The European Commission fined Google with a record-breaking 2.42 billion euros for abusing its dominance and giving advantage to its own comparison shopping service. The EU's competition watchdog determined that, by artificially promoting its own price comparison service, Google denied its consumers real choice and rival firms the ability to compete on a level playing field. The penalty is the largest ever competition fine from the European Commission imposed on a single company, doubling the previous record of 1.1 billion euros, handed to Intel in 2009.
Pulling Down Rivals
Google's flagship product is the Google search engine, which provides search results to consumers free of charge, while nearly 90% of the company's revenue comes from advertising. In 2004 Google entered the European comparison shopping market with a product called Froogle – renamed into Google Product Search in 2008, and later in 2013 Google Shopping. This service allowed users to compare prices from other online retailers and re-sellers.
When they entered this market, Google found a number of already established players. And according to an internal document from 2006, titled "Froogle simply does not work", Google's performance was initially extremely poor.
Based on the European Commission's findings, from 2008 Google began to implement a fundamental change in strategy to push its comparison shopping service. This strategy relied on Google's dominance in general internet search, instead of the merits in the comparison shopping markets. The European Commission concluded after an extensive analysis, including examination of around 1.7 billion search queries and questionnaires sent to several hundred companies that Google has:
- systematically given prominent placement to its comparison shopping service; and
- demoted rival comparison shopping services in its search results.
When consumers entered a query into the search engine, the company favored its shopping service by promoting it at or near the top of the search results. Rival services were placed much lower, and even the best ranked of them showed on page four or lower. Since the ten highest-ranking generic search results on page 1 together generally receive approximately 95% of all clicks, this proved a huge problem for rival companies.
As a result of these practices, the traffic to Google's comparison shopping service increased significantly – 450% in the UK, for example. Also, the Commission found specific evidence of sudden drops of traffic to certain rival websites of 85% in Britain, 92% in Germany and 80% in France.
With this decision, the European Commission not only determined that Google is dominant in general Internet search across Europe, but that it abused its dominant position by giving an illegal advantage to its own comparison shopping service and stifling competition in comparison shopping markets.
Two Antitrust Investigations Still Ongoing
The Commission said that the staggering fine of 2.42 billion euros is supposed to take into account the duration and the gravity of the infringement. It is based on Google's revenue from its comparison shopping service in the 13 countries where the illegality occurred.
The Silicon Valley giant was given 90 days to stop its illegal activities, and also propose a solution to reform its ways, by giving equal treatment to rival comparison shopping websites in the search result pages as to its own service. If the company fails to comply with the decision, it will be liable for non-compliance payments of up to 5% of the average daily worldwide turnover of its parent company Alphabet – that boasted a turnover of 80 billion euros in 2016. The European Commission also encouraged undertakings to seek redress through private enforcement under the Antitrust Damages Directive.
There are still ongoing investigations against Google in two other cases where the European Commission already came to preliminary conclusions that Google abused its dominant position, related to the Android operating system and mobile apps and Google's alleged prevention of third-party websites from sourcing search ads from Google's competitors in AdSense.
The information in this document does not constitute legal advice on any particular matter and is provided for general informational purposes only.