The EU’s Competition Commissioner has urged legal action against Google … but who can sue and what can be claimed?

05 Jul 2017

On 27 June 2017, the European Commission announced that it had fined Google €2.42 billion for abuse of dominance in its promotion of its shopping service. Google has been given 90 days to change its practices or face a further penalty of up to 5% of the daily worldwide turnover of Alphabet, its parent company. 

Details of the announcement are in this press release and accompanying factsheet, which set out the findings:

  • that Google is dominant in each national market for general internet search throughout the European Economic Area; and
  • that it has abused this dominance as a search engine by giving an illegal advantage to its own comparison shopping service. 

The €2.42 billion fine is by far the largest the Commission has ever imposed for such conduct. The previous record was its €1.06 billion fine imposed on Intel in 2009. 

After making the announcement, the European Commissioner for Competition, Margrethe Vestager, encouraged those who had suffered as a result of Google’s conduct to take legal action against it, saying:

it is for everyone who feels they have been hurt by the illegal Google behaviour to take this report and use [it] in court as part of their evidence”.

But what claims can be expected?

The Infringement

At the top of Google’s general results page are links to other services for users who are not interested in “All” results, but rather want them restricted to, for example, “Shopping”, “Images”, “Video”, “News” or “Maps”.

 

football boots

The “Shopping” link takes the user through to Google’s product and price comparison service, Google Shopping. The Commission has found that Google has given an illegal advantage to this service through two main types of activity:

1.  It has adopted a strategy of giving prominent placement of Google Shopping results by displaying them in a rich format at the tops of its general results page.

boots

2. It has deployed at least two different algorithms – which were first applied in 2004 and 2011 respectively – to demote rival services, so they appear lower in Google’s general search results. The Commission’s factsheet says:

Evidence shows that even the most highly ranked rival comparison shopping service appears on average only on page four of Google's search results, and others appear even further down.

According to the factsheet, the effect of this demotion on rival price comparison sites is severe, since the ten highest-ranking results on a page receive around 95% of all clicks, with 35% going to the top result. By comparison, only 1% of clicks go to the first result on page two (presumably based on the default setting of 10 results per page). The bias towards the top results is even heavier where users are browsing on smartphones, given the smaller screen.

According to the press release, the combined effect of both forms of abusive conduct was a 45-fold increase in traffic to Google Shopping in the UK, and a sudden drop in traffic of up to 85% on competitor shopping sites.

Google’s general counsel, Kent Walker has indicated in a blog posting that Google may appeal; citing amongst other things:

-    The fact that users would prefer a Google search to take them directly to a price comparison, rather than to a price comparison website where they have to run the search again; and

-    The fact that Google faces competition from Amazon and eBay, online retailers which the Commission has apparently disregarded by excluding them from the definition of the market in which Google was found to be dominant. 

Who can bring a claim and what are the challenges?

Unless Google can overturn the Commission’s decision on appeal, it is binding on the English Courts, so those bringing a “follow-on” claim need not establish Google’s liability. They need only prove how much loss, if any, they suffered as a result of Google’s behaviour.

The most obvious claimants are other price comparison sites, such as shopping.com, pricerunner.co.uk, ciao.co.uk, shopzilla.com, become.com, pricegrabber.com, nextag.com, pronto.com and bingads.com. Even prior to the decision, “standalone” claims had been commenced by price comparison sites including kelkoo.co.uk and foundem.co.uk.

The abovementioned 45-fold increase in traffic to Google Shopping and the 85% drop in traffic to some competitor sites suggest there is significant potential for such actions, as does the size of the penalty. It is difficult to estimate the financial gain to Google resulting from its behaviour, as the penalty is set by reference to a number of factors, as set out in the Commission’s penalty-setting guidelines and accompanying factsheet. Nonetheless the “deterrence” criterion specified in those guidelines suggests that the fine should at least equal Google’s gains; which, in a zero-sum market, may approximate to competitors’ losses.

For those wishing to bring a claim, some considerations are as follows:

1. In competition claims, damages are assessed by comparison with the “counterfactual” – a hypothetical parallel universe where Google’s infringing behaviour did not take place.

In claims against price-fixing cartels, the counterfactual is relatively straightforward. Economists give expert evidence of what the price would have been had it not been fixed, and the claimants sue for the price difference.

The counterfactual in claims against Google will be harder to establish. It is difficult to know what the structure of the market would have been if Google had not acted as it did. Google is likely to argue that it would have promoted its service by doing something else (lawful) instead. 

2.  Also (even assuming Google had done nothing) the counterfactual is inevitably speculative when the abuser and the victims are on the same level of the supply chain, as it requires an estimation of how much of Google’s market share would have been taken by its competitors had it not abused its dominance.

Such claims have been brought before. For example:

-   Heathrow Airport (which had its own “meet and greet” parking service) had to pay damages for abuse of dominance in denying its rivals, Purple Parking and Meteor Parking, use of the passenger drop-off zones in front of the terminals; and

-   Cardiff City Transport Services, an incumbent local busline, had to pay damages for abuse of dominance in altering its routes and timetables to prevent a rival from entering the market.

However, the assessment of damages in this case will be far more complex, and exacerbated by the number of competitors who may claim that Google has deprived them of market share.

3. This leads to a further issue; that, in cartel claims, victims can band together to bring a group action. Such economies of scale can be vital in enabling claims by those whose losses were smaller. However, there could well be a conflict of interest if one lawyer acts for multiple price comparison sites, as there is ample scope for them to disagree about who would have got the market share lost by Google.

4.  Finally, claimants may face a limitation issue as – unlike in the case of secret cartels, where the six years to bring a claim do not commence until the cartel is revealed – Google’s competitors have suspected or know abouts its behaviour for years. Foundem complained to the Commission in November 2009, and commenced its claim in June 2012 without being struck out; indicating that the six year clock may have been ticking for some time. Claimants can certainly claim their losses over the six years prior to the date they start their claim, but whether they can claim earlier losses may depend on whether, during that six years, information concealed by Google came to light, such as the effect of the algorithms referred to above.

In summary, it is likely that, given the sheer value of the losses, there will be a significant number of claims against Google. Such claims face difficulties, but not insurmountable ones. However, those difficulties may prevent claims by smaller companies and, given the potential limitation issue, those who do wish to consider a claim should not delay.

 

Additional information