Google Fined $5.1 Billion by EU in Android Antitrust Ruling
Posted July 18, 2018 7:20 a.m. EDT
BRUSSELS — Google was hit with a $5.1 billion fine by European antitrust officials Wednesday for abusing its power in the smartphone market, in the region’s latest move to rein in the clout of U.S. tech companies.
The penalty of 4.34 billion euros was a record and far larger than the 2.4 billion euros, or about $2.8 billion, that the European Union levied on Google last year for unfairly favoring its own services in internet search results. The decision Wednesday highlighted how European authorities are aggressively pushing for stronger regulation of the digital economy on issues including antitrust, privacy, taxes, and the spread of misinformation and hate speech.
European officials said Google, which makes the Android mobile operating system used in smartphones, broke antitrust laws by striking deals with handset manufacturers such as HTC, Huawei and Samsung. The agreements required Google’s services, such as its search bar and Chrome browser, to be favored over rival offerings. European authorities said those moves unfairly boxed out competitors.
“Google has used Android as a vehicle to cement the dominance of its search engine,” said Margrethe Vestager, Europe’s antitrust chief. “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.”
European authorities gave Google 90 days to end its practices or face penalties of up to 5 percent of the worldwide average daily revenues of its parent company, Alphabet. The case would most likely drag on for years, however, if Google were to appeal the decision.
The long-anticipated ruling arrived during a politically delicate period, with Europe and the United States engaged in an escalating economic conflict by imposing tariffs on an array of products from alcohol to aluminum. Last week, on a trip to Brussels, President Donald Trump kept up his complaints that U.S. businesses were at a disadvantage here. Jean-Claude Juncker, president of the European Commission, the bloc’s executive arm, is set to visit Washington next week for talks with Trump.
Still, the ultimate effect of Wednesday’s ruling may be muted given that Europe has largely acted alone in its regulatory actions against Silicon Valley titans. In the United States, lawmakers and regulators have mostly taken a hands-off approach that has allowed the influence of big technology companies to grow, though there have been recent signs of shifting attitudes and tougher questions from Congress.
Google’s services remain immensely popular with customers, while its stock price, profits and revenue continue to soar. In the three years that the European Commission was carrying out its investigation, annual revenues for Alphabet have grown to $111 billion, from $75 billion. Google has also strengthened its dominance in the mobile phone market, with more than 1.25 billion Android handsets sold globally last year, according to IDC, a research firm.
The case highlights the broader challenge that regulators face in overseeing the digital economy. By the time the authorities home in on an area deserving of scrutiny, the market may have moved on.
“Fast-moving markets are where competition law is most important,” said Jonathan Kanter, a partner at the law firm Paul Weiss and a former antitrust investigator for the Federal Trade Commission. But “when you have cases that are many years old, you’re fighting old battles instead of the next one.”
Google has long portrayed Android as an open-source platform that hardware manufacturers can use and adapt based on their needs.
But the European Commission said Android came with strings attached.
The commission said that to gain access to the latest versions of the operating system, handset-makers had to agree to make Google Search and Chrome the default services on Android devices, limiting the ability to compete of rivals such as the search engine DuckDuckGo or the browser Firefox.
Antitrust officials added that Google also provided financial incentives to handset-makers and wireless carriers to prioritize its services and required manufacturers to sign agreements not to sell devices with modified versions of Android that did not include Google’s apps.
In effect, authorities said, Google negotiated terms that companies in the saturated smartphone market — where profit margins are razor thin — could not refuse.
As Google amassed more power in the mobile market, rivals including Microsoft, Oracle, Nokia, TripAdvisor and the African telecommunications giant Naspers complained to regulators. The group created an organization called Fair Search, which lobbied aggressively against Google in Brussels on a variety of issues, including its dominance of the mobile market and internet search. (Microsoft dropped out of the group after reaching a licensing deal with Google.) Kanter, the lawyer, said that while Google had largely won the battle to embed Android into smartphones, the ruling Wednesday could yet limit how Google approached new areas where the software was being used, including automobiles and internet-connected home electronics.
Europe’s actions may also influence others around the world to take a tougher look at Silicon Valley, he said.
“To say that any single action by the European Commission is going to stop them is probably naïve,” he said. “But movements have to start somewhere, and good, strong, persistent, decisive action can over time have an effect.”