The European Commission has fined Google €2.42 billion ($2.7 billion) after concluding the company had abused its dominance in search. According to a letter from the EC announcing the results of its investigation, Google has a dominant market position in search, and the company leveraged that dominance to give itself an unfair advantage in comparison shopping search. For example, according to the EC, when a consumer types in the name of a particular product, Google favors its own comparison shopping search results to those of its competitors. The EC believes this process “denie[s] European consumers a genuine choice of services and the full benefits of innovation.”
As of December 31, 2016, Google (Alphabet) had total assets of $167 billion. The fine represents slightly more than 1.6 percent of its total assets. Perhaps more important to Google and to other companies within the reach of the EU is are the legal and behavioral aspects of the decision. First, the decision finds that Google search is “dominant,” meaning that it is the predominant means by which consumers search the internet. In the EU, a dominant company is required to behave in a competitively neutral fashion as between itself or its affiliated companies and its rivals. In the States, a dominant entity (or “monopolist”) is required only not to behave in a way that unfairly maintains or expands its advantage or disadvantages competition. What constitutes unfair in the States is more limited than in the EU. For example, a United States monopolist is under no duty to deal with rivals except in circumstances that suggest its conduct has no legitimate purpose. By contrast, in the EU, a dominant company is expected to be evenhanded in its dealings whether it is dealing with its rivals or with companies in other markets.
The EC is not the authority of last resort. Google can, and most likely will, appeal. It may also decline to comply fully with the EC’s decision and force adversarial proceedings.
The case is significant for Google because the EU is demanding changes in the way Google displays its search results. As one of the first and still leading search engines, Google’s product enjoys widespread popularity. The EU is now telling Google that its product should give users a different experience. And for the foreseeable future, when Google enhances the product, the changes could be second-guessed by a regulator. While the case purportedly affects conduct only in the EU, it raises the question whether the company would or could offer different search products in the EU and the rest of the world. For multinational companies operating online, it is difficult to avoid crossing borders.
Issues for Multinational Companies
A big question in the case is where and with whom Google competes. For shopping-related searches, Google argued that it has robust competition with Amazon, Ebay and other comparison shopping tools, and that this competition intensified even in the two years that the EC has been investigating Google. On Amazon, a customer can locate a product quickly, pay for it using credit cards Amazon knows, and buy it from any number of different vendors. The same is true for eBay.
Parties with significant market shares need to be vigilant about how they are perceived in the market, particularly in the EU. While being first and foremost can be a badge of honor and an explicit business goal in the States, a moniker of dominance can trigger significant interest in the EU. That interest can lead to investigations and ultimately regulation.
Three main lessons:
One, consider avoiding behavior that the Europeans consider to be exclusionary in the first place. And consider the pros and cons of working with competitors that have incentives to air grievances. That will blunt their complaints and allow you to control the narrative.
Two, consider your reputation. Discourage internal and external marketing pieces that say you are dominant. While that might be great for securing initial funding, you can cause yourself significant problems with that puffery later on.
Three, develop solid economic evidence of real competition from platforms and other sources that aren’t “classically” within your wheelhouse. You want to be able to muster evidence that competition is coming from lots of places: actual evidence that will be compelling to antitrust agencies worldwide. Charge your antitrust counsel with keeping that data current. Charge your marketing folks with tracking and memorializing that data. And keep economists on call. Periodic assessments of competition will be more compelling to enforcers than something put together at the last minute.
Finally, follow the enforcers and what they are saying, so you can respond to their specific theories and thoughts as they occur and before they become ingrained. We will follow them as well.