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Archive for September 28th, 2021

On the Android hearing (Case T-604/18): when competition law challenges business models

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Article Teaser: How Google Makes Money from Android

Few cases are as exciting and potentially as consequential as Android. The hearing before the General Court is now well under way. For us outside observers, Lewis Crofts‘ quasi-live tweeting is truly invaluable (witty and insightful as ever, and this time with a fascinating digression about the differences between the dental and the alveolar ‘d’ in MADA).

Today’s session was devoted to the tying aspects of the decision. In this respect, the case is more interesting than the Microsoft saga (and thus not simply a re-run of it). In the latter, the Commission did not question Microsoft’s monetisation strategy: the dominant firm could carry on making money via licensing Windows and other software, just as it had done prior to the decision.

In Android, on the other hand, the Commission challenged the primary mechanism through which the firm monetised its assets (the licensing, free of charge, of a set of applications conditional on their pre-installation). As I have explained before, the decision is akin to finding that a free-to-air broadcaster’s business model (which involves the bundling of content and advertising) is anticompetitive.

Does it make a difference that a decision finds that the core of a firm’s monetisation strategy (as opposed to a peripheral aspect thereof) is anticompetitive? As I tried to explain in this paper on product design and business models, it does. Does the case law account for that difference? I think so.

I can gather from Lewis’ tweeting that the counterfactual was at the heart of the discussion. This is hardly surprising (I already identified the point in this post, drafted a lifetime ago). The identification of the relevant counterfactual is inevitably more complex when intervention in a case challenges the firm’s very business model, as in Android.

Arguing that a particular monetisation strategy restricts competition means little unless we identify a relevant benchmark against which the validity of the claim can be assessed. If a business model is said to be anticompetitive, the question should be: ‘anticompetitive compared to what?’. What does the but-for world look like? Can we say that the strategy restricts competition that would otherwise have existed?

From the outset, the Court emphasised the need, for an authority or claimant, to identify the counterfactual against which effects are established. Competition, the ECJ told us in Société Technique Minière, must be understood as such competition which would have existed in the absence of the contentious practice.

This analysis may reveal that there is no restriction of competition after all. Perhaps the monetisation strategy was objectively necessary for the firm. Perhaps an alternative business model would have made room for less, not more, competition. Nothing in the case law suggests that dominant firms are not entitled to monetise their assets. For the same reason, one cannot simply assume that the but-for world is one in which rivals would have had the same opportunities to compete.

The bottomline, in theory and practice: one cannot take for granted the positive or uncontroversial aspects of a business model and assume that they would remain untouched when other aspects, deemed undesirable, are removed or tinkered with. If a monetisation strategy is challenged, it is challenged with all the consequences (both intended and unintended). A meaningful analysis of its impact can only consider them without exceptions.

There are not many details, so far, about how the counterfactual was discussed at the hearing, and in how much detail. It will be fascinating to see how the General Court engages with it in the judgment. Lewis did mention that the burden of proof came up (which was predictable, as it is a crucial step when establishing the actual or potential effects of a practice).

As far as I can gather, the discussions about the meaning of anticompetitive effects have also been interesting. And I look forward to the discussions around the AFA aspects of the case (by far the most interesting in my view, if only due to the absence of obvious precedents). Hopefully I will be able to write about both. To end on a predictable note: nothing to disclose.

Written by Pablo Ibanez Colomo

28 September 2021 at 5:27 pm

Posted in Uncategorized