The announcement on 15 April of the European Commission’s preliminary view that Google’s favourable treatment of its comparison shopping service abused its dominant position in the general internet search market has prompted a flurry of commentaries by pundits.
But the legal background to this remarkable development also deserves analysis. This article discusses some of the issues, and draws out from them some lessons that are important for any SME wary of the long reach of EU competition law.
What is going on?
The trail of gunpowder that led to the announcement can be traced back at least to 2010, when the European Commission announced that it had instituted proceedings against Google under Article 102, the much-feared provision of the Treaty on the Functioning of the European Union that prohibits abuse of a dominant position. The institution of the proceedings was prompted by a flurry of complaints made by Google’s rivals, ranging from the way that Google’s algorithms supposedly demote its rivals’ sites in the search engine results, to alleged restrictions on the portability of advertising data to competing online platforms.
Now, dominance per se does not contravene EU competition law; it is only if the dominance is abused that infringement of Article 102 will or may occur. But the greater the degree of dominance, the easier it is for regulators to be persuaded that abuse has in fact taken place. And in this connection there is no shortage of complainants: to date, evidence has been submitted to the European Commission by some twenty different parties.
The Article 102 proceedings have now been dragging on for more than four years, and it is clear that movers and shakers within the EU have become increasingly restless at the lack of any conclusive outcome to date. The former EU Competition Law supremo in fact came close to striking settlements with Google on more than one occasion, but in each case the deal had to be abandoned due to lobbying by the complainants.
Since then the temperature has clearly risen, with a demand by Germany’s Justice Minister last Autumn for the disclosure of Google’s secret algorithms on the grounds of “transparency”, followed shortly thereafter by heavy lobbying by German politicians for a much tougher degree of internet governance. The pressure on Margrethe Vestager, the EU’s new Commissioner for competition, to resolve the matter is therefore massive, and she bowed to this pressure in April by serving a Statement of Objections on Google, which amounted to a formal accusation that Google had broken the law by abuse of a dominant position.
What lessons can be learned for SMEs?
What lessons does this development hold for SMEs troubled by the potential impact of competition law?
Firstly, it reminds us that you don’t have to be the size of Google, Intel or Microsoft to fall foul of an abusive dominance allegation. The size of the relevant product market (in turnover terms) is not the relevant factor in assessing dominance; and Article 102 (and its national equivalents in the various EU member states) can be – and has been – used in small markets against SMEs, including very small companies.
Secondly, it reminds us that the potential consequences of infringement can be very severe indeed. The main sanction, of course, is fines. Hardly a month goes by without an eye-watering fine being imposed by the European Commission and/or one of the EU member states’ national competition authorities.
But it is sometimes forgotten that the Commission has other weapons in its armoury as well, for, where it finds an infringement of Article 102, it is empowered to impose a structural remedy or indeed any behavioural remedies that are proportionate to the infringement committed. The threat of using these powers has repeatedly induced those accused of abusive dominance to submit to binding commitments to (for example) sell business divisions to rivals, or to divest capacity to competitors.
Thirdly, it needs to be remembered that a finding of infringement is increasingly likely to trigger “follow-on” legal proceedings for damages. In the past, victims of abusive dominance tended to be sluggish in seeking redress against the perpetrators in the civil courts, but that is changing, for companies and firms are showing themselves increasingly disposed to bring private enforcement actions, and governments are strongly encouraging them to do so.
And finally, the Article 102 proceedings are a useful reminder of what a very important part anti-trust provisions play in EU business law. Anti-trust law was of course an American invention (it is generally taken to have begun with the Sherman Anti-Trust Act 1890), but since then we Europeans have, to put it mildly, proved ourselves ready, willing and able to adopt it too. Whatever the outcome of the Article 102 proceedings against Google, therefore, they demonstrate that the pupil has learned well from the master!
Jonathan Cornthwaite is partner and head of competition law at Wedlake Bell LLP Solicitors
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