Competition Law Concerns with Android Operating System: European Commission Throws a Hammer on Google

[Rajat Sharma is a 4th year B.A. LL.B (Business Law Hons.) student at National Law University, Jodhpur]

Introduction

It is an undeniable fact that mobile internet services make up for more than half of the global internet traffic, as also stated by European Union Competition Commissioner Margrethe Vestager. The statement came after the European Commission (EC) imposed a mammoth fine on Google amounting to approximately €4.34 billion for anti-competitive practices in the market surrounding Android mobile devices on July 18, 2018. According to the EC, the kinds of restrictions Google imposed on the manufacturers of Android-based mobile devices to ensure that the majority of Android device users use the Google search engines reduced competition in the market. It was observed that the intention behind these practices was to cement the already existing dominance of Google in the search engines segment.

Issues

The EC listed out three specific issues to address the investigation as a whole. These were as follows:

– Whether the tying of Google’s search and browser apps with the provision of Android Operation System in the form of a bundle is anti-competitive?

– Whether extraneous payments made to large manufacturers and mobile network operators to ensure the pre-installation of Google apps on devices is wrongful?

– Whether Google’s actions to prevent the manufacturers to use any alternative form of Android such as Android Fork is exclusive and anti-competitive?

Relevant Markets

The relevant markets delineated by the EC were general internet search services, licensable smart mobile operating systems and app stores for the Android mobile operating system. While delineating the market for licensable smart mobile operating systems, the EC noted that other popular operating systems such as Blackberry OS and Apple iOS are not a part of this relevant market since these operating systems are not licensed by their owner companies to third party mobile device manufacturers. Although the EC considered some competition to exist between Apple and Android based devices at the level of consumers, the same seems to have been discarded as not sufficient enough to put them into one relevant market. This is visible in the EC’s observation of factors such as high pricing of Apple devices, high switch costs for consumers, etc. due to which it would be unlikely for a consumer to substitute Android with Apple devices. However, contrastingly, Google’s CEO Sundar Pichai claimed that Android phones actually compete with iOS and he relied on the EC’s own market survey with 89% of respondents agreeing to the same.

For concluding Google’s dominance in the general internet search services market, the EC relied upon the previously held dictum in the Google Search (Shopping) case. Lastly, the EC held that Google’s dominance in the market for app stores for Android mobile operating system is clear from the fact that approximately 90% of all apps are downloaded through Google’s app store, i.e. the Play Store.

 Decision                                      

The EC noted that to pre-install Google Play Store, manufacturers have to also pre-install Google Search app and Google Chrome browser app. Further, Google is the default search engine on the Google Chrome browser.  In order to impose the exclusivity condition, Google tied its products into the Android OS in form of a bundle while offering it to the device manufacturers. EC’s actual problem seems to be in the fact that as they are practically installed on all Android devices, any user is likely to stick to the same. The EC came to the conclusion that these practices cement Google’s dominance in the market for general internet search as these pre-installed Google Search app and Chrome browser are significant entry points for search queries. In essence, the EC could not withstand that Google is leveraging its dominance in one market to cement its dominance in another market where it does not face much competition.

With respect to payment of extraneous incentives, the EC noted that Google’s acts of paying additional incentives to manufacturing giants for a period of three years between 2011-2014 to ensure that they exclusively pre-install Google Search app across their entire portfolio of Android devices was anti-competitive. Such extraneous payments ring a warning bell and the EC relied upon the previously decided Intel case in this aspect.

The EC’s last observation is with regard to the competing versions of Google’s Android such as Amazon’s Android fork. It was found that Google licensed its Android services in a manner that the manufacturing company would not be able to sell even a single device running on Android fork. The EC concluded that such a practice denied the benefit of innovation and smart mobile devices to the consumers. Apart from the mammoth fine, Google has been asked by the EC to put an end to these practices within 90 days of the passing of the decision.

Significantly, it has to be noted that the Canadian Competition Bureau investigated into similar allegations against Google back in 2016 and held that mere pre-installation does not lead to foreclosure. It observed that consumers “can and do change the default search engine on their desktop and mobile devices” in a scenario that they have a preference for a rival app on the basis of quality preferences. Therefore, the ability and choice vesting with the consumers to make a switch at any point of time after buying the device was an important factor to decide whether the practice is anti-competitive or not.

Takeaways

The EC announced the decision and the fine by way of a press release and a full decision has not been published yet. Google has announced that it will appeal the decision, which has imposed upon it the mandate to stop such pre-installation within the next 90 days. In any case, the decision is likely to impact consumers and the way smart phones are used in multiple ways. According to Google, it is able to provide Android on a free, open source basis because of its remuneration structure. It is speculated that the decision might lead to a change in Android’s business model in a way that it could become a licensed programme, as opposed to its current open-source form. Eventually, this may lead to increase in prices for usage of the Android OS on smartphone devices and end up harming the consumer. However, since an appeal is impending, the possibility of having tectonic changes in how we use smartphones is unlikely.

Rajat Sharma

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