EU takes closer look at Google/Fitbit deal

Following weeks of speculation, the European Commission has launched an in-depth review into Google’s $2.1 billion purchase of Fitbit to study if the deal will give Google a data advantage in the online search and display advertising markets.

The enforcer announced the Phase II probe today, after rejecting Google’s proposed data silo remedy, which would have kept health data collected by Fitbit separate from its other existing datasets. 

Alongside online advertising, the commission will also examine the deal’s effect on the digital healthcare sector and whether Google might make it harder for rivals’ smartwatches to work with its Android operating system.

EU competition commissioner Margrethe Vestager said in a press release today that the in-depth review will check that Google cannot distort competition through its control over data collected by wearable devices.

The European market for wearable devices is “expected to grow significantly in the coming years”, creating an “exponential growth of data” that these devices generate about the life and health of users, Vestager explained.

The enforcer’s Phase I investigation found that this data appears to provide an important advantage in online advertising, as Google could use information collected by Fitbit to better tailor the adverts it displays on its own search engine and on other web pages. 

The initial probe confirmed that Google is dominant in online search advertising across the European Economic Area, although the enforcer was unable to gather market shares for Portugal. In addition, the company has a strong market position in the online display advertising services market in at least 19 EU member states.

Google also holds a strong position across the EEA in the supply of analytics and digital tools used to facilitate the sale and purchase of digital advertising – so-called ad tech services, the commission said. 

The company could, therefore, use its “data advantage” from acquiring Fitbit to raise barriers to entry and expansion for ad tech and online advertising rivals, the commission said. This would be detrimental to advertisers and publishers, who would face higher prices and have less choice, the agency said.

Last month, Google promised to silo the acquired Fitbit data and not use it to boost its online advertising business. The commission reportedly asked for additional concessions two weeks ago.

Today, the commission said Google’s data silo commitment is “insufficient to clearly dismiss the serious doubts identified at this stage as to the effects of the transaction”. This was in part because the proposed remedy did not cover all the data that Google would gain access to by acquiring Fitbit, which the enforcer said was also valuable for advertising purposes.

The commission is also concerned about the effect that combining Fitbit's and Google's databases and capabilities might have on the digital healthcare sector, particularly as this market is “still at a nascent stage in Europe”.

The review will additionally consider whether Google would have the “ability and incentive” to reduce its Android operating system’s interoperability with devices that rival Fitbit’s fitness tracker.

In a blog post today, Google’s senior vice president of devices and services Rick Osterloh argued that the market for smartwatches and fitness trackers contains “vibrant competition”. Companies including Apple, Samsung, Garmin and Huawei offer numerous products that are unlike anything Google makes today, he noted.

“We believe the combination of Google and Fitbit's hardware efforts will increase competition in the sector, making the next generation of devices better and more affordable,” Osterloh said.

He added that Google will not use Fitbit health and wellness data for its ads business and will give Fitbit users the choice to review, move or delete their data. 

Fitbit did not respond to a request for comment.

Brussels-based Charles River Associates vice president Cristina Caffarra, who recently co-authored an article advocating for a Phase II review into the deal, praised the enforcer’s decision to launch an in-depth probe.

“Anyone worried about the power of digital platforms knows we failed to stop the acquisitions that took us here, so there is a clear case for looking at the deal every which way and hearing from privacy experts in the discussion,” said Caffarra, who has advised Amazon and Apple on EU competition matters and US states attorneys general investigating Google.

Google’s promise not to use Fitbit’s data for advertising purposes is “besides the point” as the antitrust concerns related to the deal are “much broader and deeper”, Caffarra added. Moreover, she said such a promise would not be enforceable. 

Nicolas Petit, a competition law professor at the European University Institute, said the “current climate of suspicion against the tech giants” meant the commission had limited options except to take the deal to Phase II. 

He warned that this is not a “slam dunk case” for the EU enforcer. Google’s purchase of Fitbit is very different from its past acquisitions of companies including DoubleClick or Admob, where anticompetitive overlaps in digital advertisement services were more obvious, he said.

Fitbit is not an industry leader in smartwatches and it operates in a growing market with “intense product differentiation”, said Petit. 

“Of course, this is true as long as you keep privacy protection out of the picture,” he added. EU law requires privacy concerns to be dealt with under specific legislation, and the enforcer should also open cases against more vertically integrated ecosystems like Apple's own smartwatch if it were to consider privacy in this Phase II review, Petit said. 

Counsel to Google

Cleary Gottlieb Steen & Hamilton

EU

Partner Robbert Snelders in Brussels and counsel Paul Stuart in London, assisted by senior attorney Michael Mayr and associates Andris Rimsa, Fabio Chiovini, Natalie Farmer, Conor Opdebeeck-Wilson, Shantanu Kafle, Dusan Valent, Adam Bruell, Beatriz Martos Stevenson, Thorsten Schiffer and Lara Levet

 US

Partners Leah Brannon and Elaine Ewing in Washington, DC, assisted by Christian Fischoeder, Huanbing Izzy Xu, Savannah Haynes and Elise Lane

Vinson & Elkins

Partner Darren Tucker in Washington, DC


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