ICOMP

At the end of July, the EU Commission announced that its settlement discussions with Google had entered into a “technical phase”.  ICOMP has been cautiously supportive of these settlement discussions, particularly given the possibility of a rapid solution and the assurances that complainants and other interested third parties would be closely associated with the process.

The fact that sufficient progress has been made for the Commission to be willing to enter into technical discussions with Google indicates a number of things.  First, Google has accepted the Commission’s conceptual framework and the likelihood that the Commission will find that Google is in a dominant position and that Google’s behaviour has been abusive. 

Second, Google must have made reasonably clear and comprehensive proposals relating to the four main concerns identified by the Commission:

• Google’s preferential treatment of its own vertical search services over those of competing offerings.
• Google’s unauthorised copying of content belonging to vertical search services and using that content on its own properties.
• Google’s de facto exclusivity with partner websites requiring them to obtain most or all of their search advertising from Google, foreclosing competing intermediation services.
• Google’s restrictions on portability of online search advertising campaigns from its AdWords platform to competing platforms, particularly for software developers.

It has also become reasonably clear that if a settlement can be reached, it will not simply be an informal settlement whereby Google makes various promises and the Commission closes its file, but it will be encapsulated in a formal settlement decision (in accordance with the Commission’s so-called “Article 9 Procedure”).  This procedure contains a number of safeguards for complainants and interested third parties, as well as certain obligations relating to transparency and public consultation.

The most important thing to note about the Article 9 Procedure is that it can only be used where “the Commission intends to adopt a decision requiring that an infringement be brought to an end”.  In other words, the Commission’s investigation has led it to the conclusion that an infringement has taken place.  Moreover, any remedies (called “commitments” in the Article 9 Procedure) must meet the Commission’s concerns and allow the Commission to find that there are no longer grounds for action.

All this indicates that any remedies/commitments proposed by Google must deal completely, comprehensively and unambiguously with the competition concerns identified by the Commission.  Indeed, it is specifically provided for in the Commission’s Best Practice Guidelines that, in an Article 9 Procedure, remedies/commitments may need to go beyond remedies that might be imposed by the Commission in non-settlement cases.  It is normal in EU competition procedures that remedies which are agreed without there being a full in-depth investigation may need to include a safety margin to ensure that the harm to competition is definitively dealt with.

There are four further elements which need to be considered by the Commission in assessing whether remedies/commitments offered by Google meet its concerns. 

The first of these relates to the numerous complainants in the case and the fact that it seems pretty clear that the scope of those complaints is wider than the scope of the four concerns initially identified by the Commission.  What happens to complaints not covered by any settlement?  The answer is so far unclear, although the Commission has stated that it will continue to look at a number of other issues.  If the Commission decides not to pursue some of the complaints (or parts of some of them), it will need to convince the complainants to withdraw their complaints or will need to reject them.  Since formal rejections of complaint decisions can be challenged in Court, the Commission will need to be able to explain to the complainants what it intends to do with issues which have not been dealt with in any settlement.

The second issue concerns the need to “future-proof” any settlement.  One of the reasons given by the Commission for agreeing to enter into settlement discussions with Goggle was the need for swift solutions in fast-moving markets.  It follows that the Commission’s assessment needs to reflect not only how Google achieved its dominance in search and search advertising in relation to desktop usage, but how it has taken great strides forward in achieving the same dominance in relation to mobile usage.  It would be a hollow and pyrrhic victory for the Commission to assuage its concerns about past behaviour but to do nothing with respect to key future competitive battlegrounds.

The third area that the Commission will need to address is how to ensure more competitive markets in the future.  It is far from clear how remedies/commitments will address the huge competitive advantages that Google has obtained through its unlawful activities and the real and quantifiable harm that has been suffered by competitors.  The only way to ensure competitive outcomes and to avoid the need for repeated future enforcement activities is to ensure that others can compete in Google’s key markets of search and search advertising (including on mobile devices) on an equal footing.

The fourth issue relates to how the Commission is going to ensure that compliance with any remedies/commitments is fully and effectively enforced.  The Commission does not have the means to police settlements and is dependent on third parties to draw to its attention any breaches of commitments.  For remedies to work, there needs to be sufficient transparency not only as to what the remedies/commitments are and how they are expected to work in practice, but also as to what Google is actually doing.  There needs to be clear and unambiguous rules on what information will be made available to third parties to ensure compliance by Google, possibly backed up by rapid monitoring and arbitration mechanisms as well as unequivocal sanctions for failure to comply.  Regrettably, the experience of other regulators has dramatically illustrated that one cannot rely solely on optimism that Google will honour its commitments.

Finally, cautious support for the Commission’s attempt to find a settlement is predicated on the belief that a good solution in the near future may be better than a perfect solution in several years’ time.  However, this rests on the assumption that the settlement procedure will not be a drawn-out affair, that rapid progress can be made and that interested third parties are involved in the assessment as soon as possible.  It would be wholly wrong to allow Google to use settlement discussions to gain time, inflict further harm and to monopolise new areas of activity.

To sum all this up, any settlement agreement needs not only to deal with the four main concerns raised by the Commission, it needs to tick a number of other boxes. 

• A sufficient safety margin to ensure that the settlement really works.
• Transparency and consultation so that complainants know how their concerns are being addressed.
• Future-proofing, in particular by dealing with search and search advertising on mobile devices.
• Restoring effective competition to search and search advertising markets.
• Remedies/commitments that are verifiable and enforceable.
• Settlement only makes sense if it can be achieved quickly

ICOMP Legal Counsel, David Wood

Last week, news emerged that the US Federal Trade Commission (FTC) was on the brink of settling charges that Google bypassed the privacy settings of customers using Apple Inc’s Safari browser by accepting Google’s offer to pay a $22.5 million penalty. According to sources close to the matter, the payment will permit the FTC to end its investigation although it is thought that Google will escape having to admit liability for the infringements.

The probe was initially launched as a result of concerns that Google had been illicitly using Safari to monitor the online behaviour of users who had attempted to block such tracking. Google’s response was that the tracking was inadvertent and that no personal information was collected as a result. Google made similar claims after its Street View cars were discovered to have accrued consumer data in 2010; claims which were later proven to be false. The acceptance of a penalty by the FTC without any admission of liability by Google in this case means the same scrutiny will not be cast on Google’s latest assurances.

Regulatory sanctions which respond to such behaviour must both punish (so as to act as an effective deterrent) and implement measures which prevent its repetition. Accepting penalties from a corporate giant like Google, while commendable in intent, ultimately achieves neither of these goals, for three main reasons:-

• A drop in the ocean – To a company which turned over nearly $40 billion in 2011, sums such as $22.5 million, the $25,000 it was fined for obstructing an FCC investigation into its data collection policies earlier this year or even the $500 million it paid to settle Department of Justice allegations that it knowingly advertised counterfeit pharmaceuticals last year  are hardly going to act as a deterrent. Especially when the infringements go to the heart of Google’s business model by providing the data which prop up the advertising business from which it derives some 96% of its income.  Indeed the cumulation of these offences and fines shows how little deterrence they provide.

• Buying its innocence – The point about the Safari investigation is that Google is seeking to pay to halt proceedings before the allegations can be fully investigated and publicy aired. This means that rather than paying a penalty for wrongdoing, it is paying to stop the investigation before any conclusion can be reached. This is a crucial distinction because it allows Google to claim that no foul play was found and secondly because it escapes making  a binding commitment to avoid the same or similar foul play being repeated.

• In an uncompetitive market, fines send no message –  Regulators may argue (not unreasonably) that a fine carries with it a message, over and above the balance sheet impact, that a company has transgressed and that consumers and the market at large can react to this accordingly by taking its business elsewhere. This is all well and good in a competitive market. But the online search market is not competitive and this is precisely the reason Google feels free to continue racking up these reprimands. Google’s market dominance essentially renders it impervious to the economic pressures which enforce conscientious behaviour on its competitors.

So can Google be trusted to self-regulate? The answer, if one is to read anything into its record of recent transgressions (Safari, Street View, human trafficking, counterfeit drugs and antitrust scrutiny in 8 jurisdictions, to name but a few) is a resounding no. What is perhaps more alarming still, is the manner in which Google is accustomed to dealing with such concerns. First it denies, then it prevaricates, and only when it is backed into a corner and has run out of “rogue engineers” to blame, does it try to negotiate a lump sum in return for the right to disclaim liability.

Meanwhile, the infringements continue, consumers are exploited, competitors are squeezed out of the market and Google’s dominance is further entrenched. Regulators are right to think that they should step in but the remedies have thus far failed to either address the damage being done or prevent its continuation. In order to be truly effective, regulatory intervention must seek to address the abuse of Google’s market dominance since fundamentally, it is this dominance which renders Google effectively immune to fines and the governance of the market economy.

UPDATE

The record fines on Google for violation of privacy undertakings given to the FTC have been confirmed.  The language is blunt and reflects the views of the FTC that there was strong reason to believe that Google was in breach.  Indeed, one of the FTC Commissioners went so far as to issue a dissenting opinion on the grounds that Google’s continued denial of liability meant that the settlement was not in the public interest.   Be that as it may, the fines are the highest ever imposed by the FTC  and it did not go unmentioned that this is not the first time that the FTC acted against Google for contempt in relation to deceptive practices.

Regards,

The ICOMP Secretariat