A Blog by Jonathan Low


Nov 12, 2020

EU Sees Fines Failed To Change Big Tech Behavior. So What's Next?

There is growing belief among government officials on both sides of the Atlantic that only 'structural relief,' aka, breaking up the big tech companies, will succeed in curbing their market domination. JL

Jeanne Whalen reports in the Washington Post:

“It’s more difficult to win a case in the U.S. than in Europe. However, the U.S. in the past has applied more far-reaching remedies, mandating divestitures and breakups.” The EU was held back by a belief that Europe didn’t have the standing to impose tougher measures. The Justice Department (Google) lawsuit hinted at tougher measures (including) “structural relief,” which could require the company sell a portion of its business. The EU is (now) considering powers to address “structural competition problems.”

The European Union spent a decade pursuing Google on antitrust charges, ultimately fining the company nearly $10 billion for using illegal tactics to abuse its dominant position on the market.

But two years after the bloc’s biggest rulings, very little competition has emerged, in part because the E.U. largely left it to Google to fix the problems, antitrust lawyers and Google competitors say.

Google’s fixes included charging a fee to rival search engines that wanted to appear on a selection menu for Android phones, a step that drew howls of protest from competitors — why should they have to pay Google to help it fix its anticompetitive behavior, they asked?

“The bad actor gets to decide what their medicine is going to be. And that’s just crazy, right?” Megan Gray, general counsel of rival search engine DuckDuckGo, said in an interview.

With the Justice Department filing its own antitrust case against Google last month, U.S. government lawyers are scrutinizing the European results. Google continues to dominate more than 90 percent of Europe’s search-engine market, just as it did before the E.U. probes began in 2010, data from the analytics firm StatCounter show. Google competitors in the online shopping business, meanwhile, complain the playing field is still tilted in the tech giant’s favor.

Some veterans of the E.U. battle say the outcome shows the difficulty of restoring competition to a market that has already tipped under the control of one giant. They also say the European Commission was held back by a belief that Europe didn’t have the political standing to impose tougher measures, such as a breakup, on an American company.

“As a matter of politics, the European Commission is not going to break up an American icon. That just ain’t going to happen,” said Thomas Vinje, an antitrust lawyer at Clifford Chance who advises an industry group that helped spark the Commission’s investigation by filing a complaint against Google. The group, FairSearch, is funded by Oracle, TripAdvisor and others.

The Justice Department lawsuit hinted at possibly tougher measures, should the government win its case, asking the court to consider “structural relief,” which theoretically could include a requirement that the company sell a portion of its business.

“It’s more difficult to win a case in the U.S. than in Europe. However, the U.S. in the past has applied more far-reaching remedies, mandating divestitures and breakups,” said Gene Kimmelman, former chief counsel for the Justice Department’s antitrust division, who now serves as senior adviser to the nonprofit tech-policy group Public Knowledge.

In a blog post after the U.S. filed its lawsuit, Kent Walker, Google’s senior vice president of global affairs, said consumers “use Google because they choose to, not because they’re forced to, or because they can’t find alternatives.” He called the Justice Department case “deeply flawed’ and said it “would do nothing to help consumers.”

Google spokesman Jose Castaneda disputed the idea that the European Commission investigations have changed nothing, saying the bloc’s probe of Google’s role in the online shopping market led the tech giant to make changes that are “subject to intensive monitoring” and “generating billions of clicks for more than 600 comparison shopping services.”

He declined to comment on Google’s continued dominance of general search queries. Google is appealing the E.U. rulings.

A spokeswoman for the European Commission, which also announced antitrust charges against Amazon on Tuesday, said the bloc “continues monitoring the market with a view to assessing the effectiveness of the remedies" applied in the Google case.

She added that the commission plans to propose new legislation to the European Parliament to help “address more effectively” competition problems in the tech sector.

Margrethe Vestager, who oversees competition policy at the commission, has said the bloc is considering proposing powers that would give it more flexibility to address “structural competition problems.”

The E.U.’s former chief competition economist, who was involved in the Google cases, summed up the lackluster result with a rueful joke on Twitter last month.

“How it started, how it’s going,” Tommaso Valletti tweeted, atop two slides: the E.U.’s 2010 announcement opening an antitrust investigation into Google and a chart showing the tech giant continuing to monopolize the search-engine market ever since.

Rivals Bing, Yahoo, Yandex and DuckDuckGo have held steady with a small sliver of the market, according to StatCounter data.

U.S. federal and state prosecutors have closely studied Europe’s pursuit of Google to try to draw lessons. Last year, a group of state attorneys general investigating the tech giant hired an adviser with long-running ties to one of the E.U. probes: Cristina Caffarra, a U.K.-based economist and consultant who previously advised Yandex, a Russian tech company whose complaints about Google helped kick off one E.U. investigation. Caffarra in the past also advised Google critic News Corp.

“When I started advising the AGs last year, I had my first meeting with them in Austin,” Caffarra said in an interview. One of their big questions about the E.U. campaign was, “Why hasn’t it worked?” she said.

Caffarra said she explained some of the “limitations” of the European response, including that it gave Google the power to design its own remedies. “The state AGs were all looking at me, saying, ‘We are the government. We can break them up.’”

Many of the allegations in the Justice Department’s 60-page lawsuit mirror the findings of the E.U.’s biggest probe: that Google used illegal tactics to ensure its search engine and apps were widely adopted by phone manufacturers and mobile-network operators, which often determine the specs of phones used in their networks.

The commission’s probe, which ended in 2018, found that Google required Android phone manufacturers to pre-install Google’s search engine and the Chrome browser app as a condition for licensing the Google Play app store, a feature no Android phone can do without. It also found that Google paid some phone manufacturers and mobile network operators in exchange for exclusively pre-installing Google Search.

“These practices have denied rivals the chance to innovate and compete on the merits. They have denied European consumers the benefits of effective competition in the important mobile sphere,” the Commission concluded.

The E.U. fined Google $5.1 billion and ordered the company to cease its anti-competitive conduct within 90 days, but the commission essentially left it to Google to propose and adopt changes to remedy the infractions, lawyers say.

The commission did informally push back on one of Google’s proposed remedies, when the tech giant suggested it tweak its contracts with phone manufacturers in a way the Commission viewed as insufficient, Vinje said.

But generally, the commission felt “that it’s appropriate to leave it to companies to find their own means to deliver the end result,” said Alec Burnside, an antitrust lawyer at Dechert LLP in Brussels, who has represented several Google opponents in antitrust cases.

The fixes Google did adopt changed little, said Gray, DuckDuckGo’s general counsel.

“First, Google sent out an alert to all Android phones [in Europe], in the spring of 2019,” Gray said. “It sent an alert saying, ‘Hey, would you like another search engine? Click one of these other options.’”

“With no context or background, it was a really weird alert. If you stopped in your tracks and paid attention … and picked DuckDuckGo, it downloaded from the Play store the DuckDuckGo app,” she said. But that download didn’t change any of the phone’s default search-engine settings, so the effect was minimal, she said.

Google also offered rivals the chance to bid for a spot in the search-engine choice menu for new phones running on Google’s Android software. Gray said rivals bristled at the idea of paying Google to help it “correct its anti-competitive behavior.”

Google said its offer was a “fair and objective method to determine which search providers are included in the choice screen. It allows search providers to decide what value they place on appearing in the choice screen and to bid accordingly.”

Google also said that if no rival search engines bid for the slots, it would randomly choose competitors to display free.

After a separate probe, the E.U. in 2017 fined Google $2.8 billion, concluding it had “abused its market dominance” to give an “illegal advantage” in its search results to Google Shopping, the horizontal bar of product ads Google features at the top of the search results screen.

The commission concluded that Google had demoted rival shopping sites that compare prices for various products, such as Foundem, a U.K. company that helped spark the investigation by complaining to the commission that Google was unfairly suppressing its site in the search results.

After the commission ordered Google to cease its anticompetitive behavior, Google offered companies such as Foundem the chance to bid for ad space in the Google Shopping bar.

Foundem chief executive Shivaun Raff said the company has refused to bid for the ads, because that would harm consumers by featuring products that “will pay Google the most money for a click.”

Inside the commission, the Google cases are “seen as failures,” said Damien Geradin, a lawyer in Brussels who regularly represents companies opposing Google in antitrust matters.

“These are great decisions with great principles. I think the Department of Justice can find great information there,” Geradin said. “But at the end of the day the remedies were not there.”

“In a way the best thing that could happen in the E.U. would be for the U.S. action to succeed,” he said.


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