Earlier this month, the European Commission sent a Statement of Objections to Google over abusive practices in online advertising.
Similar to the US Department of Justice, the EU takes issue with Google’s self-preferencing of its dominant publisher ad server, ad exchange, and ad buying tools.
In its press release, the Commission outlined its preliminary view that Google used its sell-side server to favour its exchange, AdX, in the ad selection auction, and, likewise, programmed its buying tools to concentrate its bids on AdX. This distortion of the buy and sell-side of the market gave AdX a deliberate competitive advantage, reinforcing Google’s ability to discriminate against rivals and charge a high fee for its services.
Like the DOJ, the Commission contemplates a break-up of Google’s ad-business to remove its incentive to discriminate against rivals and prefer its own products and services, explaining that “in this particular case, a behavioural remedy is likely to be ineffective to prevent the risk that Google continues such self-preferencing conducts or engages in new ones”.
Commissioner Margarethe Vestager later echoed the need for divestiture, stating “we don’t see that this inherent and in-built conflict of interest can be solved in other ways”.
The significance of this step is huge. It seems to have been somewhat overlooked by not just the press, but industry stakeholders, who either stress the lengthiness of the bureaucratic process or express scepticism at the likelihood of the Commission and DOJ following through at all.
With regards to the former point, it is true that this is unlikely to be fast by industry standards or internet speed. The time it takes for the Commission to move from a Statement of Objections to a Decision in Article 102 cases is, generally, 1-2 years, with a year being relatively speedy. However, the Commission is not preordained to be slow. Indeed, of the concluded investigations listed here, there are a number of notable outliers; in 2018, for instance, the Commission was assessing commitments from TenneT the same month the investigation was opened.
The Commission will likely be aided by a number of factors. First, Google has already been found dominant in Search in many EU states, as well as for other products in previous EU Decisions, with similar findings of dominance held in other EU jurisdictions. This will make it simpler to reach a decision and ease part of the evidentiary burden in this case. Second, the parallel DOJ case is underway in the States, and is likely help advance progress in Europe: the US government can’t easily oppose a remedy that it is also seeking to obtain and is currently very supportive of the EU. Thirdly, the Commission’s threat of break-up will most likely spur Google to find a workable settlement. For a company, whose first quarter revenues in 2023 were $69.4 Billion[1], fines are simply not an effective deterrent. A divestiture to a willing buyer would be for Google to control and any sensible business decision making would include looking at how much could be made from a sale now, before it becomes a “fire sale” backed by a formal Decision and timetable. With this in mind, the notion of a sale and settlement in 2023 or a Decision potentially in 2024 seems eminently feasible.
Regarding the point that the Statement of Objections might amount to nothing, this is highly unlikely indeed. Of course, it is true that the Statement of Objections merely outlines a preliminary view and does not in theory prejudice the outcome of an investigation. Google will also have a chance to respond to the Commission’s allegations at a hearing, if it so chooses, but the Commission doesn’t have a habit of announcing formal objections that it then walks away from. Doing so in such a high profile case would be politically challenging.
Also, Google’s chances of successfully defending against the EU and DOJ’s cases seem slim. Both have bene investigating for years and both have access to evidence and information from Google’s own documents.
To return to the list of concluded Article 102 cases, there is only one instance in the last ten years in which the European Commission has rowed back entirely on an SO (in 2022 when the Commission reneged on its preliminary view that Cesky drahy, a railway operator in the Czech Republic, was engaging in predatory pricing). Considering too the significance of the Google case, the expectation in some quarters that Google beats the rap can probably be ruled out.
We will be submitting evidence to DG Competition on behalf of MOW members. Should you have any further questions regarding the case please do be in touch.
[1] https://www.statista.com/statistics/267606/quarterly-revenue-of-google/