Google appeals against record $5billion fine for stifling competitors

Google appeals against record $5billion fine for stifling competitors

September 27, 2021

Google accuses the EU of ignoring rival Apple as tech giant appeals record $5billion fine for stifling its competitors

  • Google is appealing record $5billion anti-competition fine it was handed in 2018 
  • EU found Google pressured phone-makers to use its apps, unfairly hurting rivals
  • Google’s lawyer today argued the EU ignored its main rival Apple in that ruling 
  • Fine is the largest of three billion-dollar penalties Google was handed between 2017 and 2019 in cases led by competition Tsar Margrethe Vestager

Google is appealing a record $5billion fine it was handed by the EU in 2018 for illegally stifling it competitors. 

The European Commission fined the tech giant after finding that it unfairly pressured phone-makers using its Android operating system to pre-install other Google apps on their devices.

But Google’s lawyers hit back at a court in Luxembourg today, saying the EU had completely ignored the existence of its biggest rival Apple in their ruling and that Android is actually ‘an exceptional success story of the power of competition’. 

Meredith Pickford, Google’s lawyer, began his day before the five-judge panel by arguing that the EU had ‘shut its eyes to the real competitive dynamic in this industry, that between Apple and Android.’

Google is appealing a $5billion fine it was handed in 2018 for unfairly squeezing out competition by arguing the ruling completely ignored its main rival, Apple

As evidence, he pointed to the Commission’s finding that Google ‘controls over 95 per cent of the market for smart mobile operating systems available for licence.’ 

But the 95 per cent figure does not include Apple, Mr Pickford said, because Apple’s iOS is not available on licence – meaning only phones made by Apple can use it. 

Google’s Android system is free-to-use for phone-makers, but comes with certain conditions attached.

‘By defining markets too narrowly and downplaying the potent constraint imposed by the highly powerful Apple, the Commission has mistakenly found Google to be dominant in mobile operating systems and app stores, when it was in fact a vigorous market disrupter,’ Mr Pickford told the court. 

Commission lawyer Nicholas Khan dismissed Apple’s role because of its small market share compared with Android.

‘Bringing Apple into the picture doesn’t change things very much. Google and Apple pursue different models,’ he told the court.

‘Google’s conduct denied any opportunity for competition.’

Android, which is free for device makers to use but comes with a number of conditions attached, is found on about 80 per cent of the world’s smartphones. 

Lobbying group FairSearch, whose complaint triggered the Commission case, was however scathing about Google’s tactics with phone makers.

‘Google adopted a classic bait and switch strategy. It hooked (them) on a supposedly free and open source operating system subsidised by its search monopoly, only to shut that system to competition through the web of restrictions at issue in this case,’ its lawyer Thomas Vinje told the court.

German phone maker Gigaset Communications GmbH, which is backing Google, said its success was due to Android’s open platform and lamented the negative impact of the Commission’s decision on its business.

‘The licence fee for the Play Store that Google now charges as a result of the contested decision represents a significant portion of the price of Gigaset’s smartphones aimed at price-sensitive consumers,’ lawyer Jean-François Bellis said.

The $5billion fine was the largest of three penalties the EU slapped on Google during an intense period of litigation between 2017 and 2019, led by competition Tsar Margrethe Vestager.

The lawsuit ended when the European Commission found that Google had abused its market position to pressure phone-makers into installing its apps on their devices at the cost of smaller rivals.  

First, they found that Google had illegally ‘tied’ its Chrome web browser and Google Search app to its Play Store app – meaning smartphone manufacturers who wanted to install Play Store were forced to install the other two apps on their phones as well.

Manufacturers told the Commission that Play Store was a ‘must-have’ app because if it is not pre-installed then users cannot download it themselves. It is also the place where most Android apps are available. 

This gave Google an unfair advantage, the Commission found, because users were unlikely to seek out another web browser or search app and instead used the pre-installed ones.

As an example, they cited data which showed 95 per cent of searches were made using Chrome on Android phones – compared to just 25 per cent on Windows, where it is not installed by default.

Second, the Commission found that Google had offered payments to phone-makers to only install its Search app across every Android phone they manufactured.

If any one phone was excluded from the deal, then Google refused to pay up for all of the phones. 

They found this was unfair to smaller rivals because it meant that, in order to buy exclusivity for their apps on only one handset, rival firms had to compensate the phone-maker for a loss of revenue across all their handsets.

The appeal is a big test for Margrethe Vestager, the EU’s competition Tsar, who last year lost a major appeal by Apple over $15billion in taxes

Finally, the commission found that Google banned phone-makers who wanted to use their Android system on any one of their phones from using different versions of the system on any of their devices.

This was a particular blow to Amazon, whose ‘Fire’ operating system is a version of Google’s Android system.

The ban meant that any phone-maker wishing to sell one device with ‘Fire iOS’ installed would be barred from using regular Android on every other device it sold. 

Ultimately, the Commission ordered Google to pay $5billion – the largest anti-competition fine it had ever issued.

It came after Google was fined $2.7billion fine in 2017 over its shopping comparison service, and before a $1.75 billion fine in 2019 over its search bar.

The most-recent appeal will be a huge test for Vestager, who is currently leading another wide-ranging probe into the way Google makes money from advertising.

Vestager, who was once hailed as the scourge of big tech and whose cases set off a tsunami of lawsuits against firms such as Google and Apple, last year lost a major appeal over Apple’s tax affairs in Ireland. 

In 2016, the European Commission had ordered Apple to pay the government of Ireland $15billion in back-taxes that it said had not been collected.

But Ireland – which offers tax breaks to tech companies as an incentive to set up there – and Apple appealed, and in July last year the order was annulled.

Ms Vestager has since appealed the annulment – saying the court ‘has made a number of errors of law.’

She is also in the process of shaping new legislation to regulate Big Tech more closely, frustrated at the time it takes to pursue big competition cases. 

Known as the Digital Markets Act, the new law would set up a rulebook of Do’s and Don’ts for Big Tech companies such as Google and Facebook.

This could include specific bans or limits on such companies promoting their own services on platforms.

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