Google says European Commission’s search engine dominance case is “wrong as a matter of fact, law and economics”

Google has responded to the Commission’s Statement of Objections in its search engine dominance investigation, maintaining that the case is without factual, legal or economic foundation.

The case dates back to 2009. The Commission’s chief concerns relate to the prominent display, within Google's web search results, of links to Google's specialised web search services (e.g. Google Shopping) relative to links to competing specialised web search services (including services allowing users to search for restaurants, hotels or products).  The issue of a Statement of Objections to Google on 15 April 2015 followed a series of failed attempts to resolve the case by commitments, suggested a renewed momentum.

On 27 August Google responded formally to the Commission’s case and its general counsel made a statement that Google believes the Commission’s allegations are unfounded. 

The world has come a long way since Archie was created as the world’s first search engine in 1990.  Lycos appeared in 1994, followed by AltaVista, Excite, Infoseek and Magellan a year later.  Google was incorporated four years later and by 2011 comScore reported that 9 out of 10 Europeans use Google for online search.  Google relies on economic data, apparently spanning over a decade, which it says confirms that search is competitive and the Commission has failed to take proper account of the effect that rival services such as eBay and Amazon have on the market.

Google has challenged the Commission’s remedies which would require it to display results from other providers and stop discriminating between its own operations and those of rivals. The theory that underpins this remedy is controversial for two main reasons.  First, it is clear that even a dominant company may compete on the merits and is entitled to differentiate itself from its competitors provided that this is not based on “methods different from those which condition normal competition”.  This implies that a dominant company may, in principle, compete on marketing elements such as displaying responsive search results and even those that favour its own services.  It may be asked why Google cannot show what it considers to be its own directly responsive results, since that is precisely what a search engine does and is a core value proposition.  Search engines will compete on the basis of their own offering by showing exactly what they consider to be responsive to a user query. 

Second, any obligation on a dominant company to deal with its competitors has traditionally been confined to the situation where the firm controls essential facilities or access to key content or infrastructure is indispensable to compete.  Particular competition concerns arise where the dominant firm competes with a customer in a downstream market – the dominant firm favours its own operations by charging different prices or imposing different terms on competitors than it offers its own operations.  This may place competitors at a commercial handicap which directly or indirectly harms consumers.  However, the situation is arguably quite different from that at issue in the Google case where the Commission comes very close to asserting that listing within Google’s search results on a par with its own services is essential for such rivals to compete.  Whether the theory of harm is characterised as one of denial of access to an essential facility or discriminatory grant of access to a distribution platform by a vertically integrated firm, a unifying theme appears to be that of anticompetitive foreclosure.  However, it is unclear to what extent access to Google’s platform is an essential facility.  Moreover, even where access to an essential facility has been mandated in previous cases such access need not be on identical terms to that granted to the dominant firm itself, provided that access allows for the provision of a commercially viable service.

The Commission now has to decide whether to drop its case, proceed to an infringement decision or start settlement discussions. If it moves to an infringement decision that is probably not likely to be handed down until well into 2016 at the earliest.

Payment Systems Regulator Publishes Guidance on Concurrent Competition Powers

On 13 August 2015 the Payment Systems Regulator (PSR) issued guidance on how it will apply its concurrent competition law powers in relation to participation in payment systems.

The PSR was established on 1 April 2014 as the regulator for payment systems in the UK.  The PSR derives its powers from the Financial Services (Banking Reform) Act 2013 (FSBRA).  With effect from 1 April 2015 the PSR has powers to enforce the UK competition law prohibitions on restrictive agreements and abuse of dominance (i.e. the Chapter I and II prohibitions of the Competition Act 1998 (CA98)) and their EU law equivalents under Article 101/ 102 TFEU, in relation to agreements and conduct relating to participation in payment systems.  As from 1 April 2014 the PSR also has powers to carry out market studies and to refer markets to the Competition and Markets Authority (CMA) for investigation.  These powers may also be exercised by the CMA whose powers extend to all sectors of the economy.

The PSR’s final guidance is accompanied by a Policy Statement explaining its responses to feedback received on its consultation on the draft guidance launched in January 2015.

The PSR has a ‘primacy’ obligation in that before exercising certain of the PSR’s regulatory powers under FSBRA it has a duty to consider whether it would be more appropriate to proceed under CA98.  The specified powers are as follows:

Section 54 FSBRA - to give a direction (apart from the power to give a general direction)

Section 55 FSBRA - to impose a requirement (apart from the power to impose a generally-imposed requirement)

Section 56 FSBRA - to require the operator a regulated payment system or a payment service provider with direct access to grant access to that payment system

Section 57 FSBRA - to change the fees, charges, terms and conditions of an agreement relating to a regulated payment system

Section 58 FSBRA - to require the disposal of an interest in the operator of a regulated payment system

The PSR also reminds participants in a regulated payment system that they should bring actual and possible contraventions of competition law to the PSR’s attention in accordance with their regulatory obligation under General Direction 1.  The PSR can accept leniency applications but it expects leniency applications to be made directly to the CMA

Following its own consultation launched on 15 January 2015, on 15 July 2015 the Financial Conduct Authority (FCA) also published its final guidance documents on its concurrent competition powers.

While cases may be transferred between concurrent authorities, only one authority can exercise prescribed functions in respect of a case at any moment.  The Competition Act 1998 (Concurrency) Regulations 2014 set out how information will be shared between relevant competent authorities and how cases will be allocated. The general principle is that the regulator that will be responsible for a case depends on which one is better or best placed to do so.  The fact that the Government has conferred concurrent competition law powers on both the FCA and the PSR is an indication of its sustained focus on competition law in the financial services sector.

CMA new voluntary redress rules provide a route to compensate victims of competition law infringements

The Competition and Markets Authority has finalised its guidance on its new powers to approve voluntary redress schemes with effect from 1 October 2015.  It explains the circumstances in which the CMA and the concurrent competition regulators may offer up to a 20% discount in the administrative penalty where businesses who have infringed competition law establish schemes to compensate their victims.

The relevant authority may only approve a scheme at the time it takes an infringement decision, although it may consider a scheme before adopting an infringement decision.  Both cartel and abuse of dominance infringements may form the basis of an approved scheme, whether in respect of infringements of the Competition Act 1998 or Articles 101/ 102 TFEU.

The CMA considers that the new rules will make it easier, quicker and less costly for victims of competition law breaches to obtain redress.  The schemes are being presented as a form of ADR and the CAT may take ADR into account when considering whether to stay proceedings to allow for a settlement to be reached, whether claims are eligible for treatment as collective proceedings and whether collective proceedings should be on an opt-in or opt-out basis.

Notably, the CMA has uplifted the maximum discount to 20%. The draft guidance offered a 10% maximum reduction in the administrative penalty. The change follows comments received that a greater penalty reduction was needed to provide adequate incentives to businesses to enter into redress schemes.  However, there are some doubts as to whether what is on offer to infringing  businesses is sufficiently compelling.  Whether the scheme is approved will be a matter for the scheme’s Board, subject to CMA approval.  This may make businesses reticent to cede such control before they know the full details of the infringement decision against them.  Ultimately, it will come down to whether the discount on offer is sufficiently attractive against the likely costs of private damages claims. 

Parties contemplating entering into a scheme will also need to consider the risks of accelerating their exposure to private litigation in the event that settlement cannot be achieved.  This may be one area where we might expect to see increased use of mediation in competition law cases in paving the way towards settlement.

CMA press release, CMA Guidance Approval of redress schemes for competition law infringements (CMA 40) and Summary of responses to consultation