Google & Competition Law

Last week, the Commission announced that it was investigating Google for abusive practices relating to its main search engine. (Cf. Commission Press Release and EUObserver) Here's a question: Can they do that? Specifically, my curiosity is piqued by the idea that Google might be acting anti-competitively in the manner in which it gives its services away for free.

The Commission will investigate whether Google has abused a dominant market position in online search by allegedly lowering the ranking of unpaid search results of competing services which are specialised in providing users with specific online content such as price comparisons (so-called vertical search services) and by according preferential placement to the results of its own vertical search services in order to shut out competing services.

As a matter of general principle it is certainly possible to run afoul of the competition laws by giving things away for free. The most famous case is the Microsoft case, which included charges of unlawful tying by including Windows Media Player and Microsoft Internet Explorer for free with every copy of Windows OS. But that case can be distinguished because, unlike Microsoft, Google doesn't give and sell to the same persons. No tying here...

Similarly, there is no possibility of arguing that Google is engaging in predatory pricing, since no one expects it to start charging for its search engine at some future date. While EU competition law does not require a threat of future recoupement for predatory pricing, it is difficult to see how such a case could be made against a company that plans to keep giving away its service for free indefinitely. (Cf. Brooke Group in the US and Tetra Pak II, par. 44 in the EU, for authority on the issue of recoupement.)

Finally, there's the Google AdWords case from March this year, which offers no direct guidance because it dealt with trademark infringement instead of competition law. (It did deal briefly with the non-AdWords part of the Google Website, but only to remark that Google wasn't "using" the trademarks in question there.)

So which "market" is it exactly that Google is supposed to have a dominant position in? It cannot be the AdWords market, since this case has nothing to do with paid advertising. (Well, there is a simultaneous claim that "Google lowered the 'Quality Score' for sponsored links of competing vertical search services", where "the Quality Score is one of the factors that determine the price paid to Google by advertisers", but that is not the part that I'm interested in now.) So it has to be the market for search engines, meaning that we have to consider whether a market for free services is a market in the meaning of art. 102 TFEU.

Looking at the article itself, it is clear that only services provided for consideration were contemplated when it was written, given that it refers to "trade between Member States", and that three of the four examples given contemplate consideration as well. (Example (a) does so literally, (c) speaks of "transactions" and "trading parties", and (d) speaks of "contracts" and "supplementary obligations".) Of course, the fact that only services for consideration were contemplated does not mean that the article only applies to that category of services...

The Commission's notice on market definition also doesn't explicitly rule out applying competition law in a not-for-consideration context, but again that does seem to be the underlying assumption.

Looking at the case-law, we find quite a bit of language on the distinction between an "undertaking" and a body that carries out a government duty. (Cf. Albany, par. 77-79, for example.) The fact that the ECJ defines that concept by reference to the concept of "economic activity" does not seem to be very helpful, given that it is unquestionably true that Google is an undertaking within the meaning of art. 102 TFEU. Regardless of whether its activities on the "market" for search enginges is "economic", Google's reasons for engaging in those activities certainly is "economic", in that the search engine allows it to make money on the market for advertising. In any event, in Case C-244/94 Fédération Française des Sociétés d'Assurance and Others v. Ministère de l'Agriculture et de la Pêche, the ECJ wrote:

21 Finally, the mere fact that the CCMSA is a non-profit-making body does not deprive the activity which it carries on of its economic character, since, having regard to the features referred to in paragraph 17, that activity may give rise to conduct which the competition rules are intended to penalize.

This is probably the key factor: the "conduct which the competition rules are intended to penalize." If Google really does manipulate its search results to promote its own subsidiaries, the mere fact that the only market on which dominance might exist is a market where the service is given away for free will probably not deter the European Commission or the ECJ. After all, such behaviour would be cheating, and you can't let big companies get away with cheating...