Preiskel’s Stephen Dnes shares some thoughts on the Google case.
In professional sport, it would be unusual to take seven to ten years to warm up for an event. The accurate word for that activity would perhaps be “spectator”: a champion in the same sense that a viewer of televised golf might be the next Tiger Woods—theoretically. Of course, the issues involved in complex cases call for judgment. But even if the aphorism that wisdom takes a lifetime to accumulate is true, it would still be unwise to take a (second) lifetime attempting to exercise it, posthumously.
The timeliness of Commission action in the Google case is a worthy subject of debate, not least in fast-moving innovative markets requiring fast remedies measured in months, not the near-decade seen before today’s action. With this need for timely enforcement in mind, it is worth revisiting the heart of the case: namely, why foreclosure concerns arise in cases of technological integration, and why timely enforcement matters especially in markets displaying tipping towards dominant platform providers.
Here, there is a long-standing debate on the optimal approach to product integration by parties holding market power: in the nomenclature of the cognoscenti, “technological tying” has become extremely topical as technology has advanced. As the case involves innovative products, some may accuse the Commission of professing itself the judge and jury when it comes to deciding whether product integration benefits consumers. A classic example, frequently cited here, is the integration of automobiles and radios: those with long memories or a fondness for classic automobiles will attest that these were separate products until the 1960s. Few would argue that customers have not benefited from being able to purchase a pre-integrated radio system, rather than having to go on a separate radio shopping spree. But there, competition remained at a wholesale level, between radio manufacturers and automobile manufacturers: competition moved as transaction structures changed, but it remained very strong.
By contrast, when it comes to Google’s online platforms—or Microsoft’s operating system before, or IBM’s computer systems before that—market power over the integration decision introduces risks (not always realised) that monopoly rather than competition will drive product integration choices. It may be that even some monopolists have an interest in maximizing platform use, but under conditions of market power a risk arises that the wholesale level is carefully choreographed in the interests of dominant providers, especially where: (i) network effects lead to tipping to dominant providers and (ii) differentiated consumer demand profiles introduce scope for increased profits from demand profiling. The bottom line is that there is no guarantee that the integration decisions are efficient: decisions may seek to maximize revenue, but not consumer welfare, there being limited scope for competitive discipline on the integration process. In other words, products might be integrated primarily to further the interests of the platform owner, rather than the interests of platform users, at least where consumers are unlikely to switch away from the platform.
For this reason, both EU and U.S. antitrust law impose limits on product integration under conditions of market power (albeit these bans differ in their intensity), to manage the risk to consumer welfare from self-serving integration decisions that have the potential to exclude more efficient rivals. The law does not rely solely on self-healing “perennial gales of creative destruction” when significant, costly, and complex networks are involved, but instead applies carefully designed limits to preserve the consumer interest in competitive platform dynamics. The point is especially clear in physical network industries: few would argue that AT&T should have been allowed to keep a vertically integrated monopoly from handset equipment to long-distance calling, for example, for precisely these reasons. In this, the Google case is nothing new – and perhaps not even all that controversial. So, the first mystery with the case is why it has taken quite so long to resolve, when the issues are well-known and have been analysed many times before.
One thing that can be said is that the record €2.42 billion fine the EU Commission announced for anticompetitive practices in relation to Google’s online shopping service is, at long last, a sign of life in this lengthy saga: the comatose investigation has awakened. This raises important questions as the remedy shapes up, not least for entrepreneurs who may have faced issues with foreclosure in online market places.
The most important points turn on the scope for “follow-on” cases using the decision as evidence to seek damages in the courts, and the need for meaningful compliance mechanisms.
Follow-on cases: For years, the Commission has very publicly and very firmly advocated an increased role for private enforcement of competition law to achieve redress, and to close an enforcement gap. Here, then, is the golden opportunity for the Commission to demonstrate commitment to its proposals at a time when many are questioning the impact and prospects of the damages directive. Those affected by foreclosure may have lost businesses and are likely to have valid claims, and while they “lawyer up” the Commission can show that it is on their side.
It is unclear that this fine is a “remedy” in the full sense of the word. For a remedy to be truly effective, it must place the victim of antitrust infringement in the position it would have been save for that infringement.
Here, a meaningful remedy means making life easy for affected parties to bring follow-on actions by clear definition of, at least: (i) relevant markets, (ii) dominance, (iii) abuse, (iv) foreclosure, (v) causation and (vi) the absence of justification for the conduct. This information will have been gathered, and should be shared if the Commission is sincere in its desire to enable compensation.
The Commission should be especially wary of Trojan horse confidentiality assertions that make life hard for plaintiffs—and should certainly not be hoodwinked into thinking that confidentiality exists for information that is often in the public domain from discovery processes in overseas litigation and securities disclosure laws.
Certainly, the Commission is likely to want to avoid a repeat of the Streetmap v. Google case, where the English High Court arrived at the conclusion that abuse was real but not worth caring about in the context of technology markets—in stark contrast with today’s decision and with EU-level jurisprudence stressing the importance of maintaining competitive market structure.
Monitoring: The Prohibition Decision talks in terms of forcing Google to end the practice within 90 days. But it is not clear what this means in terms of ensuring compliance. Presumably, close monitoring is called for, on an objective and verifiable basis, providing information to industry to allow independent verification of non-discriminatory treatment. That is, of course, the lesson from network industry liberalisation and the attendant need for information flows and compliance efforts to prevent abuse of market power. Compliance trustees, as seen in the U.S. Microsoft cases of the 1990s, are indispensable.
Indeed, there would be great potential embarrassment if the practical impact of the prohibition decision falls short of the commitments packages the Commission repeatedly rejected for insufficiency: that truly would be a victory for a delay-and-distract (“walking slowly backwards”) legal strategy often seen from dominant companies; and by the same token, a Pyrrhic victory for the Commission. Thus, the commitments packages should be borne in mind in determining a baseline of compliant conduct—while keeping in mind that the commitments were not seen to go far enough. Indeed, there would be great logical problems in enforcement of a prohibition decision stopping short of that baseline.
The response from Google suggesting that its shopping service exists in a market for online shopping including Amazon comes as no surprise, and significantly understates the important role of the law in keeping markets competitive for consumer benefit: even if there truly were competition between Amazon and Google on these points, that duopoly would not be the same thing as the competitive marketplace the law seeks to protect; the response oversimplifies a nuanced debate.
Has the Commission done enough, fast enough? Resolving an element of the case is fine, but it does not directly help those companies affected: that will come from the follow-on actions detailed above. Indeed, while this may be the largest fine the Commission has imposed on a company for abuse of a dominant position, it may not undermine the incentive for dominant companies to foreclose competition in valuable markets relative to significant profitability from foreclosure, and the perceived risk of enforcement gaps.
What does this mean for the Commission investigations into Android and online search advertising? Does the Commission’s apparent hard line approach in shopping indicate that we should expect similar fines in the other two investigations? Could the fines be even larger and the remedies harsher?
From the above, it would appear that many important questions remain in the details: and that the goal of avoiding foreclosure in online markets will rest on these significant details. Most importantly of all, those affected by these practices should look carefully to see that the resolution of the cases occurs with due attention to making justice effective; if not, perhaps, all that timely.