Commissioner Almunia leaves many perplexed (and in the dark) over Google

Last week Commissioner Almunia announced that he had decided to accept Google’s third package of remedies and that he would be proposing to the Commission to adopt a decision settling the case against Google without a formal finding of an infringement or the imposition of fines.

The Commissioner’s statements contain much of interest: some positive, most negative.

One of the most positive points is the recognition by the Commission that Google is dominant on one or more relevant antitrust markets (with a share of 90% or more in generic search) and we already knew that the Commission regards the market shares of Google as a good indication of its market power.  The Commission also found that Google has abused that dominance and, presumably, is continuing to abuse that dominance since no remedies have yet been put in place.

The abuses consisted of foreclosure of downstream rivals (“diversion of traffic” theory), scraping of rivals’ content, interoperability restrictions for advertising campaigns and the imposition of exclusivity in advertising agreements.  These were the abuses preliminarily identified in May 2012 and the Commissioner has very publicly said that he considers these practices to be abusive.  The Commissioner stated that the “favourable treatment” that Google accords to its own sites was not considered to be innovative or beneficial to users.

So that was the good news.  The less good news is wrapped up in the question whether the remedies proposed by Google in its third package are sufficiently effective to deal with the competition concerns raised by Google’s behaviour.

We know that the market tests of the first and second packages suggested otherwise.  Indeed, the Commissioner has said that the first and second packages were not satisfactory and that he had reached those conclusions based on the very negative market responses received by the Commission from a broad range of stakeholders.

If the first and second packages were ineffective, what is it about the third package that has caused Commissioner Almunia to conclude that they should be accepted by the Commission?  In other words, is the third package significantly better?

The main change is linked to ‘visibility’ of so-called rival links.  The Commission and Google seem to think that the problem of the discriminatory treatment of competitors on downstream markets by Google is not that this harms the ability of those competitors to compete but that consumers are not able to find Google’s rivals.  ICOMP disagrees and considers this to be the wrong starting point for the discussion.

Be that as it may, when put the way the Commission has put it, the question whether the remedies proposed by Google will be effective turns on how many consumers will actually look at and click on the rival links, and the question whether the third package is significantly better or not depends on empirical evidence.

ICOMP presented empirical evidence to the Commission in response to the first two packages demonstrating that the proposed ‘visibility’ remedy would simply not have the claimed effect.  It is unclear on what basis the Commissioner has concluded that the revised ‘visibility’ remedy will be significantly more effective.  Has the Commission carried out such empirical testing?  Or is it relying on self-serving claims put forward by Google?  How much traffic will actually be diverted to those rival links?

The Commissioner has argued that Google’s competitors are to be treated in a comparable but not identical way and that treating competitors in a fair way but not in exactly the same way is acceptable under EU competition law.  It is difficult to understand what this means and even more difficult to reconcile it with the substantial body of case law adopted by the Commission over the last three decades or more.  (Though, of course, the Google case will not lead to a formal decision but a negotiated settlement, so perhaps the legal considerations are easier to deal with.)

Since the ‘visibility’ remedy is so central to Google’s proposal, the effectiveness of the proposed remedy must also be central to the Commissioner’s response.  But where is the data?  The obvious solution to this major defect in the Commissioner’s approach is to publish Google’s third package and to invite public comment, including from the experts who were so instrumental in allowing the Commissioner to reject the first two packages.

The other proposed remedies, including the auction mechanism linked to the ‘visibility’ remedy as well as the remedies designed to end Google’s abusive behaviour with respect to scraping, interoperability and exclusivities, are largely or entirely unchanged.

Apart from the failure to deal with Google’s abusive use of its dominance in search to discriminate against its competitors in downstream markets, the biggest flaw in the scheme negotiated by Commissioner Almunia and Google is its total failure to address the need to restore effective competition in the search and search advertising markets.  It is important to remember that this issue is not a challenge to Google’s dominance as such, but a need to address how that dominance was achieved in the first place.  There is great concern that dominance was achieved not on the merits and that it has become entrenched through practices the Commissioner recognises as abusive.

In defence of his proposals, Commissioner Almunia claimed that he was seeking to protect consumers, not competitors.  We all agree that is the correct approach for a competition authority.  But consumer organizations such as BEUC and Consumer Watchdog seem to think the problem goes deeper than uninformed consumers and that Commissioner Almunia’s approach is fundamentally flawed and ineffective.

What happens next?  In terms of the procedure, it seems that the Commission is now preparing to start the formal process for rejecting the complaints.  This will give the formal complainants one last shot at changing the Commissioner’s minds.  It seems that other third parties will get no such opportunity.

This last point seems particularly inexplicable:

  • The Commission is being universally attacked for its decision not to consult on Google’s third package. Wouldn’t greater transparency on that proposal serve the public interest and help silence critics who claim the commitments are ineffective?

 

  • There is only one party that benefits from a decision not to consult on the proposed remedies, and that is Google. Did the Commission reach any type of agreement or understanding with Google that it would not consult on the commitments prior to their adoption? Will the Commission at a minimum disclose this?

 

  • The Commission normally must market test a new commitments proposal if it is fundamentally different to an earlier proposal. The Commissioner’s press briefing suggests that the new proposal is substantially improved, which would appear to meet this threshold. Isn’t there a risk that failure to consult on Google’s most recent proposal will make it more vulnerable to legal challenge, and might result in a court rejecting it? If so, wouldn’t the value of the settlement procedure—quick, effective remedies—have been lost in this case?