Google’s €2.4bn fine opens the door to legal action from rivals and an EU clampdown

The €2.4bn fine levied at Google by EU antitrust regulators may open the door to a string of lawsuits from rivals and other stringent regulatory actions in the future.

The decision handed down by a European court yesterday defined the company as a monopoly, setting a precedent and leaving Google vulnerable to further attacks. 

Other crucial parts of its business such as mobile phones, online ad buying and specialised search categories like travel could all be at risk, while easing the standard of proof for rivals to mount civil lawsuits against them.

So far, investors have shrugged off the EU’s threatened crackdown, with Google’s holding company Alphabet seeing its share price down by only 1.8 per cent in early US trade amid a continued sell-off in technology stocks. The stock has doubled in the two years since European authorities vigorously stepped up investigations.

Alphabet trades just behind rival Apple as the world’s most valuable stock, with a $666bn market capitalisation.

The real sting is not from the fine for anti-competitive practices in shopping search but the way in which the EU has thrown the issue back to Google to solve, meaning the company won’t be able to comply through an easy set of technical steps.

In effect, the Commission is forcing Google to demonstrate that rivals have made substantial inroads into its businesses before there is much chance of it being let off the regulatory hook. EU competition chief Margrethe Vestager promised that Google was in for years of monitoring to guard against further abuses.

“Just being put on notice can limit Google’s strategic options into the future,” said Matti Littunen, a digital media and online advertising analyst with Enders Analysis in London.

The EU’s 2004 ruling that Microsoft Corp had abused its dominant market position in Windows and other markets is now seen as having curtailed the software giant’s moves over the subsequent decade to expand more quickly into emerging markets such as online advertising, opening the way for Google’s rise.

Putting the onus on the company underlines regulators’ limited knowledge of modern technologies and their complexity, said Fordham Law School Professor Mark Patterson.

“The decision shows the difficulty of regulating algorithm-based internet firms,” he said. “Antitrust remedies usually direct firms that have violated antitrust laws to stop certain behaviour or, less often, to implement particular fixes.

“This decision just tells Google to apply ‘equal treatment’; not how to do that”.

The EU ruling is a warning shot for two on-going EU probes into Google’s Android mobile operating system and AdSense ad system, said Richard Windsor, an independent financial analyst who tracks competition among the biggest US and Asian internet and mobile players, including Google.

“If the European Union turns around and says Google can no longer bundle its Google Play app store as a default feature on many Android smartphones, this opens up the market to other handset makers to put their own software and services front and centre on their phones,” he said.

Littunen of Enders Analysis agreed, saying while Google may be able to meet EU objections in the AdSense case by making relatively modest changes to its advertising systems to enable website customers to run ads from Google advertising rivals, the Android case has many complicated factors with no easy solution.

More importantly, Google must find ways to change its business practices without harming its highly lucrative advertising business model, which accounted for around 85 per cent of the $90.3bn revenue of parent company Alphabet in 2016.

“The EU’s identification of ‘super-dominance’ in internet search throughout the European Economic Area is confirmed and will provide a cornerstone for assessment of other ongoing cases, especially regarding Android and AdSense,” said Jonas Koponen, competition chief at Linklaters law firm in Brussels.

“This could result in a profound change to the company’s business models,” he predicted.

Yet another worry for the company could be a wave of lawsuits in the future.

“We can expect to see a series of damages claims brought by the rivals that were excluded from the market by Google’s conduct,” said Peter Wills, co-head of competition law for Bird & Bird in London, setting the stage for national court battles.

With the EU’s Vestager giving no ground in her record demand last year to collect €13bn in unpaid taxes from Apple and stopping Google from squeezing out rivals, other tech giants will probably think twice before testing her further.

Robert D. Atkinson, president of the Information Technology and Innovation Foundation (ITIF), said that the ruling was “bad for consumers and bad for innovation”.

“The EU has effectively decided that some companies have become too big to innovate,” he said.

“The EU’s actions have created a cloud of uncertainty that will make large tech companies overly cautious about making changes to the user experience and service offerings that would benefit consumers. 

“The decision in this case shows the fundamental problem with the EU’s approach to antitrust issues. It is willing to take heavy-handed actions to protect competitors, at the expense of consumers.

“The only real beneficiary of today’s ruling is the EU’s treasury.”

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