Author Archives: Viktorija Morozovaite

Viktorija Morozovaite

About Viktorija Morozovaite

Viktorija Morozovaite is a PhD candidate at Utrecht University, predominantly focusing on competition law challenges in digital economy context. Her research investigates hypernudging strategies and how they fit within competition law framework. Viktorija is further interested in behavioural economics, legal implications associated with blockchain applications and interplay between competition law and regulation.

First Impressions of Google AdSense Decision

By Viktorija Morozovaite

The Google AdSense decision has come out on the 20th of March, 2019. With imposition of €1.49 billion fine it marked an end to the third European Commission’s investigation into tech giant’s practices, each resulting in spectacular penalties (together rounding up to €8.2 billion – a sum equivalent to Benelux countries’ annual contribution to the EU budget) and advancing the debate between competition practitioners and academics worldwide. Admittedly, the outcome did not come as a surprise to many – over the past decade, European Commission seem to have become the nemesis of giant tech companies with investigations into practices of Google, Apple, Facebook and Amazon. While the full decision is not published yet and it is difficult to comment on its merits, this blog post aims at distilling some of the ongoing issues, placing the decision in the broader context.

Decision

The investigation concerned online search advertising intermediation market. Through AdSense platform, Google acted as advertising broker, between advertisers and website owners that want to profit from the space around their search results’ pages. Google is also active in online search adverts market. In fact, it is platform’s most profitable core business area (see). According to the Commission, Google was found to be dominant in both of these markets (70% and 75% market shares held in each respectively for over 10 years).

By acting as a gatekeeper to the online search adverts market, as well as competing within the same market, Google inevitably holds a peculiar position and special responsibility precluding it from favouring own services to advance its dominance. In this decision, Art. 102 infringement was found on the basis that Google conducted its online search advertising intermediation services through imposing individually negotiated contractual obligations with the most commercially important publishers. Commissioner Margrethe Vestager stated that this way, ‘Google has cemented its dominance in online search adverts and shielded itself from competitive pressure’ (see). The agreements included the following anti-competitive clauses:

  • Exclusivity provision (since 2006) – most commercially important partners were prevented from ‘placing any search adverts from competitors on their search results pages’.
  • Premium placement (since 2009, designed to gradually replace exclusivity provisions) – direct partners were required to take on a minimum number of ads from Google and display it on the most profitable ad space.
  • Written approval was required from Google before publishers would make changes in the way in which competitors’ ads were displayed (since 2009).

Type of abuse

It is clear that in Google AdSense, Commission focused on exclusionary nature of the abuses, aimed to foreclose competitors and arguably protect its market position in the core (in this case, online search advertising) business area. While the conduct generally seems to neatly fit within the ‘exclusive dealing’ category (see para 32, Communication), it is not unlikely that the full decision would incorporate the echoes of ‘essential facility’ reasoning, due to the structurally important Google’s position in the platform ecosystem (in this case, through intermediating online search advertising services).

Theory of harm

When establishing the theory of harm, the Commission seems to have focused on impeded consumer choice, as a result of Google’s restrictive agreements with key commercial partners. According to the decision, by, in effect, excluding rivals in online search advertising market, Google not only deterred competition but also stifled innovation which resulted in less choice of alternative types of ads. It is plausible to see consumer choice being treated as a value that ought to be protected in digital markets, especially those dominated by giant techs. In fact, in multi-sided markets context, a shift from price to other parameters of competition (choice, innovation, quality) becomes necessary. For instance, in Google AdSense, consumers are operating in the zero-price side of the market, where they apparently pay no monetary price for the service (on zero-price markets, see). Thus, developing a theory of harm becomes a more nuanced exercise than finding an increase in price. However, in this particular case it will be interesting to see how the decision deals with establishing and measuring the alleged consumer harm. Questions arise whether there is more utility for consumers in having a greater variety of ads i.e. is more choice always pro-consumer? Would rivals’ ads result in more or less qualitative service? These questions, of course, although important are not novel and have been pertinent in Google decisions saga.

Remedies

Regarding online search advertising intermediation market, Google was ordered to ‘at a minimum, stop its illegal conduct, to the extent it has not already done so, and to refrain from any measure that has the same or equivalent object or effect’ (see). It is noteworthy that Google has stopped its illegal practices a few months after the issued Statement of Objections in July 2016. Therefore, it seems that the Commission did not have to decide upon ordering potential effective remedies. While in this particular case it may seem unproblematic, this has been a point of critique in the previous Google decisions, considering that lack of clear steps do not comply with the principle of legal certainty (Akman 2017).

During the questions time, when asked to elaborate on the fact that there have not been effective remedies put in place and ‘cease and desist’ order may not result in restoring competition, Commissioner Vestager reinstated that while this is one of the things highly featuring in the decision-making process, in fast-moving markets, even with a speedy Commission’s reaction ‘the risk is that the market would have moved on and it is very difficult to restore competition as it were’ (see).  

Even though is it appreciated that each case should be assessed individually and that it is difficult to predict development of the fast-moving digital markets, moving forward it may be desired to incorporate clearer steps as to how platforms as Google may reach compliance with European competition law. Nevertheless, this involves further research in the nature and characteristics of the digital markets as well as more clearly defined competition law enforcement strategies (for recent reports, see this and this).

Bringing it all together

To understand the outcome of Google AdSensedecision it is important to put it in the broader context. The so-called ‘Google saga’ began in 2010, with European Commission opening a probe into Google’s search and comparison-shopping services. In 2015, the official proceedings were opened in relation to Google’s Android operating system, followed by an inquiry into search advertising intermediation market just a year later. In addition to heavy fines, Google Shopping and Google Android decisions resulted in an outright divide of competition law circles, criticizing or praising the difficult (policy) choices made by the Commission each time (to name a few, see: Akman 2018, 2017; Picker 2018Hoppner et al 2018). However, Google AdSense does not seem to have ‘stirred up the waters.’ While the decision was not unpredictable per se, the Commission’s reasoning (or its themes) could be expected to overlap with the previous Google decisions, thus having a crystallizing effect in regard to emerging competition law enforcement trends.

For instance, the decisions dealt with markets where Google, on the one hand, was a provider of a certain service and, on the other, an intermediary providing access point to that very same market. Indeed, a significant body of research recognises a central role that giant techs play in the platform ecosystem (to name a few, see: Van Dijck et al 2018Gillespie 2018Petit 2016). Without appropriate balance being struck between competition law and regulation, competition enforcement may appear to be the only means of curbing platform’ power. Arguably, that balance is not present yet. While economic, social and even political influence (and ramifications) of the Big Tech is undeniable, the question that competition practitioners and academics have grappled with for over a decade now is whether competition law is the right means to curb this power? And, if so, is it suitable to address the challenges posed by digitalisation? 

All in all, in Google AdSense, Commission delivered a clearly identifiable exclusionary abuse, established a theory of harm that could still be subject to debate as well as omitted the question of effective remedies. The decision itself was in many ways predictable and fits well within the rest of ‘Google saga’. One is left to eagerly await the full details of the reasoning regarding this outcome.