Google’s Record EU Antitrust Fine Could Be the First of Many

Jun 27, 2017

The European Union's 2.42 billion euro ($2.7 billion) fine on Google for abuse of its dominant position in the search market is a big number in its own right. But Google's final tab could well end up being much higher.

The biggest source of concern for Google, or rather its parent company Alphabet, right now is that this is only the first of three antitrust cases that the EU has open against the company. It is investigating whether Google abused its ownership of the Android operating system to harm designers of apps that rival its own, and it's also accusing Google of stopping competition in search ads.

Read: Google Hit With Record $2.7 Billion Fine in EU Antitrust Case

In all three cases, Google has a dominant market position, and Android and search ads each generate more revenue for Alphabet than the Google Shopping service that was the focus of today's ruling. If Competition Commissioner Margrethe Vestager, who is responsible for policing antitrust issues in the EU, takes an equally hard line on the other two cases, she could end up choking more important sources of cash for the company.

The second way for Google's liabilities to escalate is if it chooses to challenge today's ruling, or can't find an acceptable fix within 9o days. The EU's decision requires Google to find a way to treat competing shopping products equally with Google Shopping. If it doesn't, it becomes liable for non-compliance penalties of up to 5% of Alphabet's daily revenue under European law. This, of course, would come on top of the many millions of dollars Google has spent over the last decade vainly trying to address the Commission's concerns.

Read: Why Ireland Doesn't Want Apple's Money Back

A further red flag, not just for Google but for other tech giants such as Amazon and Apple, is the Commission's sensitivity towards "network effects," the phenomenon by which services such as Google's search engine and ad business, or Facebook's social media platform become ever more effective the more people use them. Network effects are a core part of the business strategy of Internet companies (the Internet is all about bringing people together, after all). But to an antitrust regulator like Vestager, they create "high barriers to entry" for competitors, and ultimately reduce consumer choice. A successful network effect has antitrust liability baked into its DNA. The Commission's findings, released Tuesday (and based on 1.7 billion search queries) suggest that Google's active discrimination against other price discovery sites cost them up to 92% of their traffic.

"“This decision is a game-changer," said Monique Goyens, head of the Brussels-based consumer watchdog BEUC. "The Commission confirmed that consumers do not see what is most relevant for them on the world’s most used search engine but rather what is best for Google."

Companies such as Amazon, Apple and Facebook, which have taken to leveraging new products off a dominant core business such as e-commerce, smartphones or social media, may well find themselves facing similar problems. Given past clashes over tax planning and customer data retention (Vestager's department is still sore at being misled by Facebook over its access to WhatsApp users' data), they don't start from the best position.

It's not clear whether the U.S. government will be anywhere near as keen to intervene on this issue as it was last year when Vestager ordered Apple to repay over $14 billion in illegal state aid from Ireland out of its offshore cash pile. In the Apple case, the U.S. Treasury was losing money that it hoped to tax one day. Here, although the case will add to the suspicion of anti-U.S. bias in Europe, it is essentially just another angle to a trade relationship that has become chilly under the presidency of Donald Trump.

Google has spent a lot of time and money over recent years explaining why the EU's case was flawed, but it was eye-catchingly terse Tuesday. General Counsel Kent Walker said in a brief five-sentence statement that "We respectfully disagree with the conclusions announced today. We will review the Commission’s decision in detail as we consider an appeal, and we look forward to continuing to make our case.”

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