German Federal Cartel Office subjects Google as ‘undertaking of paramount significance for competition across markets’ to stricter antitrust law obligations
On 30 December 2021, the German Federal Cartel Office (Bundeskartellamt, “FCO”) adopted a decision to designate Alphabet Inc., the parent company of Google, as an ‘undertaking of paramount significance for competition across markets’ (Case B7-61/21, the “Decision”, see here). This is the first such finding under the new Section 19a(1) of the German Competition Act (Gesetz gegen Wettbewerbsbeschränkungen) dedicated to digital platforms. The Decision is final, as Google has already announced that it will not appeal the Decision.
The German legislator introduced Section 19a in January 2021 to modernise German antitrust law, in particular with a view to safeguarding competition in fast-moving, multi-sided digital markets (see here). Section 19a formed the heart of the ‘digital upgrade’ of German antitrust law. The provision contains seven new types of conduct that constitute an abuse of dominance. However, digital platforms are not automatically (by statute) subject to the new regime. Rather, relevant conduct will only be prohibited once the FCO has completed a two-stage procedure. Under that process, the FCO is required to: (i) issue a decision under Section 19a(1), declaring that an undertaking is of paramount significance for competition across markets, and then (ii) issue a separate decision under Section 19a(2), prohibiting that undertaking from engaging in any of the seven new types of abuse.
With regard to Google specifically, the Decision finalised step one of this new two-stage procedure. Accordingly, Google is now subject to the extended abuse control measures set out under Section 19a(2) of the German Competition Act. The Decision is valid for five years (i.e., until 4 January 2027). The FCO is currently working on similar determinations for Meta (a.k.a. Facebook), Amazon, and Apple. Such decisions are expected in Q1/2022 as well.
Regarding the second step of the Section 19a procedure – that is, the prohibition of specific conduct – the FCO is currently examining whether the integration of the Google News Showcase service into Google’s general search service is anticompetitive (for example, as a form of self-preferencing) and whether the relevant contractual terms include unreasonable conditions to the detriment of participating publishers. In addition, the FCO is undertaking an in-depth analysis of Google’s data processing terms. Akin to the German Facebook case (see here and here), according to FCO President Andreas Mundt, the “key question in this context is whether consumers wishing to use Google’s services have sufficient choice as to how Google will use their data”. Additional complaints have been lodged by private parties against Google dealing with, inter alia, Google’s preferential treatment of its own travel-related search services within its general search results pages.
Google’s ‘significance for competition’
The Decision declares the rather obvious. Competition authorities around the globe have consistently found different services within the Google ecosystem dominant on the relevant markets. It is therefore clear that, when such services are viewed in combination, Google is an undertaking of paramount significance for competition across markets. Notwithstanding the obviousness of this fact, the Decision marks the necessary first procedural step for the FCO to tackle Google’s various forms of anticompetitive conduct within its ecosystem. Whether the FCO is ultimately successful in that endeavour depends on whether it now engages in thorough enforcement action at stage two of the procedure.
Google’s status as digital gatekeeper
With regard to Google’s position of particular power across several interrelated markets, the FCO could have based its assessment on a great number of market analyses which have already been conducted. For instance, the European Commission found that Google Search is the dominant general search service in all EU Member States. Confirming this finding, the EU’s General Court recently found that the search service is not only dominant, but “super-dominant” or even “ultra-dominant”, a “gateway to the internet”, and that its general search results pages constituted an “infrastructure” that “has characteristics akin to those of an essential facility”. In addition, the European Commission and other competition authorities found the Android and the Play Store, i.e., its mobile operating system and its marketplace for mobile applications, its Chrome web browser, its search advertising services as well as its ad-tech services to be dominant in their respective markets. Thus, it is no surprise that Google’s dominance, and gatekeeper position, in each individual market inevitably led to the declaration of Google’s paramount significance for competition across such markets.
However, rather than assessing Google’s position in each individual market, on this occasion the FCO examined Google’s entire ecosystem of services, along with the interdependence and mutual reinforcement of those services. For instance, the FCO relied upon (i) Google’s benefits from economies of scope, cross-promotional opportunities and ability to set rules for other businesses across markets, (ii) its access to a broad, deep and steadily growing database, (iii) its offer of a number of highly sought-after services and the high numbers of daily and monthly active users, (iv) the high level of vertical integration and the interconnectedness and complementary nature of the services across markets, and (v) the high revenues generated with its advertising services, providing the financial means to expand into adjacent markets. Further, Google’s significant influence over third-party access to users and advertising customers (i.e., intermediation power) played an important role in the FCO’s determination. Taken together, akin to the General Court’s judgment mentioned above, the FCO concluded that Google’s services “can be described as ‘infrastructure’ since, for one thing, a large number of other services can to a great extent only be offered using Google’s services and, for another, Google’s services are of great importance for the business activities of third parties.” This is an unequivocal finding that may also prove helpful in other investigations in due course.
Google’ decision not to challenge the Decision and to work with the FCO
While Google has declared that it does not necessarily agree with the facts and conclusions drawn in the Decision, it has declared that it will not appeal its status as a “norm addressee” within the meaning of Section 19a(1). Considering this, and the rather short time period in which the Decision was reached (less than one year), the accomplishment of step one of the process under the new regime can be seen as a success for the FCO: In the face of sound reasoning from the FCO, Google has decided to appease the German antitrust watchdog and avoid any confrontation, at least at this stage. This is confirmed by initial statements by Google. According to media reports, a Google spokesperson said: “People who use our products and services expect that we operate a responsible business, and that we are regulated”. Acknowledging one’s economic power and social responsibility would appear as a promising first step towards corporate accountability.
FCO focus turns to substantial obligations
Whether the FCO’s intervention will ultimately be considered a success now depends on the authority’s willingness to enforce the obligations under Section 19a(2). Designating Google as an undertaking of paramount significance for competition across markets alone does not benefit competition on any affected market. The key task for the FCO is to now identify and prohibit the most harmful of Google’s practices. Any misjudgment at this stage runs the risk of the FCO’s interventions creating ‘more hype than substance’, as was arguably the case for the FCO’s intervention against Amazon in July 2019 (see here). That intervention did not resolve any of the underlying concerns but was heralded as a strategic win for the FCO (and Amazon).
Genuine willingness to find workable solutions?
The remainder of the Google statement quoted above immediately calls into question whether Google is really seeking to appease the FCO: “We are confident that we comply with the rules and, to the extent that changes are necessary, we will continue to work constructively with the FCO to find solutions that enable people and businesses in Germany to continue to use our products.” This is a remarkable comment as Google, despite several pending competition investigations, outright denies any wrongdoing whatsoever. The statement also falsely implies that the enforcement of Section 19a would hinder users from using Google services. The tone of Google’s comments implies (i) a willingness to talk about how to ensure that users continue to use Google ‘instead of competitors’, combined with (ii) a threat to otherwise withdraw services from the German market.
The prospect of such a withdrawal is not merely hypothetical. For example, when Spain introduced legislation to safeguard press publishers intellectual property rights in 2014, Google simply withdrew from the Spanish market with its Google News service (and only recently reintroduced the service since the legislation is now harmonised Europe-wide). Both Google and Facebook made similar moves/threats in Australia in response to similar proposed legislation.
While the Decision must ultimately be welcomed, it also shows a conceptual weaknesses of Section 19a. Rather than implementing a self-executing prohibition, the German legislator chose a two-step design for the procedure. The need for the FCO to declare the obvious has led to the loss of one year – which is a significant amount of time in fast-moving digital markets.
The FCO now needs to ensure that its enforcement of Section 19a against Google does not lead to a Pyrrhic victory. Both the legislator and the FCO have already invested significant resources in the implementation and enforcement of Section 19a. While it took ‘only’ one year to finalise stage one of the proceedings against Google, to prove the effectiveness of the new legislation the FCO is now under pressure to conclude step two of the procedure and prohibit specific aspects of Google’s conduct in a timely manner. This is not an easy task, as the types of conduct that are, at present, to be formally investigated under Section 19a(2) (see above) are only the tip of the iceberg. The FCO needs to ensure that it formally investigates those practices that have the greatest negative impact on consumer welfare and which are central to, and strategic within, the Google ecosystem.
Conversely, this creates a dangerous incentive for Google to continue stalling the investigations, particularly where it would have to engage in any meaningful remedy. In turn, this creates an incentive for the FCO to accept unfavourable commitments as a quick, strategic win for both the enforcer and Google (Sections 19a(2) in conjunction with 32b(1) Competition Act). Google has a track record of taking this approach. Between 2012 and 2014, during the European Commission’s Google Search investigation, it offered to “constructively” find solutions for the four abuses identified by the Commission. Such talks ultimately led to three rejected sets of commitment proposals which, if adopted, would have only exacerbated the identified abuses.
It can be attractive for both a regulatory authority and the undertaking under investigation to strike a deal that appears to solve something. However, the FCO must not fall for any sham offer from Google. Transparent proceedings that involve the expertise and technical know-how of all affected parties are required to achieve solutions that genuinely maximise consumer welfare. This is particularly important because Section 19a is not available as a tool for pursuing private enforcement; the entire framework for the enforcement of this new regime therefore relies exclusively on one competition enforcer with limited resources.
*Thomas Höppner is a Partner, Philipp Westerhoff a Senior Associate with Hausfeld Rechtsanwälte LLP. Kio Gwilliam is a Senior Associate with Hausfeld & Co. LLP. Hausfeld is representing complainants in the administrative proceeding concerned.