The European Commission has fined Google a record-breaking €4.3 billion for imposing restrictions on Android device makers and mobile network operators, and given the technology company 90 days to cease its conduct or face the prospect of further fines.
The EU competition enforcer found Google required manufacturers who wished to include to Google’s application store Play Store on mobile devices also to pre-install the Google search app and Chrome browser. The commission also found the tech company paid manufacturers and mobile network operators on the condition they exclusively pre-install the Google search app on their devices, and obstructed the development of competing mobile operating systems.
The €4.3 billion fine is the largest the European Commission has ever imposed on a single company, putting in second place the €2.42 billion penalty the enforcer issued to Google last summer in the Shopping case.
In a press conference today, EU competition commissioner Margrethe Vestager said Google used Android as a “vehicle to cement the dominance of its search engine”, and its practices denied rivals the chance to innovate and compete on the merits.
Google developed a strategy that was built on its Android mobile operating system in the mid-2000s in anticipation of the shift from desktop to mobile search, Vestager said. “One of its internal documents at the time said ‘Android is by far the greatest opportunity for search monetisation in mobile over the next years and is very strategic to Google.’”
The commission’s Directorate-General for Competition formally launched this investigation in 2015, after receiving several complaints that accused the search giant of thwarting the access of rival apps on its Android open-source operating system. The enforcer sent Google a statement of objections in 2016 outlining its theory of harm.
The commission has now concluded that Google ensured its search app and its Chrome browser were pre-installed on nearly all Android devices sold in the European Economic Area, through illegal tying to Google’s Play Store that made it “impossible” for manufacturers to pre-install some apps but not others.
“Device manufacturers confirmed that users considered Google's Play Store a must-have app on Android devices. So the right to pre-install the Play Store on their device is a very strong incentive for them to agree to Google’s demands, especially because it’s not possible for users to download the Play Store themselves,” Vestager said.
The enforcer found that on Android devices, with Chrome and Google search pre-installed, more than 95% of all search queries were made through Google search. It contrasted this with Windows mobile devices – which had Bing rather than Google search preinstalled – where less than 25% of search queries were made through Google search.
“Evidence shows when its comes to search apps and mobile browsers, the vast majority of users simply take what comes with their device and do not download competing apps,” Vestager said.
The commission said Google also prevented device makers from using alternative versions of Android that were not approved by Google, known as Android forks. As an open-source system, Android can be freely used and developed by smartphone manufacturers, but if they wanted to put Play Store on any devices, they had to commit not to develop or sell any others using an Android fork.
For example, by preventing alternative versions of Android, Google put manufacturers off selling and developing devices based on Amazon’s Android fork, Fire OS, the commission said.
Because third parties can develop the Android OS and use it freely, the commission said it is different from operating systems such as Apple iOS or Blackberry, which cannot be licensed. The commission also found that Apple did not exert enough competitive pressure on Google to quell its dominance.
“Even if end users were to switch from Android to Apple devices, this would have limited impact on Google's core business,” the commission said.
The enforcer concluded that Google is dominant in the markets for general internet search services, licensable smart mobile operating systems, and app stores for the Android mobile operating system.
For general internet search services in the European Economic Area, the commission found Google’s market share is above 90%. In the worldwide market for licensable smart mobile operating systems, Google’s share was more than 95%.
The company now has 90 days to remedy its conduct, with the commission saying “at a minimum” it has to cease and desist the three types of practices: tying of Google’s search and browser apps; payments to manufacturers and network operating systems to exclusively pre-install Google search; and obstruction of competing Android operating systems.
The commission said it will monitor the compliance closely, and Google is obliged to keep the enforcer informed of its progress on the remedy. If Google fails to comply, it would be liable for additional fines of up to 5% of the average daily worldwide turnover of its parent company Alphabet.
In a blog post today, Google chief executive Sundar Pichai said the decision ignores the fact that Android phones compete with iOS phones, something that 89% of respondents to DG Comp’s own market investigation acknowledged.
Google intends to appeal against the decision, which is a rejection of the Android business model that “has created more choice for everyone, not less”, Pichai said. “History shows that without rules around baseline compatibility, open-source platforms fragment, which hurts users, developers and phone makers.”
Computer & Communications Industry Association president Ed Black said the decision “punishes the most open, affordable and flexible operating system in the mobile ecosystem.” Android brought more competition, innovation and consumer choice to the market, Black said, and “these are precisely the things competition authorities are tasked to promote rather than jeopardise.”
The vice president of the association, Jakob Kucharczyk, labelled the decision “bizarre”, and said it will make it difficult to successfully compete using a free and more affordable open source business model.
“In a world where the iPhone is the main competitor, any company wanting to compete must ensure their ecosystem is as appealing as possible to attract app developers and consumers alike,” Kucharczyk said.
Alec Burnside, a partner at Dechert who advises Yelp and other complainants in the case, said the record-setting fine would be less of a concern to Google than the order to change conduct that had ensured mobile search traffic would go through Google Search.
“The concern must be, though, that this action comes too late – that Google has entrenched itself so well that rivals may never recover. That’s why some people say the only solution is to break the company up,” Burnside said.
FairSearch, a coalition of companies that is the lead complainant in the case, said the commission’s decision will help to restore competition in the mobile operating market, and is an “important step” in disciplining Google’s behaviour regarding Android.
Clifford Chance partner and counsel to Fairsearch Thomas Vinje said, “The complaint dragged on for five years because Google used every trick in its book to delay action.” Phone manufacturers will now have the freedom to offer their users differentiated devices with innovative third-party operating systems and apps, Fairsearch said in a statement.
Open Internet Project, another complainant in the case, said it welcomes the “determination and dynamism” of the European Commission’s decision. In a statement the group said Google’s restrictions had made it “impossible” for Android manufacturers to market Google-free devices and choose the most suitable sets of applications for their phones.
Last year, the commission fined Google €2.4 billion for illegally promoting its own comparison shopping service ahead its rivals. Google committed to running its comparison shopping service as a separate business, with Google promising to auction off positions in the shopping box that appear next to search results to its rivals. Vestager said today the agency has not taken a position on whether Google has complied with the remedies and it remains “an open question”.
DG Comp also continues to investigate alleged restrictions Google placed on third-party websites to display search advertisements from Google’s competitors. Google service AdSense has an 80% share of the market for search advertising intermediation in the European Economic Area, DG Comp claims. Google acts as an intermediary on third-party websites through its AdSense platform.
Counsel to Google
Cleary Gottlieb Steen & Hamilton
Nicholas Levy and Thomas Graf in London and Brussels, assisted by Paul Stuart, Alexander Waksman, Wanjie Lin, Alexandra Hackney, Jacopo Figus Diaz and Peter Cimentarov
Allen & Overy
Partners Juergen Schindler and Dirk Arts in Brussels and John Roberti in Washington, DC
Counsel to FairSearch (complainants association)
Partners Thomas Vinje and Dieter Paemen in Brussels are assisted by Andriani Ferti and Axelle D'heygere
Counsel to Yandex (complainant)
Freshfields Bruckhaus Deringer
Partners Alastair Chapman in London and Katrin Gaßner in Düsseldorf are assisted by Wenjie Shen
Counsel to the Open Internet Project (complainant)
Partner Thomas Höppner in Berlin
Counsel to Yelp (third party complainant)
Partner Alec Burnside in Brussels