February 26
2020
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13th February 2020
Competition & State Aid

Google and Alphabet v Commission: CJEU publishes report for the hearing

The report for the first hearing held yesterday in the case brought by Google and its parent company Alphabet seeking an annulment action of a Commission Decision, which found that Google and Alphabet had abused their dominant position in breach of EU competition law rules, (T-612/17) has been published. Today is the second day in a series of three days of hearings.

Oral submissions were made not only by Google and the Commission, but also several interveners who were present at the hearing, including the Bureau européen des unions de consommateurs (BEUC), Infederation Ltd, the EFTA Surveillance Authority, Kelkoo, Verband Deutscher Zeitschriftenverleger eV, Visual Meta GmbH, Bundesverband Deutscher Zeitungsverleger eV,  the Federal Republic of Germany, and Twenga.

The subject of the case: Google’s search engine for shopping

Google is best known for having a search engine that displays search results for internet users – it produces results either based on general criteria, or by using a specialised algorithm which does not require any user involvement.

However, the company also has a number of specialised search services, including for shopping. It is this comparison shopping service that is at issue in this competition law dispute, for having favoured Google’s comparison shopping services (on its specialised search services) over that of its competitors (shown in the general search results).

The Decision concerns two specialised services provided by Google in particular: ‘Product Universals’ and ‘Shopping Units’. For a brief background of what these tools are, they developed from ‘Product OneBox’. The latter evolved from using specific criteria in a database, refining that database, grouping comparison shopping results together, further refining the selection criteria and catalogue, and enriching the content by adding images. Another mechanism, ‘Universal Search’ made it possible to rank Product OneBoxes against general search results, so if specialised search results were more relevant than general search results, they were placed higher up on the results list. Google also had richer content than those of text-only ads, later showing such results with larger images and with prices.

The Commission Decision under scrutiny in the General Court

The Commission found that Google’s inclusion of links to its own specialised (shopping) search services through its general search results pages (compared to those of competing specialised search services) was an infringement of EU competition rules (Article 102 TFEU and Article 54 of the EEA Agreement).

Google’s arguments against the findings in the Decision

Google disagrees with the findings in the Commission’s Decision and, inter alia, is asking the Court of Justice of the EU to annul it. At the hearing, Google submitted six pleas supporting the claim for annulment of the Decision. Below is a selected summary of the arguments submitted, and the replies from the Commission (without taking into account the arguments of the interveners).

 

First plea: Google’s Product Universals were not favoured over competitors

Google argued that the Commission Decision erred in finding that Google favoured its comparison shopping service, by displaying Product Universals, over that of competitor comparison shopping services. In fact, they had been developed to improve the quality of its services rather than with the aim of redirecting traffic to its services. The Commission, in response, did not dispute that rationale of improving quality, but noted that Product Universals were shown in an eye-catching manner, whilst simultaneously, competing comparison shopping services could only appear through generic search results in a less eye-catching manner, and moreover, with Google’s Panda algorithm liable to demoting them within those results.

A connected argument of Google’s was that the Decision was wrong to find that there was favouritism without examining all the requirements for establishing discrimination – the Commission did not, for example, consider that there were legitimate reasons for the difference in treatment between Product Universals and generic results (therefore not leading to any discrimination). The Commission replied that the different treatment was not the issue, but rather the combination of subsequent practices that elevated Product Universals over products of competitors.

In line with the above, Google alleged that the Commission infringed the legal test for objective justifications concerning the display of Product Universals because it did not look at whether the evidence put forward offset the alleged restrictive practices, or show how Google could have acted in the alternative without undermining its innovations. The Commission’s response included the defence that it was for Google, and not it, to consider alternatives, and that no evidence was offered to consider an objective justification.

 

Second plea: Google’s Shopping Units were not favoured over competitors

Google made similar arguments concerning the Decision’s finding that its Shopping Units were favoured (there being no favouritism, legitimate reasons for a difference in treatment, and a failure by the Commission in applying the legal test for justifications), though the Report of the Hearing should be read in full to understand the differences between the first and second pleas given the different nature of Shopping Units.

 

Third plea: traffic was not diverted away from competitors, and towards Google’s comparison shopping service

Google denied that its practices caused traffic to be diverted away from its general results pages, to the detriment of competing comparison shopping service, and to the benefit of its own such service. It alleged that the Commission had not proved such a decrease in traffic, and that it should have carried out a counterfactual analysis, submitting that traffic for competing services would not have been different if the Product Universals and Shopping Units did not exist. It also considered that broader developments or in the industry or shifting user preferences should have been taken into account by the Commission. The Commission replied that it was concerned rather by a combination with other practices leading to the situation whereby competing comparison shopping services can appear only as generic search results, without any enriched display features, and are moreover prone to being demoted in those results by general search adjustment algorithms such as Panda. In response to the causes for traffic, it found it unclear whether Google believes it should be exonerated because it is not the sole cause of a decrease in traffic.

Google tied its argument about the decrease in traffic as meaning, by exclusion, that there was no traffic diverted to its services, and thus no increase to its own benefit, which was being exaggerated by the Commission. The Commission’s defence was that the increase in such traffic was at the expense of competing comparison shopping services. Google was overlooking the fact that that increase was the result of two practices combined.

 

Fourth plea: the Commission’s findings that there were anticompetitive effects were speculative

Google argued that the role of Google’s strongest competitors in comparison shopping services, namely retail platforms such as Amazon, was not taken into account and no explanation was given as to the alleged effects on prices and innovation. It submitted that the Decision was based on pure speculation about potential effects and did not examine the actual situation and development of the markets, and that there was no evidence to show there were anticompetitive effects. The Commission’s counter argument was that it is only required to show that the conduct is capable of shutting competitors out – not to prove that effect has actually occurred. It also noted that Google had not clearly objected to the relevant product market on which the Decision based its findings, which is limited to comparison shopping services – and not including retail platforms (such as Amazon).

Another argument made by Google was that the Commission took account only of the traffic they received from Google’s general results pages. The Commission contended that it had considered all sources of traffic of competing comparison shopping websites, and that traffic from Google’s generic results account for around 50% of total traffic received by those comparison services, that led it to find that Google was capable of foreclosing competition, or at least distorting it significantly.

 

Read the Report of the Hearing in full for a more comprehensive examination of the pleas, replies, and rejoinders: T_612_17_Report_for_the_hearing_1581528569

 

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