Introduction
In June 2017, the European Commission imposed a record high fine of 2.4 billion € on Google for violating EU competition law. After a seven-year-long investigation, the Commission found that Google had been abusing its dominant position on the market for online general search services, in violation of article 102 TFEU. According to the Commission, Google had favoured its own comparison-shopping service (Google Shopping) over competing comparison-shopping services on its general search page (Google Search). More specifically, the Commission pointed out that Google Search would systematically rank Google Shopping results higher and show them in a more eye-catching manner. This mechanism put Google Shopping rivals at a disadvantage and allowed the tech-giant to increase its market shares, and eventually merchant fees. On November 10, 2021, the General Court rendered its long-awaited judgement, confirming many of the Commission’s findings.
This judgement marks a crucial landmark, as it welcomed a new offence in EU competition law: self – preferencing. It also opened the door to regulation, as self – preferencing now features prominently in the Digital Market Act (DMA), the new EU regulatory framework of the digital economy, which entered into force in November 2022, and will be applicable starting from this month. However, in the aftermath of the decision, some have criticised it as a way to circumvent traditional antitrust doctrines (such as the essential facility doctrine) and advocated for caution when considering possible economic implications of such a prohibition.
Despite the judgement not being definitive, as there is a pending appeal in front of the ECJ, the peculiar set of facts and the debate surrounding the case warrant a closer look.
The case in front of the General Court of the European Union
Let’s take a step back. In 2002, Google began providing a specialised search service for shopping, otherwise known as a comparison-shopping service. A CSS does not sell products itself but compares and selects the offers of online sellers offering the product sought by the internet user. The results displayed on a CSS differ from those presented by an ordinary general search engine: the latter extracts information through ‘crawling’, whereas the former uses specific algorithms on a database fed by product sellers. The European Commission therefore identified two relevant markets, namely the market for online general search services and the market for online comparison-shopping services.
Originally, Google’s CSS was a specialised search page separated from the general search page. However, overtime product results from the CSS began to pop also in the general result page. At the time of the investigation, users would be easily redirected to Google Shopping, simply by clicking on the ads available on Google Search.
It is common knowledge that Google holds a dominant position in the market for general search services. Data show that Google has held it in every European country since 2008. However, the mere existence of a dominant position on the market does not necessarily entail a violation of article 102 TFEU. It merely means that the “undertaking concerned has a special responsibility not to allow its conduct to impair genuine undistorted competition”. In practical terms: the dominant firm must not harm consumer welfare by excluding its rivals from the market or preventing them from setting a foot in the industry.
As mentioned before, in the case at hand, while results from other comparison-shopping services could only be found in the generic results, results from Google Shopping would show up at the very top of the general search page, displayed separately and in a particularly appealing format. Consequently, Google’s own offer was much more visible to consumers, who usually tend to concentrate only on the first couple of search results. Data supported the view that, rather than looking out for a competing comparison-shopping website, consumers therefore tended to stick with Google Shopping. While also referencing to the principle of equal treatment, the General Court ultimately analysed the aforementioned conduct in the context of exclusionary and anticompetitive practices and found a departure from competition on the merits.
In this framework, a conduct is considered to be unlawful if it produces exclusionary and anticompetitive effects that are not adequately counterbalanced. In this case, the theory of harm was that Google had leveraged its super dominant position in the primary market for online general search services to push its growth on the secondary market for online comparison-shopping services. In other words, Google Search self-preferencing algorithms allowed Google Shopping to slowly increase its market shares and potentially overcome any other existing CSS (exclusionary effect), ultimately leading to an increase in merchant fees (anticompetitive effect). This difference in treatment could not be justified: Google Search favoured Google Shopping over its rivals, rather than a better service over another. Notably, Google was unable to demonstrate any efficiency gain. In light of all the above, the General Court confirmed the pecuniary penalty imposed by the Commission, the second highest in EU history.
Criticism
After reading this brief summary, one may be left wondering: what is so problematic about this ruling? Isn’t this “plain-vanilla” antitrust? In our humble opinion, the answer to the last question is in the positive.
However, many commentators have questioned the reasoning underpinning the judgement on several grounds. In fact, as highlighted in the doctrine, in principle there is no duty on the part of the integrated dominant firm to create a level - playing field. In the traditional Chicago-school understanding, antitrust law should not intervene to improve the structure of the market, but rather seek to preserve firms’ incentives to compete and innovate. In this regard, it is well-established in the CJEU case – law , that the departure from the market of less efficient competitors in terms of – inter alia – variety, and innovation is inherent in the concept of competition on the merits. From this conceptual background, it follows that requiring the dominant firm to share its competitive advantages with rivals can only be justified in a limited set of exceptional circumstances. This requirement may in fact discourage firms to invest and innovate in the first place.
The Court’s jurisprudence has therefore clarified that a dominant firm can be obliged to share a proprietary resource only when the claimed resource is indispensable (and the refusal to deal is likely to block technical development). If such standard (the so-called essential facility doctrine) was applied to the case at hand, Alphabet would only be required to share Google Search, and therefore not to discriminate against rival comparison-shopping websites, if it was proved that Google Search was an indispensable platform (which the Commission failed to do).
Indeed, this was one of the arguments put forth by Google, that accused the Commission of using a different label to punish its refusal to supply without satisfying the criteria identified in the case – law. The General Court seemed to partially embrace the argument by recognizing that Google's general search results page had “characteristics akin to those of an essential facility”. Yet, it concluded that not every case involving issues of access to a service imply the application of the indispensability rule, as margin squeeze (the pricing conduct equivalent of a refusal to deal) cases demonstrate. Overall, this reasoning seems well - grounded as it is difficult to imagine how we can equate an absolute and express refusal to deal with self- preferencing, which is far more similar to the logic of constructive refusals.
Other authors claimed that the Commission should have resorted to art. 102 (c) TFEU. It was suggested that the Court applied the test established in the MEOjudgement for discriminatory practices. However, art. 102 (c) TFEU has seldom been used by the Court, as it implies considerations on fairness rather than on the reduction of consumer welfare.
Conclusions
Going back to our previous question, notwithstanding the ongoing doctrinal debate, we believe that there is one simple takeaway from this case: in whatever way we want to frame it, self – preferencing is a textbook example of an abusive leverage strategy (with the only novelty being that it is carried out in the digital world). As such, it is likely to get caught in the prohibition of art. 102 TFEU, considering that the list of abusive practices contained therein is not exhaustive.
The DMA, by introducing an ex-ante specific prohibition, will surely serve to clarify the remit of self – preferencing. However, in stark contrast with the Commission’s effects analysis, also endorsed by the General Court, the new regulatory tool excludes the possibility for the so- called gatekeepers to claim efficiency gains to justify their conduct. It remains to be seen whether this absolute ban is in violation of the principle of proportionality. Another open issue is how the interplay between the ex-ante DMA prohibition and the ex-post art. 102 TFEU enforcement is going to work in practice. Starting from today (more realistically from 2024), we will see.
Bibliography
Case T-612/17 Google and Alphabet v Commission (Google Shopping) ECLI:EU: T:2021:763
Regulation (EU) 2022/1925, Article 6(5)
Pablo Ibáñez Colomo, Self-Preferencing: Yet Another Epithet in Need of Limiting Principles (2020), in (2020) 43 World Competition
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P. Ibáñez Colomo, Self-Preferencing: Yet Another Epithet in Need of Limiting Principles, cit., p. 6-7
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Elias Deutscher, Google Shopping and the Quest for a Legal Test for Self-preferencing Under Article 102 TFEU (2021), in European Papers Vol. 6, 2021
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