Google’s $2.7 Billion Fine: What It Means and What Happens Next

Jun 27, 2017

The European Commission on Tuesday rocked Google with a massive fine for violating antitrust laws. The EC's $2.7 billion penalty, which also requires Google to change how it displays its search results, means the company's long-running tussle with European regulators just got more serious.

While the fine has been expected for weeks, the amount is higher than anticipated, and the fallout for Google and European tech policy could be severe. To make sense of it all, here's a plain English guide to the EC decision and what happens next.

Why did the EC fine Google?

The EC has been probing Google for years, and Tuesday's ruling—which came in the form of a press release and a thick legal ruling—represents just one of several ongoing antitrust investigations. This one is about shopping.

Specifically, it's about so-called "vertical search sites" that let users do comparison shopping for items specific items like clothes or cars or restaurants. These vertical sites say Google bumped them down its search rankings to favor its own shopping service.

Look at the screenshot below, which shows an example: I searched for "summer sleeping bag" and, as you can see, the first three search results are sponsored ads (from REI, Amazon and Kammok) followed by so-called "organic" result from Amazon. And on the right side, you can see Google's shopping product in which retailers pay for their wares to appear.

Why is this an antitrust violation?

The EC points to data that says the amount of web traffic sent by Google to other comparison shopping sites has dropped significantly, while traffic to Google's shopping surface has leapt enormously.

In the eyes of the EC, this amounts to Google abusing its market dominance in Europe, where its search engine is used by 90% of consumers in many countries. The EC says Google gave "an illegal advantage to another Google product, its comparison shopping service."

Keep in mind too that antitrust law works differently in Europe. Unlike the United States, where regulators only look at whether a monopoly practice hurts consumers, the EC can look at whether competitors are getting hurt.

What does Google say?

The company is not saying much publicly beyond a blog post posted by its general counsel, Kent Walker. In the post, Walker says Google makes its search service so prominent because that's what consumers want—they would rather just click directly than go to a third-party shopping site.

Walker also says its ads help retailers compete with Amazon and Ebay. This is consistent with Google’s insistence in recent years that regulators should consider the likes of Amazon when defining market share when it comes to shopping search.

A source with knowledge of the case also suggested Google may contest the EC's decision to apply what the Financial Times describes as "a new type of anti-competitive behaviour" that says companies with "a dominant market share cannot favour their own adjacent products or services.”

What does Google have to do in response to the ruling?

This is where it gets tricky. The EC's announcement says Google has just 90 days to change its "illegal behavior" and give "equal treatment" to rival shopping services. If it doesn't, that $2.7 billion fine will start climbing.

But what does "equal treatment" mean? For now, no one is really sure how this will work. Will Google have to rotate in other shopping sites on the right hand side of the page? Will it just get rid of the shopping box altogether? And so on.

Finally, it's important to note all this won't affect people in North America and others outside Europe. That's because Google uses geographic location to determine what different consumers see.

Google can afford $2.7 billion. Is this really such a big deal?

The fine is significant even for Google though, yes, it's hardly going to break a firm whose parent company generated $90 billion in revenue in 2016. The bigger worry is what comes next.

The EC is still grilling Google over two other antitrust issues—one over Google forcing Android phone makers to pre-install certain apps and the other over its AdSense program—and those could result in billions more in fines.

More broadly, the EC's decision signal an even greater willingness to fine and regulate U.S. tech companies. Critics suggest such tactics are driven by politics more than law, and that Europe is choosing to scapegoat Silicon Valley for its own lack of tech innovation. But whatever the EC's motivation, the Google fine suggests new overseas headwinds for the U.S. tech industry.

Will Google appeal?

It hasn't said so yet, but probably. Google is likely alarmed by the EC's novel antitrust ruling that forbids companies from favoring their own service over competitors, and may seek to limit this doctrine on appeal. The company would also be keen to stop the eurocrats of the EC from dictating how it should display its search results, which are the core of its business.

If Google does decide to appeal, antitrust rules state it can file a challenge to the EU General Court, which can overturn the decision and also reduce or increase the fine. Afterwards, either Google or the EC could bring the case to the European Court of Justice, a process that would take years.

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