The EU Commission is investigating whether US tech companies breached antitrust rules - but could its probe do more harm than good? 

The EU Commission has begun antitrust investigations and a host of other inquiries into some of the biggest US tech companies, including Google, Facebook and Apple. Some commentators have commended EU officials for cracking down on the US companies, partly because of the heavy criticism they sustained in the media for their use of shady tax planning practices that allowed them to avoid paying billions to revenue authorities across Europe.

And while the allegations against the big three tech companies may be adequate enough to justify Brussels’ decision to launch a series of investigations, the move happens to coincide with the unveiling of a policy aimed at “reinforcing [Europe’s] digital authority” – leading some to question what the motives behind the recent flurry of inquiries really are.

Google clampdown
The crackdown on US tech companies began in April, with the EU’s antitrust chief, Margrethe Vestager, accusing Google of abusing its position as the largest provider of internet search results. Although it is the first time that antitrust charges have been formally directed at the Californian based company, there have been a number of complaints from competitors claiming that Google’s search engine favours its own products over its rivals.

“The Commission’s objective is to apply EU antitrust rules to ensure that companies operating in Europe, wherever they may be based, do not artificially deny European consumers as wide a choice as possible, or stifle innovation”, says Vestager, the EU Commissioner in charge of competition policy. “In the case of Google I am concerned that the company has given an unfair advantage to its own comparison shopping service, in breach of EU antitrust rules. Google now has the opportunity to convince the Commission to the contrary.

“However, if the investigation confirmed our concerns, Google would have to face the legal consequences and change the way it does business in Europe”, Vestager adds.

Comparison-shopping permits consumers to type in a particular product into a search engine – in this case Google – and compare prices between different vendors. The EU watchdog contends that Google gives systematically favourable treatment to its comparison-shopping product – ‘Google Shopping’ – in its general search results pages, by showing Google Shopping more prominently on the screen. Therefore, the EU Commission has raised concerns that Google artificially diverts traffic from rival comparison-shopping services and in the process hinders their ability to compete in the marketplace.

EU regulators are also worried that consumers do not necessarily see the most relevant results in response to queries, which they contest is to the detriment of the consumer, as well as stifling innovation. In order to try and rectify the situation, the Commission has advised Google to take steps to ensure that it treats its own comparison-shopping service and those of its rivals in the same manner.

Should Google fail to make the necessary changes or be unable to refute the accusations levelled at it, EU regulators have said they may fine the company 10 percent of its annual sales revenue – which equates to more than $6bn. If the regulator was to go ahead, it would eclipse the €1.1bn ($1.73bn) that the EU levied against Intel when it was found guilty of abusing its dominance in the computer chip market.

Public misconception
In an article by Robinson Meyer of The Atlantic, the author claims that Google’s huge market share (see Fig. 1) is part of what strengthens the EU’s antitrust case – with the company holding more than 68 percent of the market. In fact, in some countries within the union – such as Belgium, Germany and Finland – the company claims more than 97 percent of all search engine use in 2010. EU regulators’ main argument against the search engine provider is that it’s abusing its market dominance, but that is an accusation that deserves further analysis.

For starters, if the EU Commission is really worried about consumers, perhaps, rather than imposing fines, it should attempt to educate consumers, and itself, that Google is not (despite views to the contrary) a public utility. Over the years Google has grown to become synonymous with the internet and, in particular, the process of searching for things on it – so much so that the noun has become a verb, with the world ‘Googling’ over 3.5 billion times a day.

“But the presumption that Google is a public service is a wrong presumption”, says James Temperton of Wired UK magazine. “If the argument is that the public are too stupid to realise that Google isn’t just the internet, [then] to some extent that is the public’s fault… but Google became a verb for a reason and that is because Google is really good.”

While Google may be the most used search engine, there are a number of alternatives to choose from, so if consumers are not being served adequately or fairly, then they can go elsewhere. Google even chose to outline the many choices on offer in a blog post, which acted as a public rebuttal to the accusations directed at them by EU regulators.

In the post the US tech giant pointed out that Bing, Yahoo, Quora, DuckDuckGo and a new wave of search assistants like Apple’s Siri and Microsoft’s Cortana are all available for consumers to access. There’s a list of more specialised services such as Amazon, Idealo, Le Guide, Expedia and eBay, with Amazon, eBay, and Axel Springer’s Idealo being the three most popular shopping services in Germany. Then there are social media sites such as Facebook, Pinterest and Twitter (see Fig. 2), which allow people to find recommendations, such as where to eat, which movies to watch or what events to attend in their local area. And when it comes to news, internet users have many ways to reach their favourite sites, with many users using sites such as Reddit to filter their content.

“Any economist would say that you typically do not see a ton of innovation, new entrants or investment in sectors where competition is stagnating – or dominated by one player. Yet that is exactly what’s happening in our world”, writes Amit Singhal, Senior Vice President at Google Search.

“Zalando, the German shopping site, went public in 2014 in one of Europe’s biggest-ever tech IPOs. Companies like Facebook, Pinterest and Amazon have been investing in their own search services and search engines like Quixey, DuckDuckGo and Qwant have attracted new funding. We’re seeing innovation in voice search and the rise of search assistants – with even more to come”, adds Singhal. “It’s why we respectfully but strongly disagree with the need to issue a Statement of Objections and look forward to making our case.”

The Android OS
As if going after Google’s search division is not enough for the antitrust chief, Vestager has also chosen to open formal proceedings against the company in order to investigate its conduct in relation to its Android mobile operating system, as well as applications and services for smartphones and tablets to decipher if it has breached EU antitrust rules.

“Smartphones, tablets and similar devices play an increasing role in many people’s daily lives and I want to make sure the markets in this area can flourish without anticompetitive constraints imposed by any company”, says Vestager. Since 2005, Google has led development of the Android mobile operating system. It is an open-source system, meaning that it can be freely used and developed by anyone. The majority of smartphone and tablet manufacturers use the Android operating system in combination with a range of Google’s proprietary applications and services (see Fig. 3). These manufacturers enter into agreements with Google to obtain the right to install Google’s applications on their Android devices.

The Commission’s in-depth investigation will focus on whether Google has breached EU antitrust rules by hindering the development and market access of rival mobile operating systems, applications and services to the detriment of consumers and developers of innovative services and products. The inquiry aims to access if, by entering into anticompetitive agreements or by abusing a possible dominant position, Google has illegally hindered the development and market access of rival mobile operating systems, mobile communication applications and services in the European Economic Area (EEA).

Mass distrust
At the beginning of May, the EU Commission decided to go on an all out offensive, launching an inquiry into the entire e-commerce sector. According to a press release, the investigation will focus particularly on potential barriers erected by companies to cross-border online trade in goods and services where e-commerce is most widespread such as electronics, clothing and shoes, as well as digital content.

“European citizens face too many barriers to accessing goods and services online across borders”, argues Vestager. “Some of these barriers are put in place by companies themselves. With this sector inquiry my aim is to determine how widespread these barriers are and what effects they have on competition and consumers”, she adds. “If they are anti-competitive we will not hesitate to take enforcement action under EU antitrust rules.”

The Commissioner is also concerned that businesses may establish barriers to cross-border online trade, with a view to fragmenting the EU’s attempt at creating a Digital Single Market along national borders and preventing competition. Therefore, the watchdog wants to gather market information in order to better understand the nature, prevalence and effects of these and similar barriers erected by companies, and to assess them in light of EU antitrust rules. Should the Commission identify specific competition concerns, it has said that it would not hesitate to open further cases in order to ensure compliance with EU rules.

It’s pretty safe to say that American tech companies in Europe are beginning to feel under siege on the continent. In fact, the EU regulators are looking into more and more US firms every month. For example, Microsoft has been involved in a long-standing antitrust case, with the company racking up fines of up to €2bn ($3.15bn) over the last 10 years. Apple and Amazon are embroiled in an on-going tax dispute involving preferential treatment they were provided in Ireland and Luxembourg respectively. While Facebook is being investigated by numerous EU member states – Austria, Belgium, France, Germany, Italy and Spain – over the social network’s privacy policies.

“It’s no wonder Europe is going after these companies”, says Luca Schiavoni, a regulatory analyst at the technology research company Ovum in London during an interview with The New York Times. “They are the biggest fish in the pond and have become very powerful. That inevitably means regulators are going to get involved.”

According to a statement released by the EU Commission, the digital economy represents around €3.2trn ($5.04trn) in the G20 economies, and already contributes up to eight percent of GDP – helping to power growth rates across the struggling economies of the world and creating countless jobs for a global labour market in turmoil.

The digital economy is also indisputably the single most important driver of innovation, competiveness and growth. However, much to EU officials’ dismay, only two percent of European enterprises are tapping into the potential the digital economy has to offer.

In order to combat this worrying statistic, the EU Commission unveiled its Digital Single Market Strategy (DSM) in Brussels in May. And, according to the European Commissioner for Digital Economy and Society Günther Oettinger, the plan will “reinforce [Europe’s] digital authority… give us digital sovereignty… and make us competitive globally”.

“Our economies and societies are going digital”, says Oettinger. “Future prosperity will depend largely on how well we master this transition. Europe has strengths to build on, but also homework to do, in particular to make sure its industries adapt, and its citizens make full use of the potential of new digital services and goods. We have to prepare for a modern society and will table proposals balancing the interests of consumers and industry.”

Setting the record straight
On the surface, the DSM looks like a positive step for the 28 member states. Consumers and businesses are set to gain better access to digital goods and services across the region, with the aim of maximising the growth potential of the digital economy within Europe’s borders. However, part of the DSM entails the EU Commission engages in yet further investigations into the role of American tech companies. And in the eyes of the former economic adviser to the President of the European Commission Philippe Legrain, “The key driver of the EU’s regulatory onslaught is not concerned for the welfare of ordinary Europeans; it is the lobbying power of protectionist German businesses and their corporatist champions in government.”

In the op-ed article by Legrain, the author sheds light on what he sees is the real motive behind the recent flurry of antitrust allegations aimed at some of the biggest names in the American tech industry. Legrain argues that Germany’s influence within the EU commission has grown substantially as a result of the on going debt crisis, which he says has distracted the once dominant France and left the UK feeling so alienated from the rest of Europe that a referendum over its future as a member state of the EU is inevitable.

“Germany’s government boasts about how ‘globally competitive’ the country is, and its officials lecture their EU peers on the need to emulate their supposed ‘reformist zeal’”, writes Legrain. “And yet, while the country remains a world-beating exporter in industries like automobiles, it is an also-ran in the internet realm. There is no German equivalent of Google or Facebook. Stymied at home by red tape and a risk-averse culture, the most successful German internet entrepreneurs live in Silicon Valley. While US-based companies conquer the cloud, Germany is stuck in the mud”, he adds.

The creation of the DSM makes a lot of sense, in as much as it breaks down the limitations imposed on EU tech start-ups by moulding the many different regulatory frameworks that reside in each of the 28 member states into one. But as Legrain contends, the hidden purpose of the DSM is to constrain American digital platforms and thereby relinquish their grip on market dominance, which some EU officials believe is essential for Europe’s domestic start-ups to flourish.

“The EU has an attractive single market and significant political means to structure it; the EU must bring these factors into play in order to assert itself against other parties involved at the global level”, wrote the German Economics Minister, Sigmar Gabriel, in a letter to the EU Commission in November 2014. Considering the market share of companies like Google, Amazon, Facebook and Apple in Europe, it is understandable that others within Europe feel that the only way for domestic start-ups to gain a foothold in the digital economy is to limit the dominance of their rivals across the pond.

But these companies have become household names in the US and beyond because they are the best in the business at what they do. No one should ever hinder the competition just to stay in the race – that truly stifles innovation. It is time, in the words of Legrain, for Europe to stop “conspiring to hobble its American rivals, stifle innovation, and deprive Europeans of the full benefit of the internet”, and start competing with the US in order to provide a better digital economy for all.