EU Antitrust Policy: Favoring Innovation over the Googles’ of the World

Picture1By Amela Zukic

As many of us have heard, the European Commission recently slapped Google with a 2.7-billon dollar antitrust fine for allegedly favoring its own comparison-shopping service, an illegal practice in the EU. Google now has 90 days to cease this practice or it could face a fine of up to 5% of the average daily worldwide turnover of its parent company, Alphabet. While many in the U.S. may reject this decision, the EU’s ruling reflects its underlying goal of fostering innovation and should not be quickly dismissed.

European antitrust policy largely flows from two central rules that are outlined by The Treaty on the Functioning of the European Union (TFEU):

  • Article 101 of the Treaty “prohibits agreements between two or more independent market operators which restrict competition.”
  • Article 102 of the Treaty “prohibits firms that hold a dominant position on a given market to abuse that position, for example by charging unfair prices, by limiting production, or by refusing to innovate to the prejudice of consumers.”

The purpose of these rules is to encourage efficiency and innovation while fostering a competitive environment that ultimately lowers prices for consumers. However, should a company fail to meet these guidelines, the Commission reserves the right to impose a fine. The fine is determined by finding the percentage of the company’s annual sales of the product concerned by the infringement. This figure is then multiplied by the duration of the infringement and cannot surpass 10% of the overall annual turnover of the targeted company.

A Google spokesperson has announced that the tech giant will consider appealing the decision to the EU General Court. The EU General Court has the authority to cancel, increase or reduce the fine imposed by the Commission. Following the General Court’s decision, either side may appeal the judgment of the General Court before the European Court of Justice (ECJ). Though, like appellate courts in the U.S., such appeals are limited to only questions of law.

Unfortunately, for Google, chances of a successful appeal don’t seem too bright. As seen with the Microsoft case in 2007, the EU General Court is not reluctant to hold these U.S. IT companies accountable for infringements. The Court upheld the Commission’s fine on Microsoft for its abuse of dominance regarding the company’s “refusal to supply the interoperability information for operating PC Windows with other systems and the tied sale of Windows Media Player.”

The same sort of crackdown on the practices of IT companies has not been as prevalent in the U.S. A key factor of this reluctance is a focus on price rather than a focus on innovation. Because U.S antitrust laws look to easily measurable effects on consumers, they focus solely on prices; in other words, higher prices are bad and lower prices are good. The European Union, which wrote its own antitrust laws decades after the U.S. and after the rise of the Internet, focuses instead on effects on innovation. In the American model, concern often arises when an entity controls enough of the market for a good or service that it can raise prices above equilibrium with little or no drawback. However, because Google’s services are free, there was no demonstrable harm to the American consumer. In the EU, however, the concern lies with the use of market power to stifle new ideas regardless of their effect on price. By placing its own Google-branded ratings above those of competitors in the search engine, the Commission felt Google unfairly decreased the odds that people would use other sites for similar services.

Interestingly, the EU’s investigation into Google spurred from complaints raised by other large U.S. corporations, such as TripAdvisor, Yelp, Oracle, and Microsoft, and were first raised to the U.S. Federal Trade Commission. Yet, even though government antitrust lawyers found evidence that Google harmed competitors and consumers, they did not prosecute. The U.S. regulators found that Google had in fact not manipulated its search engine to hurt rival competitors.

The question to be asked then is whether the American antitrust model, one that usually considers price over all else, is truly a better method of addressing alleged antitrust violations. How is it that two large, competent, and able bodies, the FTC and EU Commission, came to two varying results on the same issue? Is the FTC too lenient when it comes to matters concerning competition?

Maybe the day has come to rethink the American antitrust model and incorporate some of the values recognized by the EU; this could allow FTC and SEC regulators more discretion in their investigations and prosecutions. Further, such a change could encourage and empower more start-ups to challenge the monopolies of these large IT companies, benefitting both competitors and consumers reaping the fruits of an innovative market.

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