Google has resurfaced after being thrashed by the German Competition Authority in a decision dated December 30, 2021. The regulator, in an early intervention through a newly inserted section 19a to the German Competition Act, (GWM Digitalisation Act laws restraining competition) is looking into Google’s control over a complex ecosystem as the “paramount significance for competition across markets”, since it is in position of collecting user data across services and across device (the pre-installation function).
In January of 2021, the German Competition Authority brought in 19a to reign in cross market competition and abusive behaviour by companies in their cross market operations. This insertion empowers regulators to stop such anti-trust practices and permits , the Federal Cartel Office (“FCO”) to prohibit certain practices without actual findings of anticompetitive effects. This could mean, the regulators can prohibit the company(s):
- own offers from being treated preferentially over those of competitors;
- from taking measures which hinder other companies in their business activities on procurement or sales, if the company’s activities are important for access to these markets;
- deny or impede interoperability of products or services or the portability of data, impeding competition;
- demand disproportionate benefits for treatment of offers from another company.
The new section will intervene deeply in the large digital companies’ practice in two parts: first, by assessing their cross market significance (section 19a) and secondly, investigating practices which can be curbed (section 19a (2)).
The big tech giants offering multiple products and services are in a position of dominance to hold a substantial economic position and not be questioned by their competitors without any external control. The digital acceleration drives this further and brings conglomerate together or even cause easy vertical integration.
Why was Google pursued by the FCO?
Soon after the insertion of section 19a, the FCO initiated proceedings against all big tech companies (aka “GAFA”), and FCO started investigation against Google’s News Showcase and its data processing terms.
Google News Showcase – In 2020, Google launched its high-quality journalistic content service which was initially available only on Google News app but later extended to Google News on the desktop. Further, Google provided this in the general Google search results. The integration of Google News Showcase service into Google’s general search function was a case in point for self-preference or creating impediment for third parties providing such services.
Data Processing Terms – Google’s strategic advantage over its competitors lies in the extent to which it processes user data. To closely analyse this, the proceedings were set up. When using Google’s digital services, for example, customers must agree to Google’s data processing terms. Depending on whether a new account has been created or whether a specific service is being used without creating an account, the terms vary. Does Google give users a choice to control the extent of their data collection, was the research question of the proceeding.
Why was Google reprimanded?
The FCO found that, Google operates on multi-sided markets such as Google Search, YouTube, Chrome, and the Play Store, among others. The services provided are widely used, with a product range spanning multiple sectors and markets. The majority of these services are provided to consumers at no cost.
In an indicator of dominant position/ economic position, Google controls more than 80% of market share across marketplaces, particularly in the German market for general search services. The regulators used several markers to determine Google’s dominance:
- Google Services that are vertically integrated and complementary, attract a large number of users – These Google Services are referred to as “Infrastructure” undeniably important for third-party businesses. However, these diverse services provide Google with cost savings due to economies of scope (production of one good reduces the cost of producing another related good). Allowing Google to penetrate its services into different markets expanding across markets.
- Ability to set rules for its potential users and advertising customers – Google holds a large advertising inventory through its’ search engine, YouTube, third-party apps which allow access to data shared with Google on user sign ins into the app/service through Google Account or by guiding its users to use its other services (“tying of services”). For example, Google’s Android mobile operating system offers a bundle of Google apps through Play Store by entering into distribution agreements with original equipment manufacturers like TADA & MADA for pre-installing its apps on Android devices.
- Access to broad and deep user database –Google employs identifiers (a unique identifier that allows mobile applications running on the Android operating system (OS) to collect data about consumers for personalization and customer analytics (i.e. information and behaviour). Its’ cross-market presence, allows accumulation of a massive amount of user data. Similarly, because of the refinement of the data, due to accuracy and granularity, Google holds a privileged and consistent representation across markets. Furthermore, the ease with which it may use shared inputs across its various brands and markets makes it easier to operate, improve, and expand existing services, as well as build new ones.
- Largest search engine – Google is the largest and popular search engine in the world with a vast user base. In 2020, Google’s worldwide revenue amounted to $183 B.
What does it mean for other big-tech giants?
FCO, as of today is investigating Facebook, Apple, and Amazon. Some businesses are facing the first, second, or both steps of the assessment process mandated by Section 19a.
The FCO filed the first lawsuit under Section 19a against Facebook, relating to the link between Oculus virtual reality devices and Facebook’s social network, on January 28, 2021. Oculus and Facebook’s social network platforms were operated separately at first, eventually merging Oculus into Facebook’s social network platform (as an additional function) which meant, using the new generation of Oculus glasses required a Facebook account, and previous Oculus accounts could no longer be used to register for the new device. Citing tying, the traditional abuse of dominance regulations, as a potential basis of harm, the FCO had already initiated an investigation into this in December 2020.
Conclusion
These changes are widely an indication to large Digital Companies to take a conscious look at their Data Processing Policy and their role as gatekeepers. The introduction of Section 19a by the German competition authorities is a significant step forward in, deep examination of digital gatekeepers even in the absence of anti-competitive practises.
The difficulty of the task would rest on bringing German competition authorities, national competition authorities, and the European Union’s Treaty on the Functioning of the European Union (particularly Article 102 abuse of dominance), together to coordinate investigations and proceedings in section 19a cases, as well as to comply, conform, and cooperate with Article 11/6 of Regulation 1/ 2003 (co-operation between the EU and the competition authorities of the Member States).
The future business for digital companies in Germany will require caution in conduct because of section19a. However, it will be interesting to watch how this insertion in law, prevents the alleged dominance and extensive use of data by the digital gatekeepers, in wake of the proposed curb on self-preferential treatment and cross market influence on related markets, competitors, and consumers.
This step by the German regulator is indicative of an effective early intervention, a space worth watching.
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