According to some estimates, about eighty-five per cent of the world’s smartphones run on Google’s Android operating system. On Wednesday, the European Commission, the administrative arm of the European Union, levied a record fine of five billion dollars on Google for breaching the E.U.’s competition rules by, among other things, forcing cell-phone manufacturers to pre-install the firm’s search engine and Chrome Web browser on Android phones. “In this way, Google has used Android as a vehicle to cement the dominance of its search engine,” Margrethe Vestager, the E.U.’s competition commissioner, said in a statement. “These practices have denied rivals the chance to innovate and compete on the merits. They have denied European consumers the benefits of effective competition in the important mobile sphere.”
On Thursday morning, President Donald Trump reacted furiously to the news, tweeting, “I told you so! The European Union just slapped a Five Billion Dollar fine on one of our great companies, Google. They truly have taken advantage of the U.S., but not for long!”
Trump’s tweet came in the context of an expanding trade war that he is conducting with Europe. (A few days ago, he told CBS News that the E.U. “is a foe, what they do to us in trade.”) But in accusing the E.U. of treating Google unfairly, Trump wasn’t alone. Senator Orrin Hatch, a Republican of Utah who chairs the Senate Finance Committee, claimed in a tweet that the E.U. has a “history of engaging in regulatory, tax & competition actions & proposals that disproportionately hit U.S. tech companies,” and he raised the question of “whether these actions are anything more than a series of discriminatory revenue grabs.”
Suspicion of the European regulators crosses party lines. In February, 2015, Recode’s Kara Swisher asked President Barack Obama about the E.U.’s investigations into the business practices and privacy policies of Silicon Valley giants like Facebook and Google. “Sometimes the European response here is more commercially driven than anything else,” Obama replied. “We have owned the Internet. Our companies have created it, expanded it, perfected it in ways that they”—European firms—“can’t compete. And oftentimes what is portrayed as high-minded positions on issues sometimes is just designed to carve out some of their commercial interests.”
It is certainly true that the E.U. has adopted a more aggressive approach toward U.S. tech giants than American regulatory agencies, which have largely left them alone. In June of last year, the European Commission fined Google $2.7 billion after finding that its search-engine results favored its own shopping tool over those from rival sites. The previous month, the commission had fined Facebook for allegedly providing regulators with misleading information during its purchase of WhatsApp, in 2014.
In that previous case, Google denied any wrongdoing. (Google has announced its intention to appeal the E.U.’s latest fine, too.) But the argument that the E.U. is going after U.S. companies for self-interested reasons doesn’t match the facts. It would be more accurate to say that successive Administrations in Washington have deliberately overlooked mounting evidence that the large U.S. tech firms have abused their monopoly power, and that the victims of these alleged abuses, including many American companies, have been forced to take their grievances across the Atlantic.
In launching its investigation into Google’s business practices, in 2015, the European Commission was responding to complaints from a group of American technology firms, which included Microsoft, Oracle, Expedia, and Kayak. In both this week’s ruling and the one last year, the commission found that the objections to Google’s behavior were well-grounded.
In the latest case, the dispute centers on business contracts that force cell-phone manufacturers, such as Samsung and HTC, to bundle several Google apps together on Android phones—a practice known as “tying.” The manufacturers told the commission that they regarded the Google Play Store, where users can download other Android apps, as a “a ‘must-have’ app, as users expect to find it pre-installed on their devices (not least because they cannot lawfully download it themselves).” But when the manufacturers installed the Google Play Store, their contracts with Google forced them to also install the Google search engine and the Chrome browser. These contracts “reduced the incentives of manufacturers to pre-install competing search and browser apps, as well as the incentives of users to download such apps,” the commission concluded. “This reduced the ability of rivals to compete effectively with Google.”
After the commission announced its enforcement actions, which included ordering Google to modify its restrictive contracts, many U.S. companies hailed them. Writing in a blog post, Luther Lowe, a senior vice-president at Yelp, which provides a platform for local listings and reviews, praised the E.U. ruling as “another important step in restoring competition, innovation and consumer welfare in the digital economy.” In a useful Twitter thread, Lowe also gathered together some of the other corporate reactions.
DuckDuckGo, a search-engine company, said, “We welcome the EU cracking down on Google's anti-competitive search behavior. We have felt its effects first hand for many years and has led directly to us having less market share on Android vs iOS and in general mobile vs desktop.” Ken Glueck, a senior executive at the software giant Oracle, said, “The Commission’s decision will undoubtedly unleash more choice for mobile customers, more opportunities for mobile developers, new business models for mobile advertisers, and more robust competition in mobile technology.”
The reason that Brussels is a more hospitable place for antitrust litigants than Washington is due, in part, to differing statutes. Under European competition law, it is unambiguously illegal for a big company to use a dominant position in one market to hobble actual or potential rivals in adjoining markets. In the United States, the position is not so straightforward.
Under Section 2 of the Sherman Antitrust Act, firms are barred from exploiting a monopoly position in one market to monopolize an adjacent market. When Bill Clinton’s Justice Department sued Microsoft for anticompetitive behavior, in 1998, this was the statute it relied on. But American courts have held that harming rival companies isn’t, by itself, proof of wrongdoing—regulators also have to show that consumers were harmed. Google claims its actions benefit consumers. “Android has created more choice for everyone, not less,” it said on Wednesday.
Whether this is actually the case is a complicated question, which may come down to whether the tech giant’s dominant position is stimulating innovation and the creation of new products. In 2012, the staff of the Federal Trade Commission, which is tasked with preventing harmful anticompetitive behavior, concluded that Google’s conduct had “resulted—and will result—in real harm to consumers and to innovation in the online search and advertising markets.” In a hundred-and-sixty-page internal report, the staff recommended that the F.T.C. file an antitrust suit against Google challenging several of its practices, including its restrictive contracts.
If the five politically-appointed F.T.C. commissioners who run the agency had accepted the staff’s recommendation, it would have marked a major breach between the Obama Administration and Google, which had close ties. (Google employees donated heavily to Obama, and the company’s top executives were frequent visitors to the White House.) In January, 2013, the F.T.C.’s commissioners overruled the staff and voted unanimously not to pursue legal action against Google.
That decision convinced many people that the tech giants had Washington in their pocket. Despite Trump’s occasional verbal blasts at Amazon, whose founder, Jeff Bezos, owns the Washington Post, that belief persists. It won’t change until a major U.S. regulatory agency follows the lead from Europe.
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