Google Android-ruling: Commission once again fails AEC test

The “As Efficient Competitor” (AEC) test has now probably acquired mythical status at the European Commission, with EU courts overturning its AEC analysis for a third time for errors in reasoning (see our February 2022 and July 2022 newsletters ). The Tribunal reversed part of the Google Android decision for lack of evidence of the alleged foreclosure effects of Google’s exclusivity payments. According to the General Court, the Commission should have better substantiated its analysis of market coverage and deepened the cost data when using the AEC test. Moreover, Google’s right of defense would have been violated by the Commission’s refusal of a hearing on the AEC test. As a result, Google’s fine was reduced from €4.34 billion to €4.125 billion.

No reason for the Commission to discontinue its Big Tech quest, since the Tribunal left its analysis of Google’s alleged abusive leverage behavior intact. The Commission will therefore consider itself on the right track to combat abuse of a dominant position in the digital sector, with the forthcoming Digital Markets Act still to smooth the way (see our April 2022 newsletter).

The Commission’s decision

In 2018, the Commission fined Google €4.34 billion for abusing its dominant position in the general internet search market by imposing unlawful restrictions on Android device makers and mobile phone operators. mobile networks (see our August 2018 newsletter). The Commission’s investigation found that Google imposed three types of restrictions on Android device manufacturers and network operators:

  1. Linking Google’s search and navigation applications through mobile application distribution agreements: As a condition of licensing the Google App Store, manufacturers had to pre-install the Google search app and browser app (Chrome). According to the Commission, users are unlikely to download alternative search and navigation apps and use the pre-installed ones instead. Consequently, this tying practice has reduced the incentives for manufacturers to pre-install competing search and navigation applications as well as the incentives for users to download them afterwards.
  2. Unlawfully obstruct the development and distribution of competing Android operating systems by entering into anti-fragmentation agreements: Google has prevented manufacturers wishing to pre-install Google applications from selling smart mobile devices running on alternative versions of Android not approved by Google (so-called “Android forks”). The Commission found that this harms competition, as it reduces the possibilities for the development and sale of devices running on Android forks. It shut down a relevant channel for competitors to introduce apps and services.
  3. Illegal payments conditional on the exclusive pre-installation of Google search based on wallet-based revenue sharing agreements: Google has made payments to some major device manufacturers and mobile network operators on the condition that they only pre-install the Google Search app on a set of mobile devices in a predefined portfolio. This reduced their incentives to pre-install competing search apps.

The AEC test

On appeal, the Tribunal (CG) upheld the Commission’s decision regarding the first two types of restrictions, but reversed the findings regarding the unfairness of portfolio-based revenue-sharing agreements.

After agreeing with the Commission that portfolio-based revenue-sharing agreements constituted exclusivity agreements, the GC criticized the Commission’s market coverage analysis and its application of the AEC test to prove their effects exclusion. The GC considered that the market coverage of these agreements was not “significant”. On the contrary, Google’s plausible calculation showed that the exclusivity agreements covered less than 5% of the relevant market. Regarding the application of the AEC test, the GC identified several errors in reasoning regarding, for example, the estimated costs of an at least “equally efficient” competitor and the estimated likely revenues based on the age of the devices. mobiles used. Therefore, the Commission had not sufficiently established the unfairness of portfolio-based revenue sharing agreements and the Court set aside this part of the Commission’s decision.

Rights of defense

Furthermore, the General Court identified grounds for annulling this part of the Commission’s decision for procedural defects. The General Court found that Google’s rights of defense had been infringed because the Commission had refused a hearing after sending two factual letters substantially supplementing the analysis of the AEC test, initially set out in the statement of objections.

Google’s claim that its rights of defense were also violated by late and incomplete interview notes was less successful, however. The GC reiterated its Qualcomm decision by ruling that the Commission must keep minutes of each interview conducted to gather information about its investigation. The CG added in this context that this also applies to meetings held with Commissioner Vestager or members of her cabinet. In fact, it would be appropriate for the Commission to write such records of interviews”when this interview takes place or shortly thereafter in order to be added to the file as soon as possible”. Even so, Google has failed to establish that, had these notes been complete and shared on time, it would have been better able to defend itself.

Conclusion

The Court’s decision confirms that strict standards apply to the antitrust assessment of exclusive dealing agreements. After three AEC strikes, the Commission may resort to different evaluation methods, although the AEC test could be part of the game again once the Commission manages to follow Intel’s criteria to the letter (see our newsletter from February 2022). The dominant undertakings under the control of the Commission are required to ensure this. Just as they will keep a close eye on the Commission’s record keeping activities and other potential procedural mishaps in antitrust investigations.

Nonetheless, the Commission will likely see this as only a minor setback, now that its antitrust assessment of Google’s dominance and tied selling agreements holds firm (so far; it’s not yet clear whether Google has the intention to appeal the Tribunal’s decision). The upcoming Digital Markets Act will further help the Commission control big tech with its ex ante supervision on data access, interoperability and self-preference (see our April 2022 newsletter).

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