Chillin'Competition

Relaxing whilst doing Competition Law is not an Oxymoron

Android, Google and bundling: some follow-up thoughts

with 4 comments

Android

[By Pablo Ibañez Colomo (LSE)]

The following thoughts were inspired by Alfonso’s recent post on bundling allegations against Google. As usual, it is tightly argued and persuasive. I wish competition authorities took such points into consideration when assessing tying and bundling claims. My objections are of a different nature. The fact that I agree with most, if not all, of what he writes does not mean that his points would be conclusive or even relevant in practice after the Microsoft saga. More than anything, Alfonso’s post reminds one (or at least me) of the uncertainties that remain in the field of Article 102 TFEU even after the adoption of the Guidance Paper.

Alfonso starts by wondering whether the complaint brought by Google’s rivals involves a bundle in the first place. Following the GC judgment in the first Microsoft decision, I would be tempted to reply by saying that anything under the sun can be constructed as a bundle or, put differently, that the legal construction around third party claims need not make sense for Article 102 TFEU to apply. If a tying claim is valid even when nobody wants an operating system without a media player or a web browser, it probably follows that the plausibility of the bundling claim would not be – unfortunately, may I add – a conclusive aspect in the hypotheticals he discusses.

He goes on to argue that Google Play is not the only means through which one can download applications. I am sure more than a reader reacted to this argument in the same way I did. Could not one also claim that it is possible to download web browsers or media player and that the tying of these applications with an operating system are unproblematic as a result? Well, of course, but this fact did not prevent the Commission from taking action against Microsoft not once but twice. All that remedial action would require is an analysis of consumer behaviour allegedly inspired in behavioural economics (the flavour-of-the-month that I fear most, by the way).

If the above arguments are not decisive, we are left with the issue of foreclosure (the ‘everybody does it’ and the ‘business rationale’ arguments would not be relevant even before the wisest of competition authorities, as what matters in contemporary competition law, or so I want to believe, is not the motivation behind the behaviour, but its effects on the market). Besides the fact that foreclosure is plain irrelevant in tying cases according to the General Court, I will mention that, according to what I read the other day, Android’s market share is approaching 80%. This does not mean in any way that Android is dominant, let alone superdominant (and, again, very sensible arguments can be developed to show why this is not the case). But we all know strange things happen to law and policy when firms reach such market share levels.

What conclusions do I draw from the above? It seems to me that self-restraint is the only limit to the ability of the Commission to interfere with product design in high-technology industries. The second reflection relates to the behaviour of complainants. They cannot be blamed for taking advantage of the confusion created by the Microsoft saga around tying and bundling (i.e. for behaving opportunistically). One could even go as far as to claim that this saga created the expectation that the Commission will intervene when a firm’s market share approaches or exceeds 80%.

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Written by Alfonso Lamadrid

16 September 2013 at 8:44 am

4 Responses

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  1. Thanks so much, Pavel, for the kind words and the lucid comment.

    4 quick follow-up thoughts on your follow-up thoughts:

    – ON THE QUESTION ON WHETHER OR NOT THERE IS A BUNDLE, I see some differences. You’re saying that in the Microsoft cases there was no bundling because there was a single product (some would dispute it, but fine). The moment you consider (like the Commission did) that there were two distinct ptoducts, then the bundle was obvious. My point is that with regard to Android there would not be a bundle of Android with anything EVEN if we were to asume that there are distinct products at issue.

    – ON DOWNLOADING: I don’t want to get into a discussion on whether downloading is capable of offsetting the advantages derived from-preinstallation because that may vary according to the factual circumstances and evidence in each case. The smarphone market (where users are used to downloading many apps, and buy smartphones and not phones precisely to be able to download apps) seems in that regard very different from the PC world, where downloading is much less prevalent. What strikes me -even more because I’m an interesed party- is the double standard that the Commission has applied in the antitrust and merger areas in relation to the same platform (i.e. consumers would not download applications competing with WMP and IE, but they would download applications competing with Skype).

    – ON THE ROLE THAT THE GC ATTRIBUTED TO FORECLOSURE IN MICROSOFT: I don’t entirely agree with the statement that “the fact that foreclosure is plain irrelevant in tying cases according to the General Court”. In the Microsoft Judgment the Court actually ruled that foreclosure was an element that needed to be assessed separately and that it could not be automatically presumed whenever there was tying (see paras 867–68, 1031–35).

    I remember well, because Microsoft actually made remarkable and unusual argument that the Commission had deviated from the precedents, according to which it wouldn’t have had to assess the likelyhood of foreclosure (!) Surely that seemed to be against its interests, but they sure thought that in litigation any argument to support an annulment is good enough.

    – MOST IMPORTANTLY (because this goes to the heart of Art. 102 and is not fact-specific) I disagree with this: “(the ‘everybody does it’ and the ‘business rationale’ arguments would not be relevant even before the wisest of competition authorities, as what matters in contemporary competition law, or so I want to believe, is not the motivation behind the behaviour, but its effects on the market)”.

    I think that the “everybody does it” and the “business rationale” arguments are definately relevant, regardless of foreclosure. In my mind, in order for there to be an “abuse” there needs to be a “bad act” that distinguishes the conduct at issue from “competition on the merits” (wouldn’t successful merit-based competition also result in foreclosure?). Accordingly, the fact that a conduct has a legitimate (i.e. plausibly welfare enhancing) business motivation, or the fact that all competitors act the same way, should be relevant (isn´t that why we have “objective justifications” ?).

    In fact, the DC Court of Appeal rightly introduced both the foreclosure requirement and the “efficiency defence” when it set the rule of reason analytical framework to be applied to this sort of conduct. [The "efficiency defence" the Court referred to is very similar to what I meant with the "business rationale" argument; I never liked the "efficiency" terminology; call me a premature dinosaur, but I like the merit-based language better]

    Alfonso Lamadrid

    16 September 2013 at 1:48 pm

  2. Hi Alfonso!

    Some thoughts on what you say:

    – On the bundle: My point is that assuming that there are two products in Microsoft is assuming an awful lot already (by the way, I was re-reading this afternoon Hovenkamp’s Federal Antitrust Policy, hardly what you would call a pro-Chicago tract, and he takes it as a given that, for a tie-in to exist, the tying product must be sold separately from the tied product). Once you cross that Rubicon, it seems to me that any semi-plausible bundling claim is likely to go.

    – On downloading: I agree on the divergent standards seemingly endorsed by the Commission, which takes me to one of my main claims. It all boils down to the willingness of the Commission to intervene. It seems to me that you exaggerate the difference between smartphones and desktop PCs, but that is a factual claim that is not relevant for the point I made and which would in any event require an expert in technology (say, an Enrique).

    – On foreclosure: Para 1158 is one of the most remarkable passages (only rivaled by para. 665, clearly my favourite) of the Microsoft judgment. There the GC claims that the mere fact that WMP enjoyed a competitive advantage over rival products is in itself sufficient to establish an abuse. This is not what I call assessing foreclosure.

    – The ‘everybody does it’ and ‘business rationale’ defences, in the way you present them would not be relevant, at least under an effects-based approach. The fact that the dominant firm means does not exclude the application of competition law if rivals are driven out of the market. The Guidance Paper in fact assumes that many potentially abusive practices are the consequence of well-meaning business strategies. Under an effects-based approach, the obective justification would evaluate the overall effects of the practice, not whether the latter makes legitimate business sense. Of course, if you start talking about competition on the merits and ‘bad acts’ you would be doing a ‘Marty McFly’, but I am not sure you would be in favour of pre-Guidance enforcement.

    Pablo Ibanez

    16 September 2013 at 6:09 pm

  3. If you are able to draw the line between normal competition (‘competition on the merits’) and abusive conduct, you will be the first ever to make sense of a particularly arcane paragraph (which means you would also be invited to explain to my students a concept that I have thus far been unable to grasp ;-) ).

    Pablo Ibanez

    16 September 2013 at 9:24 pm

  4. Hi Pablo (as if we hadn’t talked a few times today…)

    – On the bundle: point taken; I wasn’t expressing any disagreement with your view, but rather making the follow-up point that the allegations regarding Android are hardly even semi-plausible.

    – On downloading we both agree as well. You’re probably right with regard to the differences between PCs and smartphones; I was only expressing an unsupported intuition: it would seem (intuitively, as an uninformed clumsy user) that there are apparent differences between smartphones and PCs, but I don’t have data nor is mine a qualified opinion, so I yield to the Enrique’s of this world on that.

    – On foreclosure: I’m not saying that the foreclosure analysis in Microsoft was or was not sophisticated enough (the Court assessed likelihood of foreclosure and the assessment seemed consistent with other findings in the Judgment with which one may disagree; admittedly, the analysis may not have been consistent with the evolution of the market following the adoption of the decision). My point was much narrower: that the Court does attribute a certain role (I get that you feel it only pays lip service) to foreclosure in tying cases.

    – On the “objective justification” point (which is perhaps the most interesting one here). I’m not saying that good intentions should exempt any conduct from the reach of Art. 102. Of course I don’t mean to say that conduct that makes business sense should be exempt either (for practically all, not only many, abuses would make business sense). My use of the expression “to make business sense” may have been equivocal (I used it essentially as a synomim to “meeting competition” -remember: “everyone does it too”- if you like that better).

    What I mean to say is that competition on the merits that forecloses competitors should not be prohibited. Otherwise ANY successful conduct by a dominant firm could risk being regarded as abusive (therefore we would almost be prohibiting dominance itself); wouldn’t it? I do think that you need a “bad act”, an element of inappropriateness if you will. That’s Hoffman La Roche ( which, forgive the sin :) to me is more valid than the Guidance Paper): “through recourse to methods different from those which condition normal competition”. However unhelpful and incomplete, that makes sense.

    I obviously seem to have trouble accepting effects as a sole and sufficient criterion to tell what’s legal and what’s not.

    That said, I don’t think I’ll be able to offer a conclusive definition of what an abuse is (nor one that would even satisfy me), so this is postponed and I´m off to dinner.

    In any event, thanks for the discussion. It’s interesting to argue about things that should, and that it in any other disciple would, be well settled.

    Alfonso Lamadrid

    16 September 2013 at 8:31 pm


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