Google's $2.7 bn fine highlights the importance of ‘search neutrality’ and preventing gatekeeping

hiddenJun 29, 2017 11:54:35 IST

By Asheeta Regidi

The European Commission recently issued a hefty fine of 2.42 billion euro (around $2.7 bn) on Google. Google was found to breach antitrust rules by promoting its comparison shopping service, ‘Google Shopping’ over other similar services, abusing its power as a dominant online search engine.

‘Search’ neutrality and preventing gatekeeping

Google’s dominant position among search engines is without question. Our dependence on Google means that a lot of our choices, the websites we visit, information we see, products we buy and more is determined by the search results shown by Google. This gives Google a huge responsibility to keep the search results neutral and on the strength of competition, even to the detriment of its own services.

European Competition Commissioner Margrethe Vestager addressing the press. Image: Reuters

A good comparison of this is in the argument for net neutrality and importance of preventing internet service providers from becoming the gatekeepers of the internet. Luckily, while net neutrality laws are in question, the actions of a company like Google are subject to well established anti-trust laws.

This particular case takes into account Google’s online comparison shopping service, Google Shopping. This was an unsuccessful venture (as per the findings of the European Commission). So, Google used it in a different way — we now see it in the form of the list of shopping products appearing on the top of search results for any product, offering different prices, websites and reviews for the same product.

Effect of search result placement on traffic

For a website like an online shopping comparison service, traffic to it plays the predominant role in determining its success. The greater the traffic to the website, the greater the number of clicks, and the greater the revenue. This, in turn, determines the number of advertisers paying to use the website. For this traffic, the visibility of the website, particularly on search results, is a crucial factor.

In fact, as per the findings of the EC, search results on the first page receive 95 percent of all clicks on generic search results, while the second page receives barely 1 percent. Moving a result from the first to the third on the page reduces the number of clicks by almost 50 percent. The effect on mobile devices is even more pronounced, given the smaller screen size.

Google Shopping, however, was not subject to the normal search algorithms based on which Google search results are ranked. Thus, its placement on top of the search results was not due to its popularity or its success. The result was that rival comparison shopping services, like Kelkoo and Foundem, were placed on almost the fourth page of Google’s search result.

This, naturally, led to a severe drop in their visibility. In fact, the EC found that since Google started this practice, traffic to the rival websites dropped by almost 80-90 percent.

Abusing its dominant position

Article 82 of the Treaty establishing the European Community (equivalent laws are Article 102 of the TFEU and Article 54 of the EEA) deals with abuse of a dominant position. Under this, an entity with a dominant position in the common market, or a part of it, is prohibited from abusing this position either to the prejudice of the consumers, or of its competitors. Abuse which is particularly violative includes imposing unfair trading conditions, or limiting the market to the prejudice of consumers, etc.

The facts clearly establish the following — Google’s dominant position among other search engines, and the negative effect of the placement of its shopping service on its rivals. Thus, the EC found Google to have violated Article 82, abusing its dominant position as a search engine to the detriment of its rivals.

The gravity of Google’s offence

When dealing with antitrust enquiries, the EC can normally choose between taking a ‘Prohibition Decision’ (Article 7, Regulation 1/2003) and a ‘Commitment Decision’ (Article 9, Regulation 1/2003). The former is where an entity is prohibited from carrying out an act infringing competition laws, and this may be accompanied with a fine. The latter, refers to a settlement, where no infringement is formally ‘found’, but the entity makes voluntary commitments to address the concerns of the EC. The EC normally prefers the shorter, simpler route of taking a Commitment Decision. The fact that it chose to take a Prohibition Decision shows the gravity with which it is treating Google’s offence.

This is further shown by the extent of the fine imposed. The EC’s power of issuing fines under applicable guidelines is quite significant — the value of the entity’s sales of goods or service in that geographic area, relating to the infringement in question are taken into account. Fines up to 10 percent of the total turnover of the company can be issued. The final amount is decided based on the gravity of the offence multiplied by the number of years of infringement. Considering Google’s massive turnovers and that it had been implementing Google Shopping this way since 2008, a hefty fine was expected.

Consequences of this decision

Google disputes the findings of the EC and is contemplating appeal, arguing that the service greatly benefits consumers and enables better competition between smaller merchants and large giants like Amazon and Ebay. If this decision becomes final, the consequences of this decision are certainly grave for Google.

Image: Reuters

For one thing, this decision indicates a possibly similar outcome of other pending Google antitrust cases before the EC — the Android and AdSense cases. For another, this decision can set the precedent for how Google will use search results for its other services — like maps, travel and so on. The decision once final can also open up Google to lawsuits. Under European law, the decision of the EC is considered to be binding proof of infringement of antitrust laws. Thus, private parties suing Google need only to show how and to what extent Google’s infringing activities have affected it.

Gatekeeping power of tech giants

This case certainly reveals the power of tech giants like Google, Facebook, Amazon and so on to determine our choices and our actions. It is very important to maintain the neutrality of the internet. Success must be determined through healthy competition and not artificial boosting or gatekeeping.

The strict action of the EU, in this respect, is very welcome.

The author is a lawyer with a specialisation in cyber laws and has co-authored books on the subject.