Google’s Antitrust Saga: Pay to Play

­[Anchit Nayyar is a 4th year BBA LLB (Hons) student at Symbiosis Law School, Pune]

Through its order dated 9 November 2020, the Competition Commission of India (“CCI”) has launched investigations into allegations pertaining to Google abusing the dominance of its Android Operating System (“Android OS”) and the Play Store to give an unfair competitive advantage to its UPI application Google Pay (“GPay”). While a plethora of allegations was raised, based on the evidence on record, the CCI directed investigations into Google’s allegedly anti-competitive practices relating to:

  • Unfair and discriminatory terms imposed for listing of apps on the Play Store; and

  • Revenue Sharing Agreements vis-à-vis GPay
Issues Relating to the Play Store

With respect to Google’s policies pertaining to the Play Store, the CCI took cognizance of three major concerns as discussed below.

Mandatory Use of Google Play’s in-app Billing System

In order to list their applications on the Play Store, app developers have to enter into an agreement with Google, which mandates them to use Play Store’s in-app billing system for any purchases made on the Play Store (in case of paid applications), or any future in-app purchases made by the users on the applications. The CCI thus noted that the exclusivity granted to Google’s in-app billing system unfairly restricts app developers’ ability to use a payment system of their choice, thereby not only being unfair to the developers, but also restricting competition in the market. Similar observations were made by the European Commission (“EC”) in its case against Apple, which is under antitrust scrutiny for mandating use of its proprietary in-app billing system on its App Store, and charging a hefty commission on the same.

The CCI also took cognizance of the 30% commission imposed by Google on all such payments made through the Play Store’s in-app billing system. The exorbitant cut taken by Google unreasonably increases the costs of these app developers, which they would then have to recoup by either increasing the prices charged from the consumers or by internalizing these costs and decreasing their profitability. Given Play Store’s absolute dominance in the market, the only other alternative available with these app developers would be to make their apps available by side-loading (installation of apps without using any app store) which, except for apps that already have an established brand awareness and consumer base (e.g. Epic Games taking Fortnite off the Play Store), is a rather ineffective mode of distribution. This thus puts these apps at a significant competitive disadvantage, especially because many of them are in direct competition with Google’s own mobile applications.

Further, Google’s argument that the commission is necessary to proportionately recoup its investment in Play Store is also unfounded given that the app developers make an up-front payment of $25 to Google before listing their apps on the Play Store (para 43 of the decision). The percentage based commission payments are also unfair, given the fact that apps having a higher revenue derived from in-app purchases would have to make higher payments to Google, irrespective of how much effort or resources Google has to put in listing or distributing these applications.

Another point of contention that is likely to arise before the CCI is that as per Google’s policies, the 30% commission for in-app purchases is not applicable if the purchase relates to a physical product or service. Thus, while Google takes a 30% cut from in-app revenues raised by Spotify, Netflix, etc., apps like Uber and Amazon, which provide physical goods or services are not covered by this obligation. This further illustrates that Google’s argument that the 30% commission is a necessary part of its app store business model necessary to recoup their investments is unfounded, and is rather a monopoly price charged due to Play Store’s insurmountable dominance in the relevant market.

Further, if we compare Google’s commission rates with those charged by other payment gateways like RazorPay, PayU and EBS, which charge anywhere between 1 and 5% for processing transactions, it would become abundantly clear that Google’s 30% commission rate is not ‘market driven’ or ‘proportionate’. Thus, if Google insists on its in-app billing system being a key part of its app store business model itself (as it did before the CCI), the Commission could also look into framing charges of excessive pricing under section 4(2)(a)(ii) of the Competition Act, 2002, given the fact that the only reason that Google is able to impose its exorbitant commission rate is because of the monopoly enjoyed by Play Store.

Preferential Treatment of Google Pay in Play Store’s in-app Billing System

Further, the informant also alleged that GPay was being given preferential status on Google Play’s in-app billing system to the exclusion of its competitors. According to Play Store’s policy, GPay is the only UPI app which is allowed as a valid payment option in the Play Store. The CCI noted that this exclusivity granted to GPay prima facie led to a denial of market access to GPay’s competitors in the UPI Market, thereby violating section 4 of the Act.

Google, however, argued that since UPI as a system allows interoperability between the different UPI providers, persons having UPI IDs with competitors like HDFC and PayTM would also be able to make transactions using Google Pay. The CCI raised concerns over the fact that while GPay has been integrated with the Play Store using the ‘intent-flow’ method, all other UPI providers have been integrated with the ‘collect flow’ methodology. While both intent-flow and collect-flow involve the user transitioning from the Play Store to the UPI App and then back to the Play Store again, such transition is automated for GPay users which have the benefit of intent-flow, while other users would have to do the same manually. 

The CCI was of the view that this difference could enable GPay to give a superior user experience as compared to its competitors, and thus had the potential to shift the market in its favour. It thus held that the said conduct prima facie amounted to Google imposing unfair and discriminatory conditions, denial of market access for competing UPI apps and Google leveraging its dominance in the app store market to promote its UPI application in violation of section 4 of the Act.

Access to Third Party User Data

In addition to providing an app store for the distribution of various consumer apps on Android, Google also competes in the downstream market of user apps via its proprietary mobile applications like Google Pay, Play Music and Hangouts. While the issue was not raised by the informant, the CCI nevertheless took cognizance of Google’s access to the user data of its downstream competitors and whether Google uses this data to improve the quality of its own proprietary applications which are in direct competition with these apps. Similar allegations are also being probed by the EC in its case against Amazon, wherein Amazon is being investigated for using third party seller and user data to improve its own products which are in direct competition with these sellers.

Further, the CCI also took note of the fact that this data may not be provided to such app developers themselves, which may preclude them from improvising and innovating their own apps. Similar allegations are also being probed by the EC in its recent case against Apple, wherein Apple has been accused of disintermediating its competitors from valuable user data about the activities of its competitors, while itself retaining full access to it.

Revenue Sharing Agreements and Status Quo Bias

The informant alleged that Google is encouraging pre-installation and setting up of GPay as the default payment option in Android devices to the prejudice of other competing UPI service providers. It is pertinent to note that in 2019 CCI had opened investigations into Google’s policy of mandating pre-installation of its proprietary apps like Play Music and Hangouts for the device manufacturers to get access to Play Store. In this case, however, Google argued that it does not mandate device manufacturers to pre-install GPay in order to get access to Play Store or its Android OS. Rather, it merely provides device manufacturers with certain financial incentives in the form of Revenue Sharing Agreements (“RSAs”) if they choose to pre-install GPay on their devices.

Google’s RSAs typically involve it sharing a percentage of its revenue with the device manufacturers as consideration for exclusive pre-installation of the particular app in the devices. While dealing with RSAs with respect to exclusive pre-installation of Google Search, the EC in the Android Case held Google’s RSAs to be an abuse of its dominant position in the web search services market, as the same reduced the incentives of the device manufacturers to pre-install competing search engines. Given Google Search’s unparalleled dominance, the EC held that other competing search engines could not have matched Google’s revenue sharing payments and the distortive effect of the RSAs were thus perpetuated by Google’s dominant position itself. Similar allegations have also been made by the US Department of Justice in its recent antitrust complaint against Google.

However, unlike RSAs with respect to Google Search, it is unclear how the CCI came to a conclusion that RSAs pertaining to GPay constituted an abuse of dominance. While dealing with financial incentives and rebates offered by dominant undertakings to tilt the market in their favour, the EC (see EU’s Guidance Report on Enforcement Priorities in Article 102) as well as the authorities in the US (see Smith Kline Corp v. Eli Lily & Co.) hold the conduct as an abuse if the same are capable of excluding  ‘as-efficient competitors’ from the market.  The rationale for the same is that at its core antitrust laws seek to protect competition in the marketplace, and not less efficient competitors [see Richard Whish & David Bailey, ‘Competition Law’ (606 7th ed. 2012, Oxford University Press)]. The CCI in its prima facie order has, however, not made any determination on whether GPay is dominant in the relevant market. Further, the CCI has not highlighted as to  how Google’s dominant position in any of the other relevant markets (App Stores and Mobile OS markets) enables it to exclude its competitors like PayTM and PhonePe from offering similar incentives to device manufacturers to pre-install their applications.

In addition, the CCI’s theory of competition harm rests on the concept of ‘status-quo bias’, which entails that users who find functioning apps pre-installed on their devices are much likely to stick to them to the exclusion of its competitors. While status-quo bias is a well-documented theory of harm and has been accepted by the authorities in the EU as well as in the US, the CCI’s approach towards the same, especially pertaining to the UPI market, has been rather ambiguous. In Harshita Chawla v. WhatsApp Inc., while dealing with allegations stemming out of the status quo bias posed by integration of WhatsApp Pay within the WhatsApp messaging app, the CCI had held that the dynamic nature of the UPI market meant that it was not amenable to distortion merely by way of WhatsApp’s policy of integration. In the present case, however, within a span of merely two months, the CCI has changed its stance towards the same and held that the status quo bias imposed by GPay’s alleged pre-installation has the potential of distorting the competitive forces in the UPI market towards its favour.

Conclusion

The case against Google is testimony to CCI’s increasing oversight in regulating Big Tech, which until now remains woefully underregulated. While Google vehemently argued in favour of the Play Store’s policies as being pro-competitive and market driven, the author is of the opinion that these arguments are riddled with various fallacies and self-contradictions. Taking a cue from their European counterparts, the CCI seems to have found a case fit for the exercise of their jurisdiction in promoting competition in the ever-evolving digital landscape.

On the issue of the RSAs, however, the CCI’s reasoning leaves a lot to be desired. Since the CCI has not made any finding regarding GPay’s dominance, which enabled it to exclusively provide such RSAs, or any abuse arising out of Google’s position as a so-called ‘unavoidable trading partner’, the author believes that the order does not lay out a sufficient prima facie case of abuse of dominance. The order is thus suitable to be challenged before the appropriate higher fora, and like the CCI’s case against Flipkart and Amazon, the investigations pertaining to Google’s RSAs may well be set aside.

Anchit Nayyar

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