January 5, 2022
On November 10, 2021, the European Union’s General Court issued a decision largely upholding the European Commission’s finding that Google abused its dominant position by favoring results from its own comparison-shopping service over those from competing shopping services, and further upholding a €2.4 billion ($2.8 billion) fine against the search giant. The decision sent a warning shot around the world. Was this warning shot a reminder that conduct that largely evades U.S. law may still be more easily condemned under EU law? Was it an example of anticompetitive scrutiny of vertical conduct and the risks dominant firms face when they seek to grow in adjacent markets? Or was it the magnitude of a government fine that surpassed even the largest U.S. antitrust verdicts, without any showing of consumer injury? Most likely, it was a combination of all three, providing significant lessons for companies to consider coming into the new year.
Years before the pandemic, consumers worldwide expressed wide acceptance, and, in many cases, a preference, for shopping online. Companies that sell products and services to the general public invested heavily to expand and advertise their online marketplaces. And consumers accordingly had interest in and benefitted from tools enabling them to find with greater accuracy and speed the precise goods and services they sought. There is no question that the application of advanced search functionality to merchant websites simplified and improved the user experience, generally increased the volume and pace of sales, and advanced competition. Google capitalized on this.
One of Google’s long-term strategies has been to utilize its dominant search-algorithms to compete in online shopping, a form of vertical expansion.1 The same strategy is also a source of antitrust scrutiny.2 Specifically, Google adopted a business model as part of its rebranded Google Shopping service in 2012, in which merchants would partner with Google and pay Google when consumers clicked on their product from Google’s specialized Google Shopping website. This gave Google a vested financial interest in steering consumers who searched generally for products and services to its own shopping services rather than to other shopping services. For example, the EU General Court found that when consumers searched Google for products or services available in Google Shopping, Google formidably presented search results that included its own comparison-shopping service but gave lower and diminished presentation to competing shopping services.
Theoretically, because of its search dominance, Google is capable of restraining competition by diverting open-minded shoppers who search for specific products and services to Google’s site, effectively preventing shoppers from finding other shopping services. That would be complete foreclosure, which Google has not been accused of.
The facts of the European Commission’s case against Google—that resulted in a €2.4 billion fine—are not so extreme. While Google undisputedly built in preferences that favor Google’s shopping service (e.g., premium placement), over others, consumers could still see and reach those other shopping services sites, which were generally listed lower within Google’s results.3 Rather than any true diversion, Google merely placed its own favored results in a primary position relative to other merchant results.
That the practices of Google Shopping resulted in a €2.4 billion fine shows a clear divergence between how U.S. and EU competition laws currently treat such conduct. The EU result also provides a warning on how peeling back the safeguards of U.S. antitrust law could have a profound outcome.
II. Google and Alphabet v. Commission (EU Google Shopping Case)
A. The 2017 Case
In June 2017, the European Commission for Competition levied a €2.4 billion ($2.8 billion) fine on Google for violating EU competition law in presenting its search users with its own comparison-shopping service over competitors’ shopping services. The Commission found that Google abused its dominant position in the market for online general search services. Commissioner Margrethe Vestager stated that Google “denied other companies the chance to compete on the merits and to innovate. And . . . it denied European consumers a genuine choice of services and the full benefits of innovation.”4 The fine—the largest in EU history—was accompanied by a directive for Google to change its search algorithms and related processes to treat rival companies equally to Google’s own shopping services within Google’s search results.
Google was given 90 days to comply with the fine and directive. If Google did not comply, the Commission stated that it would levy additional fines of up to 5% of its parent company, Alphabet’s, worldwide daily sales revenue. Google disagreed with the Commission’s conclusions and appealed the decision.5
B. The 2021 Appeal
On appeal, the EU General Court noted that “an undertaking’s dominant position alone, even one on the scale of Google’s, is not a ground of criticism of the undertaking concerned, even if it is planning to expand into a neighboring market.”6 Nonetheless, the Court still determined that Google abused its dominant position by highlighting the results of its own comparison shopping service within its search results and by pushing down the results of competitors’ pages.
In reaching this conclusion, the Court looked at three factors:
(i) the importance of the traffic generated by Google’s general search engine for comparison-shopping services;
(ii) the behavior of users, who typically concentrate on the first few results; and
(iii) the large proportion of “diverted” traffic in the traffic of comparison-shopping services and the fact that it cannot be effectively replaced.7
Analyzing these factors, the Court found that: (1) Google weakened competition in the “comparison shopping services market;” (2) the general results page was akin to an essential facility such that no economically viable substitute or potential substitute was available on the market; and (3) Google treated certain results differently based on their origin without any objective justifications. The Court did not require a showing by the Commission of a substantial risk or actual occurrence of a significant consumer injury resulting from Google’s conduct. Indeed, analyzing the further implications of Google’s conduct, the Court found that the Commission failed to prove that Google’s placement of its competitors had a harmful effect on the larger general search services market, reversing that portion of the Commission’s decision. Despite overturning this charge, the Court upheld the full fine.
III. Implications and Analysis
The fine imposed on Google was more than two times the previous EU record-fine for abuse of dominant position.8 Moreover, the General Court acknowledged that there was no demonstrable negative effect on consumers beyond the mere allegation of consumers having “less choice.” So how did we get here?
The EU Google decisions represent an aggressive application of abuse of dominance and are likely influenced by a broad hostility to the competitive expansion of large global tech companies, including Google, Amazon, Facebook, Apple, and others. In many respects, the European Commission has lead the charge on the dissent to vertical integration. Back in 2008, the EU issued guidelines to scrutinize “non-horizontal” mergers.9 These guidelines look not only to the effect on actual consumers but also to “intermediate consumers,” which includes “potential competitors of parties to a merger.”10 Moreover, rather than encouraging innovation, the EU guidelines look disfavorably upon companies that are “likely to expand significantly . . . e.g. because of a recent innovation.”11
Historically, U.S. antitrust law has looked favorably upon the procompetitive virtues of vertical integration—that is, the cost reduction and efficiency that follows when multiple components of the distribution chain come together. That said, there is also a risk that a legal monopoly in one field can be exploited to unreasonably monopolize another. This was the driver of a rare U.S. monopolization verdict in United States v. Microsoft,12 where Microsoft was found to have used its lawful operating system monopoly to unlawfully monopolize certain applications that ran on its operating system, most notably web-browsing. The foreclosure in that case was crippling.13 To support a monopolization claim, U.S. Courts require a showing of anticompetitive effect, such as substantial foreclosure of competition.14 Furthermore, U.S. Courts require a showing of substantial risk or actual occurrence of a significant consumer injury (though not necessarily in the form of higher prices). Google’s conduct on its face satisfies neither requirement.
But the general support of vertical integration in the U.S. has recently come under scrutiny, with antitrust leaders who are skeptical of large technology companies—including, most notably, U.S. FTC Chair Lina Khan—disputing the economics favoring vertical integration.15 In a public statement on behalf of the FTC, Chairman Khan expressed concern over the increasing number of mergers and consolidations taking place in the U.S., and called for further changes to the Vertical Merger Guidelines beyond its 2020 revision.16 Moreover, Chairman Khan advocated for even stricter policing of vertical mergers, “even if [such policing is] outside the ambit of the Sherman or Clayton Acts.”17
The FTC is not alone. Other business-skeptical advocates are working on legislation that would enable federal and state governments, as well as competitors and consumers, to challenge similar conduct to that of Google.18 For example, a bill currently in the U.S. Senate seeks to amend the Clayton act to (1) punish potentially unlawful mergers in their “incipiency,” (2) punish monopsonies in addition to monopolies, and (3) allow the DOJ and FTC “to craft remedies for individual violations that are effective to deter future unlawful conduct.”19 This effectively enables enforcement authorities to target dominant firms and impose excessive fines akin to the EU Competition Commissioner’s fine on Google. Likewise, a bill pending before New York’s State Assembly would drastically expand New York’s Donnelly Antitrust Act by specifically targeting big tech companies, adopting the EU’s “abuse of dominance” standard, and allowing private citizens’ recovery of treble damages for any violations within the past five years.20 Additionally, the law would require courts to apply a per se antitrust standard,21 effectively stripping defendants of the opportunity to demonstrate the procompetitive justifications for their conduct.
While the U.S. is not yet issuing multi-billion dollar fines for conduct that has only partial foreclosure and no demonstrable risk of consumer injury, the current state of affairs in the federal and state governments raise concern. U.S. companies should heed recent EU Antitrust decisions, such as the recent EU Google decision, as a warning – both of how to conduct business within the EU, and of the push by aggressive advocates who seek to introduce EU-like vertical standards in the U.S.
1 Google 2013 10-K, at 28, available at: https://www.sec.gov/Archives/edgar/data/1288776/000128877614000020/goog2013123110-k.htm.
2 Like U.S. antitrust law (specifically, Section 2 of the Sherman Act), EU competition law permits companies to achieve and maintain market dominance so long as they do not use anticompetitive means of doing so. EU law specifically prohibits abuse of a dominant position in instances where “the dominant undertaking, through recourse to methods different from those governing normal competition, hinders the maintenance of the degree of competition in the market or the growth of that competition, and that that may be established merely by demonstrating that its conduct is capable of restricting competition.” General Court of the European Union Press Release 197/21.
3 Of course, nothing forecloses a consumer from reaching merchants directly or through other search engines.
4 Margrethe Vestager, Statement by Commissioner Vestager on Commission Decision to Fine Google €2.42 Billion for Abusing Dominance as Search Engine by Giving Illegal Advantage to Own Comparison Shopping Service, European Commission (June 27, 2017).
5 In April 2020, Google changed its algorithm, purportedly putting it in compliance with the EC’s 2017 decision.
6 General Court of the European Union Press Release 197/21.
8 The prior record was a $1.2 billion fine levied against Intel, another American company, in 2009.
9 The two types of non-horizontal mergers specified in the EU’s guidelines are vertical and conglomerate mergers.
10 Guidelines on the Assessment of Non-Horizontal Mergers Under the Council Regulation on the Control of Concentrations Between Undertakings (2008/C 265/07), at §16.
11 Id. at §26(a).
12 253 F.3d 34 (D.C. Cir. 2001).
14 See Viazis v. Am. Ass’n of Orthodontists, 314 F.3d 758 (5th Cir. 2002) (plaintiff failed to meet burden of demonstrating anticompetitive effect); Cal. Dental Ass’n v. FTC, 224 F.3d 942 (9th Cir. 2000) (same).
15 See, e.g., Lina M. Khan, Amazon’s Antitrust Paradox, 126 Yale L.J. 710 (2017) (using Amazon as an example, arguing that prior administrations have not scrutinized vertical mergers closely enough, and that vertical mergers tend to foreclose competition from rivals).
16 See Statement of Chair Lina M. Khan et al. on the Withdrawal of the Vertical Merger Guidelines.
17 FTC Rescinds 2015 Policy that Limited Its Enforcement Ability Under the FTC Act, Federal Trade Commission (July 1, 2021).
18 See, e.g., H.R. 3826, 117th Cong. (2021); S. 225, 117th Cong. (2021).
19 S. 225, 117th Cong. (2021).
20 New York State Senate Bill S933A.
21 Under current U.S. law, a per se / quick look is only appropriate where the “anticompetitive effects of given restraints are . . . intuitively obvious.” Cal. Dental Ass’n v. FTC, 526 U.S. 756, 759 (1999). All other cases require application of the rule of reason analysis. Id.