Google’s pricey penalty - search engine fined a record €2.42bn by European Commission for favouring its own shopping comparison tool

Introduction

On 27 June 2017, the European Commission (the Commission) imposed a record €2.42bn fine on Google after finding it had abused its dominant position in the search engine market by giving favourable treatment to its comparison shopping service in its search results.

Background

Google’s comparison shopping service (now called Google Shopping) was launched in 2004. This service allows consumers to compare products and prices online and find deals from all types of online retailers, including online shops of manufacturers, platforms (such as eBay), and other re-sellers.

In 2010, the Commission opened an investigation to ascertain whether Google had infringed Article 102 TFEU, which prohibits the abuse of a dominant position, by systematically favouring Google Shopping in its general search engine results. The investigation was opened following a string of complaints from rival companies including Microsoft, Yelp and TripAdvisor.

After the Commission’s initial investigation, Google offered three sets of legally binding commitments in an attempt to address the Commission’s concerns. However, the Commission’s market testing of these three sets of commitments showed that they were not effective to fully address the Commission's competition concerns. From November 2014, the Commission started to focus on building a case against Google (the last set of commitments offered by Google having failed to resolve the case in February 2014). Two Statements of Objections were subsequently issued to Google: one in April 2015, which set out the Commission's preliminary view that Google had engaged in abusive conduct and another supplementary Statement of Objections in July 2016, which set out a range of additional evidence and data.

The Commission’s decision

After a seven-year probe, the Commission concluded on 27 June 2017 that Google had abused its dominant position in the search engine market (where it was found to have a 90% market share in most European countries) by giving an "illegal advantage" to Google Shopping over competitors in its search engine results.

The Commission found that Google’s search results demote rival comparison shopping services through its generic search algorithms. On average, as a result of the algorithms, many highly ranked rival services appear only on page four of a search result. Google Shopping is not subject to the same algorithms, and is usually placed on the first page within the list of search results (ie Google shopping is systematically given prominent placement by Google’s search engine). This meant that a shopper using Google was considerably less likely to select a rival service to Google Shopping. The Commission found evidence that suggested that on certain rival websites clicks by consumers dropped by more than 90% after Google applied demotions.

The Commission has found that, by giving prominent placement only to its own comparison shopping service and by demoting competitors, Google has given its own comparison shopping service a significant advantage compared to rivals. This in turn has allowed Google to profit from its conduct, according to the Commission, because the more that consumers click on comparison shopping results, the more money Google makes.

The Commission’s decision to impose a fine of €2.42bn on Google represents the largest fine imposed in an EU competition investigation to date, overshadowing a €1.06bn fine imposed on Intel in 2009 for abuse of a dominant position in an unrelated case. The Commission decision requires Google to stop its illegal conduct within 90 days by making the necessary changes to its business practices. The Commission has stated that Google must ensure that it gives equal treatment to rival comparison shopping services and its own. If Google does not stop its illegal conduct, the Commission can impose fines of up to 5% of the average daily worldwide turnover of Google’s parent company, Alphabet Inc.

Commentary

The Competition Commissioner Margarethe Vestager stated, when announcing the Commission’s decision, that “Google’s practices have deprived millions of European consumers of the full benefits of competition, genuine choice and innovation”. She further stated that “companies must compete on the merits, regardless of whether they operate online or on the high street, if they are European or not”.

The decision highlights the Commission’s concerns with the conduct of US tech giants in Europe. It arguably marks a key point in the EU’s continuing battle to rein in the influence of companies such as Google, Apple, Facebook and Amazon (collectively known as G.A.F.A.) in the EU.

Moreover, the decision highlights the Commission’s continued focus on the e-commerce markets and its willingness to impose heavy fines for conduct by dominant firms that does not amount to “competition on the merits”. It further demonstrates the appetite and resolve of the current Competition Commissioner to tackle complex cases both in terms of content and process (the comparison shopping case involved the review of 5.2m terabytes of actual search results and two Statements of Objections being sent to Google). We wait with interest to see if Google launches an appeal against the Commission’s decision (Google has strongly denied the allegations in the Commission’s decision throughout the EU investigation). We also look forward to seeing precisely how the Commission approaches dominance and the application of the “competition on the merits” test in the public version of its decision.

Google is awaiting the outcome of two other investigations launched by the Commission in 2016. The first case involves Google’s android operating system. The Commission has taken the preliminary view that Google has stifled choice and innovation in a range of mobile apps and services by pursuing a strategy on mobile devices to protect and expand its dominant position in general internet search by, for example, requiring the pre-installation of Google Search. The second case concerns Google’s search advertising intermediation platform “AdSense”. The Commission is concerned that Google has reduced choice by preventing third-party websites from sourcing search ads from Google's competitors. These cases could lead to further heavy fines for Google.

The Commission also continues to look at Google's treatment in its search results of other specialised Google search services. According to the Commission, its decision relating to Google Shopping is a precedent which can be used as a framework for the assessment of the legality of such conduct. At the same time, the Commission emphasises that it would have to take into account the specific characteristics of each market and the facts in a specific case in future investigations.