Margrethe Vestager
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Valve and five PC games publishers fined $9.4M for illegal geo-blocking
A lengthy antitrust investigation into PC games geo-blocking in the European Union by distribution platform Valve and five games publishers has led to fines totalling €7.8 million (~$9.4 million) after the Commission confirmed today that the bloc’s rules had been breached.
The geo-blocking practices investigated since before 2017 concerned around 100 PC video games of different genres, including sports, simulation and action games.
In addition to Valve — which has been fined just over €1.6 million — the five sanctioned games publishers are: Bandai Namco (fined €340,000), Capcom (€396,000), Focus Home (€2.8 million), Koch Media (€977,000) and ZeniMax (€1.6 million).
The Commission said the fines were reduced by between 10% and 15% owing to cooperation from the companies, with the exception of Valve, which it said chose not to cooperate (a “prohibition Decision” rather than a fine reduction was applied in its case).
Valve has been contacted for comment. Update: A company spokesman said: “During the seven year investigation Valve has cooperated fully, providing all requested evidence and information to the Commission. We disagree with these findings, and plan to appeal the decision.”
An in-depth antitrust investigation was announced publicly by the Commission in February 2017, with a formal statement of objections issued just over two years later — when it accused the companies of “entering into bilateral agreements to prevent consumers from purchasing and using PC video games acquired elsewhere than in their country of residence” in contravention of EU rules.
The mechanisms used by the companies to prevent certain cross-border sales of certain PC games were geo-blocked Steam activation keys and bilateral licensing and distribution agreements to restrict certain cross-border sales.
EU lawmakers has now found that these business practices partitioned certain European markets according to national borders — denying regional consumers the benefits of the EU’s Digital Single Market to shop around for the best offer.
Commenting in a statement, EVP Margrethe Vestager, who heads up competition policy for the bloc, said: “Today’s sanctions against the ‘geo-blocking’ practices of Valve and five PC video game publishers serve as a reminder that under EU competition law, companies are prohibited from contractually restricting cross-border sales. Such practices deprive European consumers of the benefits of the EU Digital Single Market and of the opportunity to shop around for the most suitable offer in the EU.”
According to the Commission’s investigation, geo-blocking of Steam activation keys prevented activation of certain of the five games’ publishers titles outside of Czechia, Poland, Hungary, Romania, Slovakia, Estonia, Latvia and Lithuania.
It said agreements between the companies to geo-block activation keys had lasted between one and five years and were found to have been implemented at various times between September 2010 and October 2015.
While four of the games publishers (not Capcom) were found to have entered into licensing and distribution agreements with various PC games distributors (not Valve) in the European Economic Area (EEA) which contained clauses which restricted cross-border sales of the affected titles within the EEA, including the aforementioned Central and Eastern European countries.
The Commission said these agreements lasted generally longer (“between three and 11 years”), and were implemented at different times between March 2007 and November 2018.
Since the investigation started, EU lawmakers have passed a regulation against unjustified geo-blocking. Although the legislation only applies to PC video games distributed on CDs or DVDs, not to downloads. So games are only partially covered.
A Commission review of how the geo-blocking regulation is operating, published last November, discussed a possible extension of its scope in a range of areas, including for games. However it did not make a strong case for that change. (It also found demand for cross-border access to games, and software generally, relatively low versus other content services.)
But while games distributed via digital downloads look set to remain outside the scope of the EU’s unjustified geo-blocking regulation, the fines against Valve et al. show that geo-blocking can still be a legal minefield as contractual agreements to restrict cross-border sales run counter to the bloc’s antitrust rules.
The specific breaches are of Article 101 of the Treaty on the Functioning of the European Union (TFEU) and Article 53 of the Agreement on the European Economic Area which prohibit agreements between companies that prevent, restrict or distort competition within the EU’s Single Market, per the Commission.
Update 2: Valve has now sent additional details of its disagreement with the Commission’s findings, and denied that it did not cooperate with the investigation. It also warned the elimination of region locks could result in games publishers raising prices in some “less affluent” regions to avoid price arbitrage.
Its spokesman told us:
During the seven year investigation, Valve cooperated extensively with the European Commission (“EC”), providing evidence and information as requested. However, Valve declined to admit that it broke the law, as the EC demanded. Valve disagrees with the EC findings and the fine levied against Valve.
The EC’s charges do not relate to the sale of PC games on Steam – Valve’s PC gaming service. Instead the EC alleges that Valve enabled geo-blocking by providing Steam activation keys and – upon the publishers’ request – locking those keys to particular territories (“region locks”) within the EEA. Such keys allow a customer to activate and play a game on Steam when the user has purchased it from a third-party reseller. Valve provides Steam activation keys free of charge and does not receive any share of the purchase price when a game is sold by third-party resellers (such as a retailer or other online store).
The region locks only applied to a small number of game titles. Approximately just 3% of all games using Steam (and none of Valve’s own games) at the time were subject to the contested region locks in the EEA.
Valve believes that the EC’s extension of liability to a platform provider in these circumstances is not supported by applicable law. Nonetheless, because of the EC’s concerns, Valve actually turned off region locks within the EEA starting in 2015, unless those region locks were necessary for local legal requirements (such as German content laws) or geographic limits on where the Steam partner is licensed to distribute a game. The elimination of region locks may also cause publishers to raise prices in less affluent regions to avoid price arbitrage. There are no costs involved in sending activation keys from one country to another, and the activation key is all a user needs to activate and play a PC game.
This report was updated with comment from Valve. We also made a correction after initially stating that the EU’s investigation had taken four years, starting in 2017. That was the date the Commission announced it was launching an in-depth investigation. But, per Valve, the probe took longer — spanning seven years.
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Travel startups cry foul over what Google’s doing with their data
As the antitrust drumbeat continues to pound on tech giants, with Reuters reporting comments today from the U.S. Justice Department that it’s moving “full-tilt” on an investigation of platform giants including Google parent Alphabet, startups in Europe’s travel sector are dialing up their allegations of anti-competitive behavior against the search giant.
Google has near complete grip on the search market in Europe, with a regional market share in excess of 90%, according to Statcounter. Unsurprisingly, industry sources say a majority of travel bookings start as a Google search — giving the tech giant huge leverage over the coronavirus-hit sector.
More than half a dozen travel startups in Germany are united in a shared complaint that Google is abusing its search dominance in a number of ways they argue are negatively impacting their businesses.
Complaints we’ve heard from multiple sources in online travel range from Google forcing its own data standards on ad partners to Google unfairly extracting partner data to power its own competing products on the cheap.
Startups are limited in how much detail they can provide on the record about Google’s processes because the company requires advertising partners to sign NDAs to access its ad products. But this week German newspaper Handelsblatt reported on antitrust complaints from a number of local startups — including experience booking platform GetYourGuide and vacation rental search engine HomeToGo — which are accusing the tech giant of stealing content and data.
The group is considering filing a cartel complaint against Google, per its report.
We’ve also heard from multiple sources in the European travel sector that Google has exhibited a pattern of trying to secure the rights to travel partners’ content and data through contracts and service agreements.
One source, who did not wish to be identified for fear of retaliation against their business, told us: “Each travel partner has certain specialities in their business model but overall the strategy of Google has been the same: Grab as much data from your partners and build competing products with that data.”
Not OK, Google
This is now a very familiar complaint against Google. Crowdsourced reviews platform Yelp has been accusing the tech giant of stealing content for years. More recently, Genius got creative with a digital watermark that caught Google redhanded scraping lyrics content from its site which it pays to license (but Google does not). As Lily Allen might put it, it’s really not okay.
Last month’s congressional antitrust subcommittee hearing kicked off with exactly this accusation too — as chair David Cicilline barked at Google and Alphabet CEO Sundar Pichai: “Why does Google steal content from honest businesses?” Pichai dodged the question by claiming he doesn’t agree with the characterization. But for Google and parent Alphabet there’s no dodging the antitrust drumbeat pounding violently in the company’s backyard.
Based on this exchange, it seems like Google CEO Sundar Pichai *really* does not want to answer questions about local search. Perhaps because there are no good answers?
pic.twitter.com/49RVwHMHS8
— Luther Lowe (@lutherlowe) July 29, 2020
In Europe, Google’s business already has a clutch of antitrust enforcements against it — starting three years ago, in a case which dated back six years at that point, with a record-breaking penalty for anti-competitive behavior in how it operated a product search service called Google Shopping. EU enforcements against Android and AdSense swiftly followed. Google is appealing all three decisions, even as it continues to expand its operations in lucrative verticals like travel.
The Commission’s 2017 finding that Google is dominant in the regional search market carried what lawmakers couch as a “special responsibility” to avoid breaching the bloc’s antitrust rules in any market in which Google plays. That finding puts the travel sector squarely in the frame, although not yet under formal probe by EU regulators (although they have opened an active probe of Google’s data collection practices, announced last year).
EU regulators are also examining a range of competition concerns over its proposed acquisition of Fitbit, delaying the merger while they consider whether the deal would further entrench Google’s position in the ad market by giving it access to a trove of Fitbit users’ health data that could be used for increased ad personalization.
But so far, on travel, the Commission has been keeping its powder dry.
Yet for around a decade the tech giant has been building out products that directly compete for travel bookings in growth areas like flight search. More recently it’s added hotels, vacation rentals and experiences — bringing its search tool into direct competition with an increasing range of third-party booking platforms which, at least in Europe, have no choice but to advertise on Google’s platform to drive customer acquisition.
One key acquisition underpinning Google’s travel ambitions dates back to 2010 — when it shelled out $700 million for ITA, a provider of flight information to airlines, travel agencies and online reservation systems. The same year it also picked up travel guide community, Ruba.
Google beat out a consortium of rivals for ITA, including Microsoft, Kayak, Expedia and Travelport, which relied on its data to power their own travel products — and had wanted to prevent Google getting its hands on the data.
Back then travel was already a huge segment of search and online commerce. And it’s continued to grow — worth close to $700 billion globally in 2018, per eMarketer (although the coronavirus crisis is likely to impact some recent growth projections, even as the public health crisis accelerates the industry’s transition to digital bookings) — all of which gives Google huge incentive to carve itself a bigger and bigger share of the pie.
This is what Google is aiming to do by building out ad units that cater to travelers’ searches by offering flights, vacation rentals and trip experiences, searchable without needing to leave Google’s platform.
Google defends this type of expansion by saying it’s just making life easier for the user by putting sought for information even closer to their search query. But competitors contend the choices it’s making are far more insidious. Simply put, they’re better for Google’s bottom line — and will ultimately result in less choice and innovation for consumers — is the core argument. The key contention is Google is only able to do this because it wields vast monopoly power in search, which gives it unfair access to travel rivals’ content and data.
It’s certainly notable that Alphabet hasn’t felt the need to shell out to acquire any of the major travel booking platforms since its ITA acquisition. Instead, its market might allow it to repackage and monetize rival travel platforms’ data via an expanding array of its own vertical travel search products.
One of the German consortia of travel startups with a major beef against Google is Berlin-based HomeToGo. The vacation rentals platform confirmed to TechCrunch it has filed an antitrust complaint against the company with the European Commission.
It told us it’s watched with alarm as Google introduced a new ad unit in search results which promotes a vacation rental search and booking experience — displaying property thumbnails, alongside locations and prices plotted on a map — right from inside Google’s platform.
Screengrab showing Google vacation rental ad unit, populated with content from a range of partners
Discussing the complaint, HomeToGo CEO and co-founder, Dr Patrick Andrae, told us: “Due to the monopoly Google has in horizontal search, just by having this kind of access [to the vast majority of European Internet searchers], they’re so top of the funnel that they theoretically can go into any vertical. And with the power of their monopoly they can turn on products there without doing any prior investment in it.
“Anyone else has to work a lot on SEO strategies and these kind of things to slowly go up in the ranking but Google can just snap its fingers and say, basically, tomorrow I want to have a product.”
The complaint is not just that Google has built a competing ad product in vacation rentals but — following what has become a standard colonizing playbook for seemingly any vertical area Google sees is grabbing traffic — its packaging of the competing product is so fully featured and eye-catching that it results in greater prominence for Google’s ad versus organic search results (or indeed paid ad links) where rivals may appear as plain-old blue links.
“They create this giant, colorful super CTA [call-to-action], as we call it — this one-box thing — where everything is clickable and leads you into the Google product,” said Andrae. “They explain that it’s better for the user experience but no one ever said that the user wants to have a one-box there from Google. Or why shouldn’t it be a one-box from HomeToGo? Or why shouldn’t it be a one-box in the flight world from Kayak? Or in the hotel world from Trivago? So why is it just the Google product that’s colorful, nice, and showing up?”
Andrae argues that the design of the unit is intended to give the user the impression that “Google has everything there,” on its platform. So, y’know, why go looking elsewhere for a vertical search engine?
He also points out that the special unit is not available to competitors. “You cannot buy it,” he said. “So even if you would like to have this prominent kind of placement you cannot buy that as a third-party company. Even if you would like to pay money for it — I’m not talking about being in the product itself, that’s another topic — but just having the same kind of advertisement, because it is what they do — they advertise their own product there for free — and this is our complaint.”
Pay with your data
In 2017, when the Commission slapped Google with the first record-breaking penalty over its search comparison service — finding it had systematically given prominent placement to its own comparison shopping service over and above rival services in organic search results — competition chief Margrethe Vestager disclosed it had also received complaints about Google’s behavior in the travel sector.
Asked about the sector’s concerns now, some three years later, a Commission spokeswoman told us it’s “monitoring the markets concerned” — but declined to comment on any specific gripes.
Here’s another complaint: GetYourGuide, a Berlin-based travel startup that’s created a discovery and booking platform for travel tours and experiences, has similar concerns about Google’s designs on travel experience booking — another travel segment the tech giant is moving into via its own eye-catching ad units flogging experiences.
“They want to create experience products now directly on Google search itself, with the aim that ultimately people can book these type of things on Google,” said GetYourGuide CEO and co-founder Johannes Reck. “What Google tries to do now is they try to get [travel startups’] content and our data in order to create new competitive products on Google.”
The startup is unhappy, for example, that a “Things to do” ad product Google shows in its search results doesn’t link to GetYourGuide’s own search page — which would be the equivalent and competing third party product.
“Google will not allow us to link them into our search but only into the details page so the customer sees even less of our brand,” he said. “Or in Maps, for instance, if you go to Eiffel Tower and press to book tickets you don’t see any of GetYourGuide despite us fulfilling that order.”
He also rejects Google’s claim against this sort of complaint that it’s simply “doing the right thing for the user” by not linking them out to the rival platform. “We do know from our data that users convert better and spend more time on our site and have higher engagement rates when we link them into our search and then deeper down into the funnel,” he told TechCrunch. “What Google is saying is not that it serves the user — it serves Google and it serves their profits. Because the deeper down the funnel that you link, the user will either buy or they will bounce back to Google and search for the next product. If you link into searches — if you don’t verticalize as much — then the user will end up in a different ecosystem and might not bounce back to Google.”
“As a partner [of Google] you have limited choice to participate [in its ad products]. You do need to give Google that content and then Google will try to move as many of the customers to them,” Reck added. “I don’t think there ever will be a world where booking.com or Expedia or GetYourGuide will disappear — rather our brands will start to disappear.
“That is something that I think ultimately is bad for the customer and only serves Google, again, because the customer will, in the long run, have no other choice and no other visibility on how he can get to choice than to go through Google because our brands will basically be hidden behind a Google wall. That will turn Google firmly away from what their original mission was… to steer people to the most relevant content on the web… Now they are trying to be completely the opposite; they’re trying to be the Amazon or Alibaba of travel and try to keep and contain people in their ecosystem.”
During the congressional antitrust subcommittee hearing last month Pichai claimed Google faces fierce competition in travel. Again, Reck contends that’s simply not true. “In Europe more than 75% of travelers go to Google to search for travel and all those users are free,” he said. “Everyone else in the travel industry pays Google top dollar… for these queries. Which competition exactly is he referring to?”
“[Pichai] then claimed that they’re not leveraging partners’ content — that’s not accurate. If you look at Google if you want to be in the top results these days you either pay or you give them data so that they can build their own products into search.”
“This dates back 10 years now when they acquired ITA software, which is the leading data provider for flights,” Reck added. “They’ve just paved their way into travel. I think their intent is very clear at this point that they have no interest in their partners — or their customers for that matter, who like the choice that’s being offered on Google.
“What they want to morph into, basically, is to turn Google into the Amazon of travel where everyone else may be a content provider or a fulfillment agent but the consumer has no choice but to go through Google. I think that is the key intent here. They want to limit consumer choice. And they want to monopolise the space. We don’t want that and we will fight that. And if that means we need to go to the EU Commission to protect our and the customers’ interests then we’ll do that and we’re currently reviewing that option.”
The looming harm for consumers around reduced choice could manifest in poorer customer service, which is an area vertical players tend to focus on — whereas Google, as a platform funnel, does not.
Another German travel startup — Munich-based FlixBus — was also willing to go on the record with concerns about the impact of Google’s market power on the sector, despite not being in the same position as its business is not an aggregator.
Nonetheless, FlixBus founder and CEO Jochen Engert called on regional lawmakers to act against what he described as Google’s “systematic abuses” of market dominance.
“We call on the politicians in Germany and the EU to now work for fair competition on the internet. It must be forbidden that monopolistic companies like Google abuse their market power, especially in times of crisis, and prevent competition for the benefit of the customer due to their dominance,” he told us. “Google systematically abuses its dominant market position to seal off access to customers from competitors and gets away with it time and again. It is only a matter of time before other industries and business models, in addition to travel, hotel and flight bookings, are permanently threatened.
“For FlixMobility [FlixBus’ parent company] as an internationally positioned market leader with its own platform, technology and our unique content, the situation is more relaxed than for smaller startups or those which also aggregate content such as Google. Nevertheless, in our opinion Google should be obliged to list and market its own products in search results on an equal footing with comparable offers. Here regulation must not stand by and watch for too long, but must react before Google irretrievably controls customer access and excludes competition.”
GetYourGuide’s Reck expressed hope that German lawmakers might be able to offer more expeditious relief to the sector than the European Commission — whose competition investigations typically grind through the details for years.
“The German government is actually very alert at this point in time,” he said. “They’re currently working on a new competition legislation that they will put in place probably within the next six months. It’s already in the making — and that will also be addressed to exactly that type of behavior of global, quasi-monopolistic platforms crossing the demarcation line, moving into other fields and trying to leverage their monopoly in order to create synergies in adjacent fields and crowd out competition.”
Asked what kind of intervention he would like to see regulators make against Google, Reck suggests its business should be regulated akin to a utility — advocating for controls on data, including around the openness of data, to level the playing field.
Though he also told us he would be supportive of more radical measures, such as breaking Google up. (But, again, he says speed of intervention is of the essence.)
“If you look at all of the data that Google collects, whether that’s consumer reviews, availability from its partners, all of the content from its partners, all of the information that they have through Android, whether that’s geo-specific data, whether that is interests, whether that is contextual information, Google is training their algorithms day and night on this data, no one else can. But we all have to provide data to Google,” he said.
“That’s not a level playing field. We need to think about how we can have a more open data architecture, that obviously is compliant with our data privacy laws but where developers from anywhere can build products based on the Google platform… As a developer in travel it’s currently very hard for me to access any data from Google so I can build better products for consumers. And I think that really needs to change — Google needs to open us for us to create a more vibrant and competitive ecosystem.”
“At a national or EU level we need to have an updated legal code that allows for quick interventions,” Reck added, saying competition enforcement simply can’t carry on at the same pace as for the markets of the past. “Things are moving way too quickly for that. You need to take a completely new approach.
“As Google correctly pointed out consumer prices have fallen but falling consumer prices is the weapon in tech; offering products for free allows you to gain market share in order to crowd out competition, which again leaves less choice for the customer, so I think we need to think about how we think about tech and platforms in new ways.”
The Commission is currently consulting on whether competition regulators need a new tool to be able to intervene more quickly in digital markets. But there’s more than a trace of irony that its adherence to process means further delay as regulators question whether they need more power to intervene in digital markets to prevent tipping, instead of acting on longstanding complaints of market abuse attached to the 800-lb gorilla of internet search — with its “special responsibility” not to trample on other markets.
Reached for comment on the travel startups’ complaints, a Google spokeswoman sent us this statement:
There are now more ways than ever to find information online, and for travel searches, people can easily choose from an array of specialized sites, like TripAdvisor, Kayak, Expedia and many more. With Google Search, we aim to provide the most helpful and relevant results possible to create the best experience for users around the world and deliver valuable traffic to travel companies.
During the pandemic, we’ve been working hard with our partners in the travel industry to help them protect their businesses and look toward recovery. We launched new tools for airlines so they can better predict consumer demand and plan their routes. For hotels, we expanded our ‘pay per stay’ program globally to shift the risk of cancellation from our partners to us. And we’ve updated our search products so consumers can make informed decisions when planning future travel, further reducing the risk of cancellation.
The company did not respond to our request for a response to claims we heard that it seeks to secure rights to partners’ content and data via contracts and service agreements.
No relief
In another sign of the growing rift between Google and its travel partners in Europe, German startups in the sector banded together to press it for better terms during the coronavirus crisis earlier this year — accusing the tech giant of being inflexible over payments for ads they’d run before the crisis hit. This meant they were left with a huge hole in their balance sheets after making mass refunds for travelers who could no longer take their planned trip. But the gorilla wasn’t sympathetic, demanding full payment immediately.
Asked what happened after TechCrunch reported on their concerns at the end of April, Reck said Google went silent for a few weeks. But as soon as the travel market started picking up in Germany — and GetYourGuide decided it needed to start advertising on Google again — it reissued the demand for full payment.
GetYourGuide says it was left with no choice but to pay, given it needed to be able to run Google ads.
Reck describes the recovery package Google offered after it made the payment as “a Google recovery package” — as it was tied to GetYourGuide spending a large amount on YouTube ads in order to get a small discount.
The offer would recoup only a “fraction” of GetYourGuide’s original losses on Google ads during the peak of the COVID-19 crisis, per Reck. “YouTube obviously is not where we lost the money. We lost the money in search where we had high-intent customers, Google customers that wanted to come and shop. So that to us was [another] slap in the face,” he added.
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Apple Pay and iOS App Store under formal antitrust probe in Europe
Apple is under formal investigation by antitrust regulators in European Union — following a number of complaints related to how it operates the iOS App Store and also its payment offering, Apple Pay.
The Commission said today that it has concerns that conditions and restrictions applied by the tech giant may be distorting competition in a number of areas, following a preliminary probe of the issues.
Back in March 2019, European music streaming service Spotify filed an antitrust complaint against Apple — railing very publicly against what it dubbed an “Apple tax”; aka the 30% tariff the tech giant applies on accepting payments in apps on its App Store. Spotify also accused Apple of impeding its business by applying arbitrary rules — such as making it harder to offer its own users discounts.
The Commission confirmed today that it’s looking formally into whether Apple’s rules for app developers on the distribution of apps via the App Store violate EU competition rules. It said the probe focuses on Apple’s mandatory requirement that app developers use its own proprietary in-app purchase system, as well as restrictions applied on the ability of developers to inform iPhone and iPad users of alternative cheaper purchasing possibilities outside of apps.
As well as the very public complaint from Spotify, the Commission has received a similar complaint from an unnamed e-book/audiobook distributor related to the impact of the App Store rules on competition.
Two specific restrictions imposed by Apple in its agreements with companies that wish to distribute apps to users of Apple devices will be investigated, per the Commission — namely [emphasis its]:
(i) The mandatory use of Apple’s own proprietary in-app purchase system “IAP” for the distribution of paid digital content. Apple charges app developers a 30% commission on all subscription fees through IAP.
(ii) Restrictions on the ability of developers to inform users of alternative purchasing possibilities outside of apps. While Apple allows users to consume content such as music, e-books and audiobooks purchased elsewhere (e.g. on the website of the app developer) also in the app, its rules prevent developers from informing users about such purchasing possibilities, which are usually cheaper.
“Following a preliminary investigation the Commission has concerns that Apple’s restrictions may distort competition for music streaming services on Apple’s devices,” it writes in a press release. “Apple’s competitors have either decided to disable the in-app subscription possibility altogether or have raised their subscription prices in the app and passed on Apple’s fee to consumers.
“In both cases, they were not allowed to inform users about alternative subscription possibilities outside of the app. The IAP obligation also appears to give Apple full control over the relationship with customers of its competitors subscribing in the app, thus dis-intermediating its competitors from important customer data while Apple may obtain valuable data about the activities and offers of its competitors.”
Commenting in a statement, Commission EVP Margrethe Vestager — who heads up competition policy for the bloc — added: “Mobile applications have fundamentally changed the way we access content. Apple sets the rules for the distribution of apps to users of iPhones and iPads. It appears that Apple obtained a ‘gatekeeper’ role when it comes to the distribution of apps and content to users of Apple’s popular devices. We need to ensure that Apple’s rules do not distort competition in markets where Apple is competing with other app developers, for example with its music streaming service Apple Music or with Apple Books. I have therefore decided to take a close look at Apple’s App Store rules and their compliance with EU competition rules.”
Vestager’s reference to a “gatekeeper” role has specific significance as the Commission is currently consulting on updating regulations for digital platforms — including floating the possibility of ex ante regulation for platforms deemed to be gatekeepers vis-a-vis other suppliers. (In parallel, the Commission is consulting on updates to competition law that may allow it to intervene more swiftly in future, in instances where it suspects digital markets have ‘tipped’.)
Spotify welcomed the Commission’s action, writing in a statement:
Today is a good day for consumers, Spotify and other app developers across Europe and around the world. Apple’s anticompetitive behavior has intentionally disadvantaged competitors, created an unlevel playing field, and deprived consumers of meaningful choice for far too long. We welcome the European Commission’s decision to formally investigate Apple, and hope they’ll act with urgency to ensure fair competition on the iOS platform for all participants in the digital economy.
On Apple Pay, the Commission said a formal investigation of how it operates the payment tech will look at the “terms, conditions and other measures” Apple applies for integrating the payment solution in merchant apps and websites on iPhones and iPads; Apple’s limitation of access to the NFC functionality on iPhones for payments in stores; and allegations of “refusals of access to Apple Pay”.
Following a preliminary probe, the Commission said it is concerned Apple’s processes “may distort competition and reduce choice and innovation”.
It also notes that Apple Pay is the only mobile payment solution that is allowed to access NFC technology on iOS devices for making payments in stores.
“The investigation will also focus on alleged restrictions of access to Apple Pay for specific products of rivals on iOS and iPadOS smart mobile devices,” it added.
The Commission said it will carry out the investigations “as a matter of priority”, but there’s no set timeframe for how long this process might take.
EU antitrust investigations have tended to take a number of years from an announcement of a formal probe to a decision being reached. (Although, in an ongoing investigation against Broadcom, Vestager recently dusted off a tool to accelerate regulatory intervention — but as yet there’s no formal ‘statement of objections’ against Apple so it remains to be seen how this case will proceed, and whether regulators may seek to speed up any intervention.)
Reached for comment on the Commission’s announcement of the two antitrust investigations, Apple dubbed the complaints “baseless” — choosing to throw shade on the complainants by claiming these companies are after “a free ride, and don’t want to play by the same rules as everyone else”.
Here’s Apple’s statement on the two investigations in full:
Throughout our history, Apple has created groundbreaking new products and services in some of the most fiercely competitive markets in the world. We follow the law in everything we do and we embrace competition at every stage because we believe it pushes us to deliver even better results.
We developed the App Store with two goals in mind: that it be a safe and trusted place for customers to discover and download apps, and a great business opportunity for entrepreneurs and developers. We’re deeply proud of the countless developers who’ve innovated and found success through our platform. And as we’ve grown together, we’ve continued to deliver innovative new services — like Apple Pay — that provide the very best customer experience while meeting industry-leading standards for privacy and security.
It’s disappointing the European Commission is advancing baseless complaints from a handful of companies who simply want a free ride, and don’t want to play by the same rules as everyone else. We don’t think that’s right — we want to maintain a level playing field where anyone with determination and a great idea can succeed.
At the end of the day, our goal is simple: for our customers to have access to the best app or service of their choice, in a safe and secure environment. We welcome the opportunity to show the European Commission all we’ve done to make that goal a reality.
Apple has had a number of run-ins with EU regulators over the years — including a probe of its acquisition of Shazam (which was later cleared); a major investigation of ebook pricing; and a probe of tax benefits in Ireland which saw it on the hook for $15BN.
French competition regulators also recently fined the tech giant $1.2BN for anti-competitive sales tactics. It’s also been fined $27M by French regulators this year for throttling old iPhones.
This report was updated with comment from Spotify
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Call for EU state aid rules to flex for startups
European startups are calling for more flexibility in EU state aid rules to allow national governments to provide liquidity for the region’s fledgling digital businesses during the COVID-19 crisis.
In a joint letter addressed to Commission EVP Margrethe Vestager, more than a dozen startup associations from across the bloc have called for rules to be adapted to ensure digital businesses are not blocked from receiving any emergency state aid.
In March the Commission applied an update to EU state aid rules clarifying how Member States can provide support to homegrown businesses during the coronavirus emergency.
However the startup association representatives co-signing the latter — which include reps from Coadec in the UK, France Digitale, Germany’s Bundesverband Deutsche Startups, Startup Poland and several others — are concerned the framework is being too narrowly drawn where digital upstarts are concerned.
They point out that startups may be intentionally operating at a loss as a calculated bet on gaining scale down the line, making the current rules a poor fit.
“Startups across Europe report that the Temporary Framework for State Aid is not yet giving enough flexibility to Member States to support startup ecosystems,” they write. “The definition of an ‘undertaking in difficulty’ is intended to apply to loss-making businesses. Such a definition will often be enough to deny support being given to such a business. However many startups are loss-making by design in their first years, as they are taking a calculated bet on exponential growth and associated job growth that will emerge in the following years.
“Only taking the current cash flow into account belittles the economic potential of these startups and prevents them from receiving much-needed support. In doing so it can undermine the post COVID-19 recovery, as it is today’s loss making startups which will be the driver for economic and job growth in the future.”
The letter goes on to call for startups to “receive the support that other economic actors are also receiving”.
“Startups provide a key opportunity for our economies and societies to recover as we come out of COVID,” they suggest, adding: “They will play a central part in re-growing our economy and crucially in doing so on a more carbon-neutral footing.”
We reached out to the Commission for a request for comment but at the time of writing it had not responded.
While it might a bit of a contradiction for VC-backed tech businesses which may choose to operate at a loss during ‘normal’ times to be calling for liquidity help now, Benedikt Blomeyer, EU policy director at Allied for Startups — one of a number of startup associations signing the letter — told us the argument is simply that Europe’s startups should be able to expect the same kind of support that is being extended to other types of businesses.
A number of EU Member States have laid out major support programs for startups to date — such as France’s $4.3BN liquidity support plan, announced in March; and a match fund revealed last month in the UK (which remains an EU member until the end of this year).
But the contention appears to be that liquidity isn’t flowing to all the European startups that need it, nor arriving in a timely enough way.
“For startups, loss-making doesn’t mean that it is necessarily a failing business,” Blomeyer told TechCrunch. “The bigger picture is that we are looking at startup ecosystems as key providers of jobs and economic growth coming out of the crisis. Some startups will fail, just like other businesses. But the question is whether startups should be able to access the same kind of support that other companies can to help them survive this crisis. We believe they should.”
Commenting on the issue in a statement, Paolo Palmigiano, head of competition, EU & trade for law firm Taylor Wessing, agreed the EU state aid rules may struggle to accommodate Internet businesses.
“The criteria introduced by the Commission in the Framework that a company must be viable as of 31 Dec 2019 makes sense in the old brick and mortar world. A company which would have gone in any case bankrupt, even without the current crisis, should not receive aid. The criteria start to be more complex and causes difficulties for tech companies which might not be profitable at the time although they could be in the future,” he said.
“The state aid rules were created in the 60s at a time when the single market did not exist and Europe had a lot of old-style industries (like steel). We need to see how the Commission react but I can see them struggling – how do you distinguish a loss making tech company which in any case would have gone bankrupt from a loss making company that will become profitable in the short term?”
Asked how it believes the Commission should replace the current viability criteria and assess which startups merit help and which don’t, Allied for Startups’ Blomeyer called for a blanket exemption for startups founded over the last half decade or more.
“There could be a clear exemption from the UID test for companies that have been set up in the last 5-7 years,” he suggested. “We need to underline that this is an unprecedented crisis that requires extraordinary measures. So while in normal times a regular process of assessing whether/how to assess startups might have worked, now the ecosystems that built them are melting away before our eyes because of the barriers. The basic conundrum is that it is unclear whether a loss-making startup is indeed not a viable business. This needs resolving.”
In what now feels like an earlier age late last year — as European Commission president Ursula von der Leyen was taking up her five-year mandate — tech-driven change was identified as one of her key policy priorities, with digitization and a green deal taking center stage, alongside a push for European tech sovereignty and support for homegrown startups to scale up.
So if Europe’s startups are feeling overlooked now, in the middle of an unprecedented economic shock, that hardly reflects well on the Commission’s claimed high tech policy goals.
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Atomico partner Tom Wehmeier reviews ‘The State of European Tech’ 2019 report
Atomico, the European venture capital firm founded by Skype’s Niklas Zennström, has released its latest annual The State of European Tech report, published in partnership with Slush and Orrick.
As part of the report, the authors surveyed 5,000 members of the ecosystem — including 1,000 founders — as well as pulling in robust data from other sources, such as Dealroom and the London Stock Exchange .
This year, the report reveals that the European tech ecosystem continues to mature and shows no sign of slowing — particularly highlighting the contrast from five years ago when the The State of European Tech report made its debut. Almost every key indicator is up and to the right, except, rather depressingly, diversity.
The data shows, for example, that competition for talent and access to the best founders has increased ferociously. And from a funding perspective, European founders have more choice than ever, especially with U.S. and Asian VC firms investing more and more in the region. Progress with gender diversity stalled, however, such as 92% of funding going to all-male teams.
I caught up with the report’s author Tom Wehmeier, Partner and Head of Insights at Atomico (also sometimes jokingly referred to as the “Mary Meeker of Europe”), where we discuss in more detail some of the key findings and why, it seems, that the rest of the world has finally woken up to Europe’s tech potential.
But first, a few headlines from the report:
- European technology companies are on track to raise a record 30$B+ in funding in 2019, up from $25B the year before. (Source: Dealroom)
- Despite failing to match the level of venture-backed exits of 2018, there was a record number of 40 $100M-plus deals as of September 2019, a size that many European tech sceptics did not believe was possible. (Source: Dealroom)
- A number of multi-billion-dollar non-venture backed companies like Nexi and Trainline made their debut on the public markets.
- European tech policymaking remains a mystery to many European founders.
- When asked to describe the top priority of the European Commission in terms of tech policy, 40% of founders and startup employees say they don’t feel informed enough to comment. (Source: survey)
- Despite this reported lack of awareness on policy issues, all respondents voted EU competition commissioner Margrethe Vestager as the person who had the most influence on European tech in 2019, good or bad. (Source: survey)
- European parliamentarians aren’t talking about fintech and digital health, two sectors which investors poured a combined $12.7bn into last year (Source: Politico and Dealroom)
- Europe’s diversity figures are still grim reading.
- In 2019, 92% of funding went to all-male teams, a similar level to 2018. (Source: Dealroom)
- There is still only one woman CTO in the 119 companies (<1%) based on a sample of executives in CxO positions at 251 European VC-backed tech companies that raised a Series A or B round between 1 October 2018 and 30 September 2019 with more than $10M funding, even though 7.5% of software engineers are women. (Source: Stack Overflow, Craft, Dealroom)
- Looking beyond gender diversity, ethnic minorities in tech experienced discrimination at a much high rate than white peers. (Source: survey)
- At least 80% of Black/African/Caribbean respondents who reported experiencing discrimination linked it to their ethnicity. (Source: survey)
- 63% of women VCs reported increased focus on attending events with stronger participation from diverse founders. The corresponding number for men VCs was only 33% of female respondents suggested that their male counterparts are leaving female VCs to fix Europe’s diversity problem. (Source: survey)
- European founders aren’t just aiming for commercial success — they are trying to solve some of the world’s largest problems.
- One in five European founders states that their company is already measuring its societal and/or environmental impact. (Source: survey)
- Only 14% of founders don’t believe it’s relevant for their company. Founders that are women are much more likely to be advanced in their approach to measuring impact. (Source: survey)
- Employees are placing a greater emphasis on corporate social responsibility, with 57% citing its importance in the State of European Tech survey. (Source: survey)
Extra Crunch: It is 5 years since Atomico published the first The State of European Tech report, which really attempted to capture a data-driven snapshot of the entire ecosystem. What are some of the biggest changes you’ve seen within European tech in the intertwining years or in this year in particular?
Tom Wehmeier: If I think back to when we did the first report, people who believe that Europe could actually be an interesting player in global technology, were largely limited to people who were in the tech industry in Europe itself. If you then fast forward to today, what has clearly happened — and I think 2019 was the year where this really materialized and became part of the narrative — was that belief translating from people on the inside to a bunch of people that were on the outside.
Most obviously has been the strength of interest from from the U.S. and the number of top-tier U.S. funds that are not just increasing their level of investment activity but committing to spending more and more time here on the ground, hiring people, building teams, building a network, and getting to know companies. I think it probably surprises people to know that 19% of all rounds this year will involve at least one U.S. investor in Europe, which is more than double since since the first year we did the report.
I think the other thing, where I come back to this idea that now we have finally convinced a certain group of people about the role that Europe can play, is mainstream institutional investors. I know it is not going to be lost on you, [but] this is going to be another record year for VC fund raising from Europe. And whilst the headline numbers might not be a surprise, I think what should catch people’s attention is that the composition of the LP base here in Europe is now shifting. And finally, there’s an unlocking of institutional investors, [by which] I mean pension funds, funds of funds, insurance companies, sovereign wealth funds, who are committing to European VC at levels that are significantly increased and elevated from where they had been in the past. So, if you just take pension funds, we’re going to see close to a billion dollars invested which is up nearly three fold.
It’s a validation of what’s happening around European tech to see that now coming through and I think is ultimately something that helps to build a foundation for the next five years of success. As much as this is a report that’s looking back, it’s also about trying to understand where things go from here.
With regards to the pension funds, do you think that is driven by the general bullishness towards European tech, or do you think it’s more the macro economic reality that maybe other places where they could put their money aren’t very attractive at the moment?
I think it’s really a reflection that there’s a strong level of belief that European venture as an asset class is an attractive investment opportunity. And that is reflected by the numbers. One of the charts that we’ve got in the report is from Cambridge Associates who do the benchmarking for the VC indices… And when you look back over a 1, 3, 5, or even a 10 year horizon, the performance from European VC is demonstrating that this is a place where for anyone building a diversified portfolio, they should have some allocation. I think it’s fundamentally the strength of the investment opportunity. That is the single biggest driver for why you’re seeing this happen.
I think the biggest thing that Europe has been able to prove is that it can take a great idea and turn it into a great company and that company can scale to not just a billion dollar outcome but to a multi-billion dollar outcome and go all the way through into an IPO or into a large scale acquisition. What you’ve seen happen in 2019 is in part A reflection of what happened last year where it was obviously this record year with Spotify, Adyen, Farfetch, Elastic and others that really showed you can go full cycle from start all the way to finish. And that the magnitude of those outcomes can be at a scale that makes them globally relevant.
Are the pension funds shifting their allocation of VC away from other geographies or are they just doing more VC as a whole?
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Europe’s recharged antitrust chief makes her five-year pitch to be digital EVP
Europe’s competition commissioner Margrethe Vestager, set for a dual role in the next Commission, faced three hours of questions from members of four committees in the European Parliament this afternoon, as MEPs got their chance to interrogate her priorities for a broader legislative role that will shape pan-EU digital strategy for the next five years.
As we reported last month, Vestager is headed for an expanded role in the incoming European Commission with president-elect Ursula von der Leyen picking her as an executive VP overseeing a new portfolio called “Europe fit for the digital age.”
She is also set to retain her current job as competition commissioner. And a question she faced more than once during today’s hearing in front of MEPs, who have a confirming vote on her appointment, was whether the combined portfolio wasn’t at risk of a conflict of interest?
Or whether she “recognized the tension between objective competition enforcement and industrial policy interests in your portfolio,” as one MEP put it, before asking whether she would “build Chinese walls” within it to avoid crossing the streams of enforcement and policymaking.
Vestager responded by saying it was the first question she’d asked herself on being offered the role — before laying out flat reasoning that “the independence in law enforcement is non-negotiable.”
“It has always been true that the commissioner for competition has been part of the College. And every decision we take also in competition is a collegial decision,” she said. “What justifies that is of course that every decision is subject to not one but 2x legal scrutiny if need be. And the latest confirmation of this set up was two judgments in 2011 — where it was looked into whether this set up… is in accordance with our human rights and that has been found to be so. So the set up, as such, is as it should be.”
The commissioner and commissioner-designate responded capably to a wide range of questions reflecting the broad span of her new responsibilities — fielding questions on areas including digital taxation; platform power and regulation; a green new deal; AI and data ethics; digital skills and research; and small business regulation and funding, as well as queries around specific pieces of legislation (such as ePrivacy and Copyright Reform).
Climate change and digital transformation were singled out in her opening remarks as two of Europe’s biggest challenges — ones she said will require both joint working and a focus on fairness.
“Europe is filled with highly skilled people, we have excellent infrastructure, fair and effective laws. Our Single Market gives European businesses the room to grow and innovate, and be the best in the world at what they do,” she said at the top of her pitch to MEPs. “So my pledge is not to make Europe more like China, or America. My pledge is to help make Europe more like herself. To build on our own strengths and values, so our society is both strong and fair. For all Europeans.”
Building trust in digital services
In her opening remarks Vestager said that if confirmed she will work to build trust in digital services — suggesting regulation on how companies collect, use and share data might be necessary to ensure people’s data is used for public good, rather than to concentrate market power.
It’s a suggestion that won’t have gone unnoticed in Silicon Valley.
“I will work on a Digital Services Act that includes upgrading our liability and safety rules for digital platforms, services and products,” she pledged. “We may also need to regulate the way that companies collect and use and share data — so it benefits the whole of our society.”
“As global competition gets tougher we’ll need to work harder to preserve a level playing field,” she also warned.
But asked directly during the hearing whether Europe’s response to platform power might include breaking up overbearing tech giants, Vestager signaled caution — saying such an intrusive intervention should only be used as a last resort, and that she has an obligation to try less drastic measures first. (It’s a position she’s set out before in public.)
“You’re right to say fines are not doing the trick and fines are not enough,” she said in response to one questioner on the topic. Another MEP complained fines on tech giants are essentially just seen as an “operating expense.”
Vestager went on to cite the Google AdSense antitrust case as an example of enforcement that hasn’t succeeded because it has failed to restore competition. “Some of the things that we will of course look into is do we need even stronger remedies for competition to pick up in these markets,” she said. “They stopped their behavior. That’s now two years ago. The market hasn’t picked up. So what do we do in those kind of cases? We have to consider remedies that are much more far reaching.
“Also before we reach for the very, very far reaching remedy to break up a company — we have that tool in our toolbox but obviously it is very far reaching… My obligation is to ensure that we do the least intrusive thing in order to make competition come back. And in that respect, obviously, I am willing to explore what do we need more, in competition cases, for competition to come back.”
Competition law enforcers in Europe will have to consider how to make sure rules enforce fair competition in what Vestager described as a “new phenomenon” of “competition for a market, not just in a market” — meaning that whoever wins the competition becomes “the de facto rule setter in this market.”
Regulating platforms on transparency and fairness is something on which European legislators have already agreed — earlier this year. Though that platform to business regulation has yet to come into force. “But it will also be a question for us as competition law enforcers,” Vestager told MEPs.
Making use of existing antitrust laws but doing so with greater speed and agility, rather than a drastic change of competition approach, appeared to be her main message — with the commissioner noting she’d recently dusted off interim measures in an ongoing case against chipmaker Broadcom; the first time such an application has been made for 20 years.
“It’s a good reflection of the fact that we find it a very high priority to speed up what we do,” she said, adding: “There’s a limit as to how fast law enforcement can work, because we will never compromise on due process — on the other hand we should be able to work as fast as possible.”
Her responses to MEPs on platform power favored greater regulation of digital markets (potentially including data), markets which have become dominated by data-gobbling platforms — rather than an abrupt smashing of the platforms themselves. So not an Elizabeth Warren “existential” threat to big tech, then, but from a platform point of view Vestager’s preferred approach might just sum to death by a thousand legal cuts.
“One of course could consider what kind of tools do we need?,” she opined, talking about market reorganization as a means of regulating platform power. “[There are] different ways of trying to re-organize a marketplace if the competition authority finds that the way it’s working is not beneficial for fair competition. And those are tools that can be considered in order to sort of re-organize before harm is done. Then you don’t punish because no infringement is found but you can give very direct almost orders… as to how a market should be organized.”
Artificial intelligence with a purpose
On artificial intelligence — which the current Commission has been working on developing a framework for ethical design and application — Vestager’s opening remarks contained a pledge to publish proposals for this framework — to “make sure artificial intelligence is used ethically, to support human decisions and not undermine them” — and to do so within her first 100 days in office.
That led one MEP to question whether it wasn’t too ambitious and hasty to rush to control a still emerging technology. “It is very ambitious,” she responded. “And one of the things that I think about a lot is of course if we want to build trust then you have to listen.
“You cannot just say I have a brilliant idea, I make it happen all over. You have to listen to people to figure out what would be the right approach here. Also because there is a balance. Because if you’re developing something new then — exactly as you say — you should be very careful not to over-regulate.
“For me, to fulfill these ambitions, obviously we need the feedback from the many, many businesses who have taken upon them to use the assessment list and the principles [recommended by the Commission’s HLEG on AI] of how to create AI you can trust. But I also think, to some degree, we have to listen fast. Because we have to talk with a lot of different people in order to get it right. But it is a reflection of the fact that we are in hurry. We really need to get our AI strategy off the ground and these proposals will be part of that.”
Europe could differentiate itself — and be “a world leader” — by developing “AI with a purpose,” Vestager suggested, pointing to potential applications for the tech such as in healthcare, transportation and combating climate change, which she said would also work to further European values.
“I don’t think that we can be world leaders without ethical guidelines,” she said of AI. “I think we will lose it if we just say no let’s do as they do in the rest of the world — let’s pool all the data from everyone, no matter where it comes from, and let’s just invest all our money. I think we will lose out because the AI you create because you want to serve humans. That’s a different sort of AI. This is AI with a purpose.”
On digital taxation — where Vestager will play a strategic role, working with other commissioners — she said her intention is to work toward trying to achieve global agreement on reforming rules to take account of how data and profits flow across borders. But if that’s not possible she said Europe is prepared to act alone — and quickly — by the end of 2020.
“Surprising things can happen,” she said, discussing the challenge of achieving even an EU-wide consensus on tax reform, and noting how many pieces of tax legislation have already been passed in the European Council by unanimity. “So it’s not undoable. The problem is we have a couple of very important pieces of legislation that have not been passed.
“I’m still kind of hopeful in the working way that we can get a global agreement on digital taxation. If that is not the case, obviously we will table and push for a European solution. And I admire the Member States who’ve said we want a European or global solution, but if that isn’t to be we’re willing to do that by ourselves in order to be able to answer to all the businesses who pay their taxes.”
Vestager also signaled support for exploring the possibility of amending Article 116 of the Treaty on the Functioning of the EU, which relates to competition-based distortion of the internal market, in order to enable tax reform to be passed by a qualified majority, instead of unanimously — as a potential strategy for getting past the EU’s own current blocks to tax reform.
“I think definitely we should start exploring what would that entail,” she said in response to a follow-up question. “I don’t think it’s a given that it would be successful, but it’s important that we take the different tools that the treaty gives us and use these tools if need be.”
During the hearing she also advocated for a more strategic use of public procurement by the EU and Member States — to push for more funding to go into digital research and business innovation that benefits common interests and priorities.
“It means working together with Member States on important projects of common European interest. We will bring together entire value chains, from universities, suppliers, manufacturers all the way to those who recycle the raw material that is used in manufacturing,” she said.
“Public procurement in Europe is… a lot of money,” she added. “And if we also use that to ask for solutions well then we can have also maybe smaller businesses to say I can actually do that. So we can make an artificial intelligence strategy that will push in all different sectors of society.”
She also argued that Europe’s industrial strategy needs to reach beyond its own Single Market — signaling a tougher approach to market access to those outside the bloc.
And implying she might favor less of a free-for-all when it comes to access to publicly funded data — if the value it contains risks further entrenching already data-rich, market-dominating giants at the expense of smaller local players.
“As we get more and more interconnected, we are more dependent and affected by decisions made by others. Europe is the biggest trading partner of some 80 countries, including China and the U.S. So we are in a strong position to work for a level global playing field. This includes pursuing our proposal to reform the World Trade Organization. It includes giving ourselves the right tools to make sure that foreign state ownership and subsidies do not undermine fair competition in Europe,” she said.
“We have to figure out what constitutes market power,” she went on, discussing how capacity to collect data can influence market position, regardless of whether it’s directly linked to revenue. “We will expand our insights as to how this works. We have learned a lot from some of the merger cases that we have been doing to see how data can work as an asset for innovation but also as a barrier to entry. Because if you don’t have the right data it’s very difficult to produce the services that people are actually asking for. And that becomes increasingly critical when it comes to AI. Because once you have it then you can do even more.
“I think we have to discuss what we do with all the amazing publicly funded data that we make available. It’s not to be overly biblical but we shouldn’t end up in a situation where ‘those who have shall more be given.’ If you have a lot already then you also have the capabilities and the technical insight to make very good use of it. And we do have amazing data in Europe. Just think about what can be assessed in our supercomputers… they are world-class… And second when it comes to both [EU sat-nav] Galileo and [earth observation program] Copernicus. Also here data is available. Which is an excellent thing for the farmer doing precision farming and saving in pesticides and seeds and all of that. But are really happy that we also make it available for those who could actually pay for it themselves?
“I think that is a discussion that we will have to have — to make sure that not just the big ones keep taking for themselves but the smaller ones having a fair chance.”
Rights and wrongs
During the hearing Vestager was also asked whether she supported the controversial EU copyright reform.
She said she supports the “compromise” achieved — arguing that the legislation is important to ensure artists are rewarded for the work they do — but stressed that it will be important for the incoming Commission to ensure Member States’ implementations are “coherent” and that fragmentation is avoided.
She also warned against the risk of the same “divisive” debates being reopened afresh, via other pieces of legislation.
“I think now that the copyright issue has been settled it shouldn’t be reopened in the area of the Digital Services Act,” she said. “I think it’s important to be very careful not to do that because then we would lose speed again when it comes to actually making sure there is remuneration for those who hold copyright.”
Asked in a follow-up question how, as the directive gets implemented by EU Member States, she will ensure freedom of speech is protected from upload filter technologies — which is what critics of the copyright reform argue the law effectively demands that platforms deploy — Vestager hedged, saying: “[It] will take a lot of discussions and back and forth between Member States and Commission, probably. Also this parliament will follow this very closely. To make sure that we get an implementation in Member States that are similar.”
“One has to be very careful,” she added. “Some of the discussions that we had during the adoption of the copyright directive will come back. Because these are crucial debates. Because it’s a debate between the freedom of speech and actually protecting people who have rights. Which is completely justified… Just as we have fundamental values we also have fundamental discussions because it’s always a balancing act how to get this right.”
The commissioner also voiced support for passing the ePrivacy Regulation. “It will be high priority to make sure that we’re able to pass that,” she told MEPs, dubbing the reform an important building block.
“One of the things I hope is that we don’t just always decentralize to the individual citizens,” she added. “Now you have rights, now you just go and force them. Because I know I have rights but one of my frustrations is how to enforce them? Because I am to read page after page after page and if I’m not tired and just forget about it then I sign up anyway. And that doesn’t really make sense. We still have to do more for people to feel empowered to protect themselves.”
She was also asked for her views on adtech-driven microtargeting — as a conduit for disinformation campaigns and political interference — and more broadly as so-called “surveillance capitalism.” “Are you willing to tackle adtech-driven business models as a whole?,” she was asked by one MEP. “Are you willing to take certain data exploitation practices like microtargeting completely off the table?”
Hesitating slightly before answering, Vestager said: “One of the things I have learned from surveillance capitalism and these ideas is it’s not you searching Google it is Google searching you. And that gives a very good idea about not only what you want to buy but also what you think. So we have indeed a lot to do. I am in complete agreement with what has been done so far — because we needed to do something fast. So the Code of Practice [on disinformation] is a very good start to make sure that we get things right… So I think we have a lot to build on.
“I don’t know yet what should be the details of the Digital Services Act. And I think it’s very important that we make the most of what we have since we’re in a hurry. Also to take stock of what I would call digital citizens’ rights — the GDPR [General Data Protection Regulation] — that we can have national authorities enforce that in full, and hopefully also to have a market response so that we have privacy by design and being able to choose that. Because I think it’s very important that we also get a market response to say, well, you can actually do things in a very different way than just to allow yourself to feel forced to sign up to whatever terms and conditions that are put in front of you.
“I myself find it very thought-provoking if you have the time just once in a while to read the T&Cs now when they are obliged, thanks to this parliament, to write in a way that you can actually understand that makes it even more scary. And very often it just makes me think, thanks but no thanks. And that of course is the other side of that coin. Yes, regulation. But also us as citizens to be much more aware of what kind of life we want to live and what kind of democracy we want to have. Because it cannot just be digital. Then I think we will lose it.”
In her own plea to MEPs, Vestager urged them to pass the budget so that the Commission can get on with all the pressing tasks in front of it. “We have proposed that we increase our investments quite a lot in order to be able to do all this kind of stuff,” she said.
“First things first, I’m sorry to say this, we need the money. We need funding. We need the programs. We need to be able to do something so that people can see that businesses can use funds to invest in innovation, so that researchers can make their networks work all over Europe. That they get the funding actually to get there. And in that respect I hope that you will help push for the multi-annual financial framework to be in place. I don’t think that Europeans have any patience for us when it comes to these different things that we would like to be real. That is now, that is here.”
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Ahead of third antitrust ruling, Google announces fresh tweaks to Android in Europe
Google is widely expected to be handed a third antitrust fine in Europe this week, with reports suggesting the European Commission’s decision in its long-running investigation of AdSense could land later today.
Right on cue the search giant has PRed another Android product tweak — which it bills as “supporting choice and competition in Europe”.
In the coming months Google says it will start prompting users of existing and new Android devices in Europe to ask which browser and search apps they would like to use.
This follows licensing changes for Android in Europe which Google announced last fall, following the Commission’s $5BN antitrust fine for anti-competitive behavior related to how it operates the dominant smartphone OS.
tl;dr competition regulation can shift policy and product.
Albeit, the devil will be in the detail of Google’s self-imposed ‘remedy’ for Android browser and search apps.
Which means how exactly the user is prompted will be key — given tech giants are well-versed in the manipulative arts of dark pattern design, enabling them to create ‘consent’ flows that deliver their desired outcome.
A ‘choice’ designed in such a way — based on wording, button/text size and color, timing of prompt and so on — to promote Google’s preferred browser and search app choice by subtly encouraging Android users to stick with its default apps may not actually end up being much of a ‘choice’.
According to Reuters the prompt will surface to Android users via the Play Store. (Though the version of Google’s blog post we read did not include that detail.)
Using the Play Store for the prompt would require an Android device to have Google’s app store pre-loaded — and licensing tweaks made to the OS in Europe last year were supposedly intended to enable OEMs to choose to unbundle Google apps from Android forks. Ergo making only the Play Store the route for enabling choice would be rather contradictory. (As well as spotlighting Google’s continued grip on Android.)
Add to that Google has the advantage of massive brand dominance here, thanks to its kingpin position in search, browsers and smartphone platforms.
So again the consumer decision is weighted in its favor. Or, to put it another way: ‘This is Google; it can afford to offer a ‘choice’.’
In its blog post getting out ahead of the Commission’s looming AdSense ruling, Google’s SVP of global affairs, Kent Walker, writes that the company has been “listening carefully to the feedback we’re getting” vis-a-vis competition.
Though the search giant is actually appealing both antitrust decisions. (The other being a $2.7BN fine it got slapped with two years ago for promoting its own shopping comparison service and demoting rivals’.)
“After the Commission’s July 2018 decision, we changed the licensing model for the Google apps we build for use on Android phones, creating new, separate licenses for Google Play, the Google Chrome browser, and for Google Search,” Walker continues. “In doing so, we maintained the freedom for phone makers to install any alternative app alongside a Google app.”
Other opinions are available on those changes too.
Such as French pro-privacy Google search rival Qwant, which last year told us how those licensing changes still make it essentially impossible for smartphone makers to profit off of devices that don’t bake in Google apps by default. (More recently Qwant’s founder condensed the situation to “it’s a joke“.)
Qwant and another European startup Jolla, which leads development of an Android alternative smartphone platform called Sailfish — and is also a competition complainant against Google in Europe — want regulators to step in and do more.
The Commission has said it is closely monitoring changes made by Google to determine whether or not the company has complied with its orders to stop anti-competitive behavior.
So the jury is still out on whether any of its tweaks sum to compliance. (Google says so but that’s as you’d expect — and certainly doesn’t mean the Commission will agree.)
In its Android decision last summer the Commission judged that Google’s practices harmed competition and “further innovation” in the wider mobile space, i.e. beyond Internet search — because it prevented other mobile browsers from competing effectively with its pre-installed Chrome browser.
So browser choice is a key component here. And ‘effective competition’ is the bar Google’s homebrew ‘remedies’ will have to meet.
Still, the company will be hoping its latest Android tweaks steer off further Commission antitrust action. Or at least generate more fuzz and fuel for its long-game legal appeal.
Current EU competition commissioner, Margrethe Vestager, has flagged for years that the division is also fielding complaints about other Google products, including travel search, image search and maps. Which suggests Google could face fresh antitrust investigations in future, even as the last of the first batch is about to wrap up.
The FT reports that Android users in the European economic area last week started seeing links to rival websites appearing above Google’s answer box for searches for products, jobs or businesses — with the rival links appearing above paid results links to Google’s own services.
The newspaper points out that tweak is similar to a change promoted by Google in 2013, when it was trying to resolve EU antitrust concerns under the prior commissioner, Joaquín Almunia.
However rivals at the time complained the tweak was insufficient. The Commission subsequently agreed — and under Vestager’s tenure went on to hit Google with antitrust fines.
Walker doesn’t mention these any of additional antitrust complaints swirling around Google’s business in Europe, choosing to focus on highlighting changes it’s made in response to the two extant Commission antitrust rulings.
“After the Commission’s July 2018 decision, we changed the licensing model for the Google apps we build for use on Android phones, creating new, separate licenses for Google Play, the Google Chrome browser, and for Google Search. In doing so, we maintained the freedom for phone makers to install any alternative app alongside a Google app,” he writes.
Nor does he make mention of a recent change Google quietly made to the lists of default search engine choices in its Chrome browser — which expanded the “choice” he claims the company offers by surfacing more rivals. (The biggest beneficiary of that tweak is privacy search rival DuckDuckGo, which suddenly got added to the Chrome search engine lists in around 60 markets. Qwant also got added as a default choice in France.)
Talking about Android specifically Walker instead takes a subtle indirect swipe at iOS maker Apple — which now finds itself the target of competition complaints in Europe, via music streaming rival Spotify, and is potentially facing a Commission probe of its own (albeit, iOS’ marketshare in Europe is tiny vs Android). So top deflecting Google.
“On Android phones, you’ve always been able to install any search engine or browser you want, irrespective of what came pre-installed on the phone when you bought it. In fact, a typical Android phone user will usually install around 50 additional apps on their phone,” Walker writes, drawing attention to the fact that Apple does not offer iOS users as much of a literal choice as Google does.
“Now we’ll also do more to ensure that Android phone owners know about the wide choice of browsers and search engines available to download to their phones,” he adds, saying: “This will involve asking users of existing and new Android devices in Europe which browser and search apps they would like to use.”
We’ve reached out to Commission for comment, and to Google with questions about the design of its incoming browser and search app prompts for Android users in Europe and will update this report with any response.
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Google files appeal against Europe’s $5BN antitrust fine for Android
Google has lodged its legal appeal against the European Commission’s €4.34 billion (~$5BN) antitrust ruling against its Android mobile OS, according to Reuters — the first step in a process that could keep its lawyers busy for years to come.
“We have now filed our appeal of the EC’s Android decision at the General Court of the EU,” it told the news agency, via email.
We’ve reached out to Google for comment on the appeals process.
Rulings made by the EU’s General Court in Luxembourg can be appealed to the top court, the Court of Justice of the European Union, but only on points of law.
Europe’s competition commissioner, Margrethe Vestager, announced the record-breaking antitrust penalty for Android in July, following more than two years of investigation of the company’s practices around its smartphone operating system.
Vestager said Google had abused the regional dominance of its smartphone platform by requiring that manufacturers pre-install other Google apps as a condition for being able to license the Play Store.
She also found the company had made payments to some manufacturers and mobile network operators in exchange for them exclusively pre-installing Google Search on their devices, and used Google Play licensing to prevent manufacturers from selling devices based on Android forks — which would not have to include Google services and, in Vestager’s view, “could have provided a platform for rival search engines as well as other app developers to thrive”.
Google rejected the Commission’s findings and said it would appeal.
In a blog post at the time, Google CEO Sundar Pichai argued the contrary — claiming the Android ecosystem has “created more choice, not less” for consumers, and saying the Commission ruling “ignores the new breadth of choice and clear evidence about how people use their phones today”.
According to Reuters the company reiterated its earlier arguments in reference to the appeal.
A spokesperson for the EC told us simply: “The Commission will defend its decision in Court.”
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Trump just noticed Europe’s $5BN antitrust fine for Google
In other news bears shit in the woods. In today’s second-day President Trump news: ‘The Donald’ has seized, belatedly, on the European Commission’s announcement yesterday that Google is guilty of three types of illegal antitrust behavior — with its Android OS, since 2011 — and that it is fining the company $5 billion; a record-breaking penalty which the Commission’s antitrust chief, Margrethe Vestager, said reflects the length and gravity of the company’s competition infringements.
Trump is not! at all! convinced! though!
“I told you so!” he has tweeted triumphantly just now. “The European Union just slapped a Five Billion Dollar fine on one of our great companies, Google . They truly have taken advantage of the U.S., but not for long!”
I told you so! The European Union just slapped a Five Billion Dollar fine on one of our great companies, Google. They truly have taken advantage of the U.S., but not for long!
— Donald J. Trump (@realDonaldTrump) July 19, 2018
Also not so very long ago, Trump was the one grumbling about U.S. tech giants. Though Amazon is his most frequent target in tech, while Google has been spared the usual tweet lashings. Albeit, on the average day he may not necessarily be able to tell one tech giant from another.
Vestager can though, and she cited Amazon as one of the companies that had suffered as a direct result of contractual conditions Google imposed on device makers using its Android OS — squeezing the ecommerce giant’s potential to build a competing Android ecosystem, with its Fire OS.
Presumably, for Trump, Amazon is not ‘one of our great companies’ though.
At least it’s only Google that gets his full Twitter attention — and a special Trumpian MAGA badge of honor call-out as “one of our great companies” — in the tweet.
Presumably, he hasn’t had this pointed out to him yet though. So, uh, awkward.
Safe to say, Trump is seizing on Google’s antitrust penalty as a stick to beat the EU, set against a backdrop of Trump already having slapped a series of tariffs on EU goods, and Trump recently threatening the EU with tariffs on cars — in what is fast looking like a full blown trade war.
Even so, Trump’s tweet probably wasn’t the kind of support Google was hoping to solicit via its own Twitter missive yesterday…
.@Android has created more choice for everyone, not less. #AndroidWorks pic.twitter.com/FAWpvnpj2G
— Google Europe (@googleeurope) July 18, 2018
#AndroidWorksButTradeWarsDon’t doesn’t make for the most elegant hashtag.
But here’s the thing: Vestager has already responded to Trump’s attack on the Android decision — even though it’s taking place a day late. Because the EU’s “tax lady”, as Trump has been known to vaguely refer to her, is both lit and onit.
During yesterday’s press conference she was specifically asked to anticipate Trump’s tantrum response on hearing the EU antitrust decision against Google, and whether she wasn’t afraid it might affect next week’s meeting between the US president and the European Commission’s president, Jean-Claude Juncker.
“As I know my US colleagues want fair competition just as well as we do,” she responded. “There is a respect that we do our job. We have this very simple mission to make sure that companies play by the rulebook for the market to serve consumers. And this is also my impression that this is what they want in the US.”
Pressed again on political context, given the worsening trade relationship between the US and the EU, Vestager was asked how she would explain that her finding against Google is not part of an overarching anti-US narrative — and how would she answer Trump’s contention that the EU’s “tax lady… really hates the US”.
“Well I’ve done my own fact checking on the first part of that sentence. I do work with tax and I am a woman. So this is 100% correct,” she replied. “It is not correct for the latter part of the sentence though. Because I very much like the US. And I think that would also be what you think because I am from Denmark and that tends to be what we do. We like the U.S. The culture, the people, our friends, traveling. But the fact is that this [finding against Google] has nothing to do with how I feel. Nothing whatsoever. Just as well as enforcing competition law — well, we do it in the world but we don’t do it in a political context. Because then there would never, ever be a right timing.
“The mission is very simple. We have to protect consumers and competition to make sure that consumers get the best of fair competition — choice, innovation, best possible prices. This is what we do. It has been done before, we will continue to do it — no matter the political context.”
Maybe Trump will be able to learn the name of the EU’s “tax lady” if Vestager ends up EU president next year.
Or, well, maybe not. We can only hope so.
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Google gets slapped with $5BN EU fine for Android antitrust abuse
Google has been fined a record breaking €4.34 billion (~$5BN) by European antitrust regulators for abusing the dominance of its Android mobile operating system.
Competition commissioner Margrethe Vestager has tweeted to confirm the penalty ahead of a press conference about to take place. Stay tuned for more details as we get them.
Fine of €4,34 bn to @Google for 3 types of illegal restrictions on the use of Android. In this way it has cemented the dominance of its search engine. Denying rivals a chance to innovate and compete on the merits. It’s illegal under EU antitrust rules. @Google now has to stop it
— Margrethe Vestager (@vestager) July 18, 2018
In a longer statement about the decision, Vestager said:
Today, mobile internet makes up more than half of global internet traffic. It has changed the lives of millions of Europeans. Our case is about three types of restrictions that Google has imposed on Android device manufacturers and network operators to ensure that traffic on Android devices goes to the Google search engine. In this way, Google has used Android as a vehicle to cement the dominance of its search engine. These practices have denied rivals the chance to innovate and compete on the merits. They have denied European consumers the benefits of effective competition in the important mobile sphere. This is illegal under EU antitrust rules.
In particular, the EC has decided that Google:
- has required manufacturers to pre-install the Google Search app and browser app (Chrome), as a condition for licensing Google’s app store (the Play Store);
- made payments to certain large manufacturers and mobile network operators on condition that they exclusively pre-installed the Google Search app on their devices; and
- has prevented manufacturers wishing to pre-install Google apps from selling even a single smart mobile device running on alternative versions of Android that were not approved by Google (so-called “Android forks”).
The decision also concludes that Google is dominant in the markets for general internet search services; licensable smart mobile operating systems; and app stores for the Android mobile operating system.
During the press conference Vestager said the Commission had determined that Google had breached its competition rules with Android since 2011. (Although its press release also notes that during 2013, after being called out by the Commission, Google gradually stopped making illegal payments to device manufacturers to exclusively pre-install Google Search. “The illegal practice effectively ceased as of 2014,” it adds.)
“The decision today concludes that the restrictions Google imposed on manufacturers and network operators using Android have breached [EU] rules since 2011,” said Vestager. “First that’s because Google’s practices have denied rival search engines the possibility to compete on their merits. They made sure that Google search engine is pre-installed on practically all Android devices, which is an advantage that cannot be matched.
“And by making payments to major manufacturers and network operators on condition that no other search app or search engine was pre-installed — well, then rivals were excluded from this opportunity.”
“Google’s practices also harmed competition and further innovation in the wider mobile space, beyond just Internet search — and that’s because they prevented other mobile browsers from competing effectively with the pre-installed Google Chrome browser.
“Finally they obstructed the development of Android forks. This could have provided a platform for rival search engines as well as other app developers to thrive.”
She raised the example of Amazon’s Android fork, Fire OS, as a rival Android platform that has suffered from Google’s contractual arrangements with device manufacturers.
“In 2012 and 2013 Amazon tried to license to device manufacturers its Android fork, called Fire OS. It wanted to co-operate with manufacturers to increase its chances of commercial success. And manufacturers were interested but due to Google’s restrictions, manufacturers could not launch Fire OS on even a single device,” she said.
“They would have lost the right to sell any Android phone with key Google apps. Nowadays, very few devices run with Fire OS. Namely only those manufactured by Amazon themselves. And this is not a proportionate outcome. Google is entitled to set technical requirements to ensure that functionality and apps within its own Android ecosystem runs smoothly. But these technical requirements cannot serve as a smokescreen to prevent the development of competing Android ecosystems.
“Google cannot have its cake and eat it.”
Vestager also made a point of characterizing Google’s actions as monopolistic towards data, saying that by blocking rival apps and services it “also denied rivals access to valuable data from increased user traffic which in turn could have allowed rivals to improve their products”.
What about breaking Google up?
During the press conference she was asked several times about whether breaking up Google might not be a more effective remedy than the cease & desist decision the Commission has reached today — which hands responsibility for Google to come up with a compliance remedy for its illegal behavior with Android (albeit, subject to ongoing monitoring by the Commission).
She replied that she wasn’t sure that breaking up Google would make for an effective competition remedy, arguing there are “no silver bullets” to ensuring competitive markets.
“Here we have a decision that is very clear, which will allow mobile device producers to have a choice — that will us, as consumers, to have a choice as well. That’s what competition is about. And I think that is much more important than a discussion of whether or not breaking up a company would do that,” she said, when asked whether she would exclude the possibility of breaking up Google — so she was sidestepping a direct answer to that.
“I think what will serve competition is for more players to have a real go, to be able to reach consumers so that we can use our choice to find what suits us the best,” she added. “Test out new search engines, new browsers, have maybe a phone that works in a slightly different way [via an Android fork]… maybe the totality of the phone, in the way it was presented, that would work to allow others to compete on the merits, to show consumers what can we do, what have we invented, this is where we put our efforts, this is the that innovation we want to present for you. This I think would enable competition.”
She also emphasized the importance of passing proposed EU legislation related to transparency and fairness for businesses that are reliant on online platforms.
“I think there is a very important discussion which is to discuss how to pass the legislation that my colleagues have tabled — legislation that will ensure that you have transparency and fairness in the business to platform relationship,” she said.
“So that if you’re a business and you find that ‘oh, my traffic has stopped’, that you know why it happened, when it happened and what to do to get your traffic back…. Because this will change the marketplace, and it will change the way we are protected as consumers but also as businesses.”
Google has tweeted an initial reaction to the decision, claiming Android has created “a vibrant ecosystem, rapid innovation and lower prices”.
.@Android has created more choice for everyone, not less. #AndroidWorks pic.twitter.com/FAWpvnpj2G
— Google Europe (@googleeurope) July 18, 2018
A company spokesperson confirmed to us that it will appeal the Commission’s decision.
In a lengthy blog post response, CEO Sundar Pichai expands on the company’s argument that the Android ecosystem has “created more choice, not less” — writing for example:
Today, because of Android, there are more than 24,000 devices, at every price point, from more than 1,300 different brands,including Dutch, Finnish, French, German, Hungarian, Italian, Latvian, Polish, Romanian, Spanish and Swedish
phone makers.The phones made by these companies are all different, but have one thing in common — the ability to run the same applications. This is possible thanks to simple rules that ensure technical compatibility, no matter what the size or shape of the device. No phone maker is even obliged to sign up to these rules — they can use or modify Android in any way they want, just as Amazon has done with its Fire tablets and TV sticks.
He also has a veiled warning about the consequences should Google’s “free distribution” model for Android come unstuck, writing:
The free distribution of the Android platform, and of Google’s suite of applications, is not only efficient for phone makers and operators—it’s of huge benefit for developers and consumers. If phone makers and mobile network operators couldn’t include our apps on their wide range of devices, it would upset the balance of the Android ecosystem. So far, the Android business model has meant that we haven’t had to charge phone makers for our technology, or depend on a tightly controlled distribution model.
The fine is the second major penalty for the ad tech giant for breaching EU competition rules in just over a year — and the highest ever issued by the Commission for abuse of a dominant market position.
In June 2017 Google was hit with a then-record €2.4BN (~$2.7BN) antitrust penalty related to another of its products, search comparison service, Google Shopping. The company has since made changes to how it displays search results for products in Europe.
According to the bloc’s rules, companies can be fined 10 per cent of their global revenue if they are deemed to have breached European competition law.
Google’s parent entity Alphabet reported full year revenue of $110.9 billion in 2017. So the $5BN fine is around half of what the company could have been on the hook for if EU regulators had levied the maximum penalty possible.
“It’s a very serious illegal behavior”
The Commission said the size of the fine takes into account “the duration and gravity of the infringement”.
It also specified it had been calculated on the basis of the value of Google’s revenue from search advertising services on Android devices in the European Economic Area (per its own guidelines on fines).
Pressed during the press conference on how the Commission had determined the size of the penalty, which is double the penalty it issued in the Google Shopping case, Vestager emphasized the time period over which it had been going on, the fact of it having three components, and the effect of it, combined with Google’s rising turnover — adding finally for emphasis: “It’s a very serious infringement. It’s a very serious illegal behavior.”
Google will have three months to pay the fine but has confirmed it will appeal the decision — and legal wrangling could drag the process out for many years.
Vestager confirmed that while antitrust fines must technically be paid to the EU within the three month deadline they are placed in a closed account until the end of any appeals process — meaning the money cannot be used in the meanwhile.
So, in the Android case, the $5BN will likely be locked up until the late 2020s — assuming Google’s appeals aren’t successful. Should Google fail to overturn the Commission’s decision in the courts, Vestager said the money would be returned to EU Member States “using the same key as the contribution to the European budget”.
“You can impose a fine if someone has done someone wrong, you cannot impose a fine because you need the money. That would be wrong,” she added. “This of course means that it will take quite some time… if we win in court — and I can assure you we have done our best to make that possible — then, eventually, the money will come back to Member States to serve European citizens.”
Prior to the Commission’s record pair of fines for Google products, its next highest antitrust penalty is a €1.06BN antitrust fine for chipmaker Intel all the way back in 2009.
Yet only last year Europe’s top court ruled that the case against Intel — which focused on it offering rebates to high-volume buyers — should be sent back to a lower court to be re-examined, nearly a decade after the original antitrust decision. So Google’s lawyers are likely to have a spring in their step going into this next European antitrust battle.
The latest EU fine for Android has been on the cards for more than two years, given the Commission’s preliminary findings and consistently prescriptive remarks from Vestager during the course of what has been a multi-year investigation process.
And, indeed, given multiple EU antitrust investigations into Google businesses and business practices (the EU has also been probing Google’s AdSense advertising service — a separate investigation that Vestager today confirmed remains ongoing).
The Commission’s prior finding that Google is a dominant company in Internet search — a judgement reached at the culmination of its Google Shopping investigation last year — is also important, making the final judgement in the Android case more likely because the status places the onus on Google not to abuse its dominant position in other markets, adjacent or otherwise.
Announcing the Google Shopping penalty last summer, Vestager made a point of emphasizing that dominant companies “need to be more vigilant” — saying they have a “special responsibility” to ensure they are not in breach of antitrust rules, and also specifying this applies “in the market where it’s dominant” and “in any other market”. So that means — as here in the Android case — in mobile services too.
While a one-off financial penalty — even one that runs to so many billions of dollars — cannot cause lasting damage to a company as wealthy as Alphabet, of greater risk to its business are changes the regulators can require to how it operates Android which could have a sustained impact on Google if they end up reshaping the competitive landscape for mobile services.
In search of a remedy
At least that’s the Commission’s intention: To reset what has been judged an unfair competitive advantage for Google via Android, and foster competitive innovation because rival products get a fairer chance to impress consumers. Although it is avoiding prescribing any specific remedies — beyond telling Google to stop it.
For instance Vestager was asked whether the Commission might want Google to send push notifications to existing Android users to highlight alternatives, and thereby offer a remedy to consumers who had already been impacted by the choice constraints it placed on device makers and carriers.
“It is for Google to figure out how to lift this responsibility,” she told reporters. “It’s for them to do this… Google may make that kind of choice [i.e. sending push notifications] — on that we have taken no position.”
However the popularity and profile of Google services suggests that even if Android users are offered a choice as a result of an EU antitrust remedy — such as of which search engine, maps service, mobile browser or even app store to use — most will likely pick the Google-branded offering they’re most familiar with.
That said, the antitrust remedy could have the chance to shift consumers’ habits over time — if, for instance, OEMs start offering Android devices that come preloaded with alternative mobile services, thereby raising the visibility of non-Google apps and services. Which is clearly the Commission’s hope.
Interestingly, Google has been striking deals with Chinese OEMs in recent months — to brings its ARCore technology to markets where its core services are censored and its Play Store is restricted. And its strategy to workaround regional restrictions in China by working more closely with device makers may also be part of a plan to hedge against fresh regulatory restrictions being placed on Android elsewhere.
Complainants in the EU’s earlier Google Shopping antitrust case continue to express displeasure with the outcome of the remedies Google has come up with on that front. And in a pointed statement responding to news that another EU antitrust penalty was incoming for Android, Shivaun Raff, CEO of Foundem, the lead complainant in Google Shopping case, said: “Fines make headlines. Effective remedies make a difference.”
So the devil will be in the detail of the Android remedies that Google comes up with.
“The decision requires Google to bring its illegal conduct to an end within 90 days in an effective manner,” said Vestager today. “At a minimum, our decision requires Google to stop and not to re-engage in the three types of restrictions that I have described. In other words our decision stops Google from controlling which search and browser apps manufacturers can pre-install on Android devices, or which Android operating system they can adopt. But it is Google’s sole responsibility to make sure that it changes its conduct in a way that brings the infringements to an effective end.”
“We will monitor this very closely,” she added, warning that failure to comply would invite further penalty payments — of up to 5% of the average daily turnover of Alphabet for each day of non-compliance, back dated to when the non-compliance started. “Our decision requires Google to change the way it operates and face the consequences of its action.”
Aptoide, one of the original app store complainants — which filed an antitrust complaint with the European Commission in 2014 complaining that Google’s policies did not allow any alternative app stores which competed with the Play Store to be valid content — welcomed today’s decision, albeit cautiously, as a “positive first step”. So there’s a lot of ‘wait and see’ in the air.
CEO Paulo Trezentos told us: “The EU’s ruling justifying our antitrust arguments is a positive first step forward, for a market more open, more competitive and better tailored for the users. It is these types of decisions that push industries to bigger levels and we hope that this will help everyone evolve.”
On the Google Shopping compliance front, Vestager had some additional words of warning for Google — saying: “We have not yet taken a position on whether Google has complied with the decision. And since we haven’t done so this remains very much an open question.”
She also said the Commission is continuing to investigate other elements of Google’s business practices related to other vertical search services.
“I cannot prejudge the outcome of these ongoing investigations,” she said, also citing the ongoing AdSense probe, and adding that they continue to be “a top priority for us”.
Android as an antitrust ‘Trojan horse’
The European Commission announced its formal in-depth probe of Android in April 2015, saying then that it was investigating complaints Google was “requiring and incentivizing” OEMs to exclusively install its own services on devices on Android devices, and also examining whether Google was hindering the ability of smartphone and tablet makers to use and develop other OS versions of Android (i.e. by forking the open source platform).
Rivals — banding together under the banner ‘FairSearch‘ — complained Google was essentially using the platform as a ‘Trojan horse’ to unfairly dominate the mobile web. The lobby group’s listing on the EU’s transparency register describes its intent as promoting “innovation and choice across the Internet ecosystem by fostering and defending competition in online and mobile search within the European Union”, and names its member organizations as: Buscapé, Cepic, Foundem, Naspers, Nokia, Oracle, TripAdvisor and Yroo.
On average, Android has around a 70-75% smartphone marketshare across Europe. But in some European countries the OS accounts for an even higher proportion of usage. In Spain, for example, Android took an 86.1% marketshare as of March, according to market data collected by Kantar Worldpanel.
In recent years Android has carved an even greater market share in some European countries, while Google’s Internet search product also has around a 90% share of the European market, and competition concerns about its mobile OS have been sounded for years.
Last year Google reached a $7.8M settlement with Russian antitrust authorities over Android — which required the company to no longer demand exclusivity of its applications on Android devices in Russia; could not restrict the pre-installation of any competing search engines and apps, including on the home screen; could no longer require Google Search to be the only general search engine pre-installed.
Google also agreed with Russian antitrust authorities that it would no longer enforce its prior agreements where handset makers had agreed to any of these terms. Additionally, as part of the settlement, Google was required to allow third parties to include their own search engines into a choice window, and to allowing users to pick their preferred default search engine from a choice window displayed in Google’s Chrome browser. The company was also required to develop a new Chrome widget for Android devices already being used in Russia, to replace the standard Google search widget on the home screen so they would be offered a choice when it launched.
A year after Vestager’s public announcement of the EU’s antitrust probe of Android, she issued a formal Statement of Objections, saying the Commission believed Google has “implemented a strategy on mobile devices to preserve and strengthen its dominance in general Internet search”; and flagging as problematic the difficulty for Android users whose devices come pre-loaded with the Google Play store to use other app stores (which cannot be downloaded from Google Play).
She also raised concerns over Google providing financial incentives to manufacturers and mobile carriers on condition that Google search be pre-installed as the exclusive search provider. “In our opinion, as we see it right now, it is preventing competition from happening because of the strength of the financial incentive,” Vestager said in April 2016.
Google was given several months to respond officially to the antitrust charges against Android — which it finally did in November 2016, having been granted an extension to the Commission’s original deadline.
Thriving competition?
In its rebuttal then, Google argued that, contrary to antitrust complaints, Android had created a thriving and competitive mobile app ecosystem. It further claimed the EU was ignoring relevant competition in the form of Apple’s rival iOS platform — although iOS does not hold a dominant marketshare in Europe, nor Apple have a status as a dominant company in any EU markets.
Google also argued that its “voluntary compatibility agreements” for Android OEMs are a necessary mechanism for avoiding platform fragmentation — which it said would make life harder for app developers — as well as saying its requirement for Android OEMs to use Google search by default is effectively its payment for providing the suite for free to device makers (given there is no formal licensing fee for Android).
It also couched “free distribution is an efficient solution for everyone” — arguing it lowers prices for phone makers and consumers, while “still letting us sustain our substantial investment in Android and Play”.
In addition, Google sought to characterize open source platforms as “fragile” — arguing the Commission’s approach risked upsetting the “balance of needs” between users and developers, and suggesting their action could signal they favor “closed over open platforms”.
During today’s press conference, Vestager was asked whether she has concerns that the costs of handsets might rise should Google respond to the antitrust remedy by deciding to charge a licensing fee for OEMs to use Android, instead of distributing it for free.
She pointed to the revenue Google generates via the Play Store. “The revenue made from that is quite substantial so I think there is still a possibility for Google to recoup the investment made in developing the Android operating system,” she suggested.
“I think a number of different choices can be made by Google and it is for Google to make these choices,” she added. “What we see in general is that competition makes prices come down, gives you better choices. So you can have a theory that prices will come up, it is as likely that prices will come down because of more competition. The thing is now it’s open — there can be competition as to how this should work. And that’s the very point of the decision.”
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