In its face-off with Brussels competition cops, the odds are stacked against Google.
That doesn’t mean the game is over for the California tech titan.
For now, Google is weighing whether even to appeal the stunning €2.4 billion antitrust fine slapped on it by the European Commission late last month. While precedent doesn’t give much fuel to Google’s hopes of a reprieve, outside skeptics of Brussels’ daring move say this case offers enough legal and potentially political holes for Google to beat the odds and beat the Commission back.
These people invoke, as Google surely will if it contests the fine, the rise of Amazon as proof that markets are healthy. They say Google’s online shopping product, the subject of the Commission’s ire, isn’t a threat to competition and hasn’t harmed any consumers. The settlement talks that predated the decision, and a previous Commission’s reluctance to press forward with a fine, suggest as well that the case isn’t as black and white as Brussels insists. Recent changes at the appeals court that would hear the appeal also make the prospect of a reversal less unlikely.
The stakes are high on both sides. The Commission’s ruling could force Google to give up some search revenue in Europe and, more importantly, limit its ability to push into new areas like travel or voice search. For the Commission, victory would enshrine it as the world’s regulatory sheriff for the digital economy. Defeat would harm its reputation, devastate morale and derail careers, including possibly that of the hard-charging European commissioner for competition, Margrethe Vestager.
‘Fairly problematic’
The historic reality for Google is stark: Brussels has not lost a monopoly case before the EU courts in 38 years. “It will be a long and bitterly fought appeals process,” said Peter Willis, a senior competition partner at Bird & Bird, a Brussels-based law firm. “Google [is] going to have an uphill battle.”
Now it’s true that a handful of the Commission’s victories over those four decades were decidedly mixed. Pharmaceutical firm AstraZeneca shaved an antitrust fine by some 12 percent in 2011, and French tiremaker Michelin cut its fine by just over 50 percent in 1983. A bunch of shipping firms successfully fought off a fine in 2003, overturning the Commission’s ruling that they monopolized the industry.
No case against a single dominant firm has collapsed completely since 1979, when Hugin, a German cash register manufacturer, overturned a £20,833 fine. “The Commission has fared exceptionally well on [dominance] cases,” said Jean-François Bellis, the veteran antitrust lawyer who represented Hugin and who also represented Microsoft in its unsuccessful appeal against a 2004 antitrust fine.
Yet some in Europe say the Silicon Valley search giant could still pull it off. The Commission doubters say the Google Shopping case brought by Vestager is the most vulnerable to challenge in decades.
“A more detailed analysis shows that there are quite a number of critical and decisive assumptions [made by the Commission], which are fairly problematic at second sight,” wrote Justus Haucap, a prominent German economist whose work influenced the way regulators think about competition and innovation.
The Commission’s ruling about Google seems to skate over the question of whether consumers suffered any harm, noted Christian Kersting, a professor of competition law at the University of Düsseldorf.
Global first
On June 27, the Commission became the first regulator to mete out real punishment to Google, a $643 billion giant that revolutionized internet search and in the span of a decade became the world’s second-most valuable company.
At issue was the rise of Google Shopping — a price comparison service that has morphed over time into premium adverts — and the parallel decline of shopping websites that allowed consumers to compare offers on online stores. Commission regulators concluded that while Google placed its own service at the top of its search page, it pushed price comparison services down its rankings. The effect, they say, was to steer consumers toward the adverts, ensuring the brands and their advertising money came to Google.
Google now faces a frantic few months. Brussels may close down for the summer, but the tech company’s lawyers and advisers will spend the coming weeks poring over the 242-page decision. They have until roughly the end of August to inform the Commission of what changes they plan to make to their shopping service and until mid-September to lodge an appeal with the EU General Court in Luxembourg. In parallel, they are likely to ask EU judges to suspend the Commission’s decision pending a court judgment.
Al Verney, a spokesperson for Google in Brussels, did not respond to a request for comment.
Hovering over all this activity is a known unknown: A European Court of Justice verdict on the landmark Intel case due September 6 could clarify how antitrust law applies to dominant firms, forcing a dramatic, last-minute rewrite of the appeal.
Until the Google decision landed on June 27, Intel was the recipient of Europe’s largest antitrust fine at €1.06 billion. But a senior adviser to the court recommended that its red-robed judges uphold its appeal and criticized the Commission’s way of conducting its probes.
Either way, after the summer holidays and by mid-September the Google ball should be back on the side of the Commission lawyers and investigators, who will have to assess the changes offered up by Google — and probably demand more — as well as preparing their response to an appeal. Cue “months of trench warfare,” in the words of one lawyer working for a Google rival.
A very European court
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Observers hoping to see Google’s General Counsel Kent Walker clash with Vestager in court will be disappointed.
In the EU court system, cases are largely conducted in writing. Hearings never last more than a few days. No expert witness has been called in a competition case in decades. There is no torturous cross-examination of officials or executives. Indeed, the judges ask most of the questions.
The court engages in “much less economic analysis than some of us would like to see,” said Miguel de la Mano, an economist at consultancy Compass Lexecon and a former EU antitrust enforcer.
A major challenge for Google is how to tear apart a seven-year-old case in just 50 pages — the page-count imposed recently by judges to stop lawyers from rambling.
Another recent reform, however, could play in its favor: After doubling in number, the judges of the EU General Court are hungry for cases to sink their teeth into.
A drop in the number of juicy competition cases has left many judges on a diet composed largely of stale trademark appeals. Marc Jaeger, the enigmatic Luxembourger judge who presides over the General Court, has used conference speeches to drop not-so-subtle hints to competition lawyers that they should file appeals.
Decisions of the General Court can be appealed by both sides to the European Court of Justice, the EU’s highest judicial body, on points of law, meaning a final verdict might not come until 2025.
Grounds for appeal
Experts were reluctant to comment in detail on a decision unlikely to be published for several months as Google and the Commission wrangle over a nonconfidential version. But Google’s past statements, conversations with the company and its response to the initial charges, which was reviewed by POLITICO, give insight into how it might appeal.
Amazon is likely to loom large in its arguments. Google points to figures showing more than half of all U.S. product searches begin on Amazon. The retail behemoth’s meteoric rise, Google argues, better explains why comparison websites have seen their traffic plummet and shows that competition online is healthy.
By selling prime advertising space to websites across the web, the argument is likely to go, Google Shopping is arguably helping counter-balance Amazon’s might — not killing off competition. “Thousands of European merchants use these ads to compete with larger companies like Amazon and eBay,” Google wrote in a blog post disagreeing with the Commission’s findings.
Another line of appeal would portray the Commission’s case as novel and new-fangled, and plainly different from the 1970s and 1980s textbook cases against dominant chemical firms and banana importers. If the judges can be convinced Google has been accused of a new type of abuse, they might start to question things like the standard of proof — or even if Google could reasonably have known it had crossed a red line.
In 2014, the Commission concluded Motorola — then a Google subsidiary — used its control of certain dominant smartphone technologies to hurt rivals. But it waved a fine on the basis that the law was previously unclear.
Competition policies developed to tackle trusts and robber barons, according to people who question Vestager’s rationale, could turn out to be a bad fit for fast-changing tech markets like internet search, where no money changes hands. Consumers can switch to another search engine at no cost, they note.
Such “uncertainties” weighed on Vestager’s predecessor, Joaquín Almunia, who tried and failed to settle the case with Google.
“The alternative of adversarial proceedings would take many years, with many uncertainties, and would not have the same immediate impact,” he said three years ago. “It would also not necessarily deliver a better outcome for consumers given the specific characteristics of this market.”
Almunia figures in another sense: Expect Google to exploit the case’s seven-year-long history. The Commission’s repeated efforts to settle, even going so far as to tentatively accept one settlement and issuing more than a dozen “draft” letters to complainants rejecting their complaints, will be damaging.
EU law appears to say officials should only seek to settle antitrust cases where fines would not be appropriate, said Nicolas Petit, a professor of competition law at the University of Liège. “This case could thus be a test case in terms of setting boundaries on how freely the Commission can U-turn a case.”
The Commission’s defense
In its defense, the Commission will likely respond, as it put it in announcing the ruling, that dominant firms like Google have a special responsibility not to harm competition and must be “vigilant.”
It says it has internal Google documents that back up its analysis and point to data showing traffic to comparison websites plummeting after changes the search giant made. In the U.K., where the trend is most pronounced, traffic to Google Shopping increased 45-fold since 2008, while traffic to rival websites at times dropped by as much as 85 percent, according to regulators.
When Vestager issued the fine, she said that while the markets and technology might be new, Google’s abusive conduct was “old school.”
The decision has been carefully vetted by the Commission’s legal service, which is well-known for its caution as well as its stellar track record in court. The Commission can also rely on the experience of its lead competition lawyers, Nicholas Khan and Hubert van Vliet, who have formidable reputations and hundreds of court appearances behind them.
But the institution’s resources will be stretched to a maximum. As it defends the decision, fights requests for interim relief and ensures Google complies with the letter of its ruling, the two dozen officials in the unit charged with policing competition in large swathes of the technology sector will have other targets in their sights.
The Commission is pursuing two additional cases against Google’s Android operating system and advertising business and considering other complaints about its search engine.
CORRECTION: An earlier version misstated the legal basis for the assertion that a settlement is only suitable where fines would not be appropriate. The basis is EU law.