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Archive for June 27th, 2017

Google Shopping Decision- First Urgent Comments

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google-shopping

 

Today is an important day for EU competition law. For various reasons I have not commented publicly on Google’s cases for over two years now (for our previous extensive coverage, see here) The most recent of those reasons is that whereas I used to be a neutral observer (like Pablo still is) I have recently started advising Google in some competition matters, although as of today not directly on the Shopping case.

Today seems like an appropriate day to break that silence. Pablo and I were both invited by CCIA to participate in a press briefing call in which we explained the case and gave our views about it to a bunch of journalists. In anticipation of that call I hastily drafted the urgency thoughts that are the basis of this post. By the way, Pablo and I will again be speaking about this case on 11 July at this forthcoming Queen Mary University of London event, and, for the sake of neutrality, he will be the one covering the case here and elsewhere afterwards.

DISCLAIMER: Before you continue reading, please bear in mind that, even if I’m not working on this case, and even if my views have not changed, I am certainly not neutral (as I once was). So please take what I say with as many pinches of salt you wish and judge it only by its merits. To be sure, my preliminary opinions might very well not coincide with Google’s, as it may have other views and certainly has other lawyers who will surely have more views.

What the case is about

The case is not about manipulation or skewing of organic search results, as some have wrongly stated. It is about the display of product results and product ads. And it is only about the so-called comparison shopping market, of which most EU consumers had probably never heard about. The very assumption that such a market exists is far from straightforward, but there are other more profound and far-reaching concerns that we will try to very quickly outline in this post.

Google provides a free search service to consumers and it monetizes this service via advertisements. Today’s decision states that Google cannot favor its own product ads –the very same ones that make its services possible- over those of competitors. This is remarkable and wholly unprecedented.

To illustrate what this means, a useful analogy may be to think about a newspaper (a business models that is also funded via ads). What the Commission is doing is the equivalent of asking this newspaper to carry/publish the advertising service of competing newspapers and in equal conditions whatever that means (same placement, length or size, possibly even almost for free) and without getting the revenue. Another valid analogy is that of a supermarket obliged not to favor its own products, even if it is not the only supermarket around. The implications for vertically integrated companies in virtually every industry are potentially enormous.

Searching for the harm

Searching for the harm to competition and consumers is particularly challenging here. The Commission stated today that Google deprives consumers of choice to buy and compare prices online. That is the very fundamental idea at the foundation of the case. In my view, however, consumers could hardly have more choice when it comes to comparing prices and buying online. Whatever Google does cannot affect that. If you now want to buy any product you can search in Google, but you can also do so via apps, all merchant sites, platforms like Amazon, ebay, visit directly price comparison websites, outlets like Zalando, etc. Consumers have choice within Google and outside of Google. Even if Google price comparison results are more visible on a Google site, there is nothing precluding consumers from visiting any other site.

Tellingly, the Commission is indeed not claiming that there is direct harm to consumers but only assuming that somehow consumers will suffer from a decrease of traffic of price comparison websites even if the latter are not foreclosed. The Commission is thus equating any sort of alleged competitive advantage or disadvantage with anticompetitive effects; in my view, this is a very loose notion of consumer harm and a very long shot.

The facts and the evidence

In order to build this case the Commission focuses on a very small number of shopping comparison sites (aggregators) and concludes that they constitute a relevant market of their own. In my personal opinion this is quite counterintuitive and problematic. First, because it ignores hundreds of other aggregators. Second, because it also ignores that consumers do not only buy online through price comparison sites; indeed, the decision remarkably ignores the role of merchant platforms that also enable consumers to compare prices and buy. The players active in online sales, be it Google, Amazon, ebay, Zalando, any store or any individual merchant or manufacturer all face fierce competition. Third, the decision ignores that even if Google’s results enjoyed better display, consumers are not locked in, they can and do visit other websites other than Google before buying on the internet. The Commission says there is a link between visibility in Google and number of clicks received, but, again, this ignores the fact that consumers do not just buy online via Google. Even if Google’s results were more visible, there is nothing precluding consumers from visiting another site. There are certainly no technical or economic barriers for that, and this is what matters according to the most recent case law Third, and importantly, the Commission’s concern in this case is that some price comparison websites have lost traffic. In that case the Commission would have to prove with convincing evidence that this loss of traffic is due to Google’s display of product ads. This is certainly not easy, as there are many other more plausible, and indeed more likely, explanations (like the fact that consumers now prefer to buy directly on the merchants’ sites, in apps or in other platforms). The UK High Court and Justice Roth understood this perfectly in the Streetmaps Judgment with regard to a very similar theory of harm (see here).

The Law

But what I mostly care about is the law. Commissioner Vestager –whom you know is well-liked by this blog- explained today that DG Comp has reviewed 5.2 Terabytes of information. I do not doubt for a second that the smart people in the case team dealing with the case worked hard and thoroughly, but 5.2 Terabytes of information is meaningless if the law is then discussed quickly in just a few paragraphs and if the legal test is wrong.

From a legal standpoint, this case is unprecedented; there has never been a case like this, in Europe or anywhere else, and the implications are incredibly far-reaching. This is perhaps why for many years the Commission tried to avoid an infringement decision and rather preferred to settle with Google.

The first reason why the case is unprecedented is because it establishes the principle that a company may not favor its own services over those of competitors. Companies everywhere –dominant or not- logically favor their own services when they buy and sell goods or services even if this does not result in foreclosure. Vertical integration is everywhere, and it is in the very nature of multi-sided platforms.  Hampering their ability to promote their services (in spite of no evidence of rival foreclosure) implies not allowing them to decide how to best provide their services. Legally, a firm can only be obliged to deal with or assist competitors when this is indispensable for competition to exist in a different market. This is the test that has consistently been used in EU Law. But the Commission considers this case law not to be applicable and wants to extend the scope of the law. The implications are incredibly far-reaching (actually, I think I said that already…)

Indeed, the Press Release suggests that the Commission does not argue indispensability, but merely that Google grants itself a convenient advantage. So the Commission does not label Google as an essential facility (because that would be pretty hard to do given the high legal standard), but it does treat Google as if it were, thus bypassing that legal standard. I fail to see how what is the logic or consistency of this reasoning against the backdrop of the relevant case law. In my view, and not having yet read the decision, this suggests a possible bypassing of established legal rules and standards with ad-hoc case specific theories and remedies, thereby risking turning the prohibition of abuses of dominance into the realm of the arbitrary.

The second reason why the case is unprecedented is because the alleged abuse is at its core a product improvement. The combination of specialized and general results (what Google is accused of) is something that is also done by other search engines, including Microsoft’s Bing and Yahoo! Everyone does it because it is best for users to get a direct response (if you search for an address, you get a map; if you search for a product, you are taken directly to the product, not to another intermediary). A product improvement that disadvantages rivals is not anticompetitive. Or at the very least one would have to trade off pro and anticompetitive effects, which is something that I very much doubt the Commission has done, essentially because no one knows how to do it. And in the face of doubt a sanction is not appropriate. This wall very well explained in Streetmaps and it was understood by all other competition authorities who have had the chance to examine these practices.

The remedy

The Fine: The Commission has imposed today the largest fine ever imposed on a single company doubling the previous record. What is remarkable is that this fine has been imposed after years of negotiating commitments (which are only possible in cases where “the Commission does not intend to impose a fine”), in relation to conduct that had never been found unlawful, that is actually considered lawful in other jurisdictions, that no lawyer would have anticipated to be unlawful and that takes place in a relatively small and competitive market. In previous cases, the Commission declined to impose a fine when its case was novel and had no precedents. This is actually the first case in which conduct that was found suitable for a commitment decision receives a fine (see the Motorola/Samsung and Mastercard/Visa precedents).

Future compliance: I do not know how this is framed in the decision. The Commission has stated today that it has not given any precise indications and that it is up to Google to come up with a solution that does not have the same effect.

In competition cases remedies need to fit the Commission’s theory of harm. In this case, however, there is no clear remedy fitting the unprecedented theory set out in the decision. Having ordered a remedy in the decision would have probably exposed the flaws in its reasoning. Possibly to avoid that risk the Commission has stated that it is up to Google to craft a remedy that is neutral –whatever that means- and that removes the problem. I preliminarily see two problems here:

  • The first is, how can Google remove effects that it arguably did not cause in the first place? If Google is right and the loss of traffic on the part of the companies considered by the Commission is attributable to something other than Google’s conduct, how can Google fix that? And how can the Commissioner assess whether the remedy is effective? It would seem as if the Commission were requiring Google to artificially maximize the traffic received by some specific category of its rivals (price aggregators) which certainly would not be neutral.
  • The second problem is wider. The Commission says whatever Google does must be neutral, but it does not define what neutral means. This undefined notion is particularly problematic when applied to a business which by definition has to rank search results.

Admittedly, Google could simply decide to shut down the service and not offer product results in Europe. This would be perfectly plausible and legal, and is actually what Google did with Google News in Spain back in the day, only to show that this benefited no one.

Effect on other Google products.

The Commission has stated that this decision is now a precedent and the starting point to look at other Google’s services. Firstly, this implicitly means that there was no earlier precedent and thus confirms the novel nature of the case.  Secondly, the Commission could have run a case comprising all verticals, but it didn’t, and it must be because it thought this was the easiest to run for some reason. That may have to do with market definition, or because evidence in other verticals did not match the theory. If the Commission decided not to run those cases, it must be for a reason. My personal view is that this technique of picking the preferred sample to then extrapolate results would not be an acceptable shortcut.

Conclusion. In order to make this case possible the Commission first had to change the stance it held for years during the commitment negotiations and now has had to craft a new legal theory without clear legal foundations, prohibit a conduct validated in every other jurisdiction, assume dominance against the indications of the case law, define a relevant market ignoring the main actors active in online shopping, ignore the fact that consumers are not locked-in Google, assume that the loss of traffic of some specific companies is due to Google not considering other plausible scenarios and avoid spelling out a remedy. In my non-neutral view, it is a remarkable decision indeed.

Written by Alfonso Lamadrid

27 June 2017 at 8:18 pm

Posted in Uncategorized