, decides to create their own search engine.

What is peculiar is its working system.

They arranged to swift from an empirical method of search to a mathematical analysis of websites in order to promote relevance as the criteria of search online.

Revolutionary road to online search

Their goal was ambitious. They want to revolutionize a system so far considered well established and make tech world convinced of their so-called Network Theory.

If a website is repeatedly linked it means that this website is considered relevant among users.

They even spend time to choose a name that sounds like a really impressive amount of information, to resemble the high amount of data indexed and crawled to return a search result.

Rumors has that Googol is a mathematical term for a number with many zeroes which appears to be perfect for their creature but, when it comes to the registration of the name, the thrilled creator becomes embarrassed in front of the employee and mistakes the spelling of the name.

From Googol to Google through Froogle

So, for a casualty, what should be named Googol is now Google and is about to blow out twenty candles, being it registered on September 15th 1997.

Just a year later and Google project is now Google Inc. that is celebrating its first record of indexed pages. Year after year, Google managed to overcome its major rival Microsoft’s value and is becoming more and more popular among users.

Suffice to say that from January 2008 on, it conquered the top of the search engine preferences, ranking high at first in Germany and UK, then France, Italy, Spain and all the other European States.

It can now count on proprietary services, like the ones user need to read breaking news, to buy products online, consulting maps, doing translations. One of them is always been of great concern for its founders.

Google Shopping, once known with the less captivating name of Froogle, is in a whirlwind of controversy in most of the States where it landed as a winner takes it all.

Copyright © 2017-18