EU Goes Public With Google Antitrust Proposals, “Market Test” FAQs

The EU released documents this morning that detail Google’s antitrust settlement proposals and explain the Competition Commission’s position on various aspects of the investigation. First here’s what the EU says Google has proposed:

Google offers for a period of 5 years to:

(i) – label promoted links to its own specialised search services so that users can distinguish them from natural web search results,

– clearly separate these promoted links from other web search results by clear graphical features (such as a frame), and

– display links to three rival specialised search services close to its own services, in a place that is clearly visible to users,

(ii) – offer all websites the option to opt-out from the use of all their content in Google’s specialised search services, while ensuring that any opt-out does not unduly affect the ranking of those web sites in Google’s general web search results,

– offer all specialised search web sites that focus on product search or local search the option to mark certain categories of information in such a way that such information is not indexed or used by Google,

– provide newspaper publishers with a mechanism allowing them to control on a web page per web page basis the display of their content in Google News,

(iii) no longer include in its agreements with publishers any written or unwritten obligations that would require them to source online search advertisements exclusively from Google, and

(iv) no longer impose obligations that would prevent advertisers from managing search advertising campaigns across competing advertising platforms.

These commitments would cover the European Economic Area (EEA).

The proposals also foresee that an independent Monitoring Trustee will advise the Commission in overseeing the proper implementation of the commitments.

Most of this has been previously leaked or exposed in news articles. Other than the vertical search provisions the settlement proposals generally mirror what Google agreed to do in the US settlement with the FTC. There’s no discussion, however, of Google’s patent portfolio and agreement not to use its patents for anticompetitive purposes, which was part of a consent decree with the FTC.

The Competition Commission seeks input and feedback on the proposals for a period of one month (not the three months requested by FairSearch.org). This is the so-called “market test.”

The Commission also released a kind of FAQ document that tries to clarify for the public and journalists what it’s up to and its position on various issues in the antitrust investigation. Below is a summary of some of the statements and conclusions offered. The excerpts are verbatim from the EU site.

On Google’s market “dominance”: 

The Commission’s preliminary view is that Google is dominant in the European Economic Area (EEA) both in web search and search advertising. For instance, Google has been holding market shares in web search well above 90% in most European countries for several years now, a level which is higher than in many other parts of the world. There are also significant barriers to entry and network effects in both markets.

The Commission has also reached the preliminary conclusion that in four areas Google may be abusing its dominant position in the EEA (see below). Such abuses would be in breach of Article 102 of the Treaty on the Functioning of the European Union (TFEU).

On vertical search or “search bias”:

The first competition concern relates to the way Google displays links to its own specialised search services in its web search results. In addition to its flagship web search service, Google also operates several specialised search services such as Google Shopping, which specialises in the search for products, or Google Places, which specialises in the search for local businesses.

Google prominently displays links to its own specialised search services within its web search results and does not inform users of this favourable treatment. Due to the favourable treatment of Google’s own services, consumers are more likely to not make use of potentially more relevant competing services. First, users are not aware of the promotion of Google’s offer within the search results. Second, competitors’ results that are potentially more relevant are less visible and even sometimes not directly visible to users – they are more difficult for the user to find, for instance because the user has to scroll down the screen to see them or has to go to a subsequent search results web page.

The Commission is concerned that this practice unduly diverts traffic away from Google’s competitors in specialised search towards Google’s own specialised search services. It therefore reduces the ability of consumers to find a potentially more relevant choice of specialised search services. Since Google is an important source of traffic for competing specialised search services, this may reduce competitors’ incentives to innovate in specialised search.

On the differences between its position and conclusions and the FTC investigation: 

The factual and legal environments are different in the US and Europe. In particular, Bing and Yahoo represent a substantial alternative to Google in web search in the USA: their combined market share is around 30%. In contrast, Google has been holding market shares well above 90% in most European countries for a number of years. Web sites therefore rely more on traffic from Google in Europe than in the USA. Given the resulting commercial significance of Google for specialised search services, the way Google presents its web search results therefore has a much more significant impact on users and on the competitive process in Europe than it does in the USA.

On whether The Commission is protecting competitors vs. competition in general: 

The Commission does not act to protect competitors as such, but to preserve the competitive process for the benefit of consumers. It acts only when there is harm to competition with negative effects on consumers, in particular in terms of reduced choice and less innovation.

In particular, the Commission is concerned that the way in which Google currently presents its web search results limits the ability of European users to find their way to specialised search services competing with Google which contain information relevant to their query. Many such services might be potentially very innovative and Google’s practices could therefore be limiting European consumers’ opportunities to benefit from such innovative services. At the same time, it is for users to decide whether they wish to visit these sites based on their merits.

On the “market test”:

The commitments are now subject to a market test of one month. Complainants, third parties and members of the public are therefore able to comment on the commitments, and the extent to which they address the Commission’s four concerns.

If following the market test, the commitments form the basis for a satisfactory solution to the Commission’s competition concerns, the Commission may make them legally binding on Google by way of a Commitments Decision (so-called “Article 9 procedure”). Such a decision does not conclude that there is an infringement of EU antitrust rules, but would legally bind Google to respect the commitments offered. If a company breaks such commitments, the Commission can impose a fine of up to 10% of its annual worldwide turnover.

On what happens if the parties can’t settle: 

The Commission would then continue its investigation through the normal antitrust procedure.

My comments:

I’ve not included the other “areas of concern” in this discussion because they’re less contentious and more easily resolved than the vertical search or “search bias” issue. In addition, they were resolved in the FTC settlement and will likely be resolved here.

Regarding the above statements I have a number of observations.

The Commission has effectively concluded Google is a monopoly because of its 90+ percent market share

The Commission doesn’t regard Google Shopping, Google Places, Google Hotel Finder, Google News, Google Finance, Google Flight Search to be integral parts of Google search results but distinct verticals competing with rivals from the US and EU.

The Commission views Google’s Universal Search/Onebox and any other Google-supplied vertical content at the top of the page to be unnaturally “promoted” and “diverting traffic” from “potentially more relevant competing services.” This latter phrase is particularly interesting. While I would agree that Kayak and TripAdvisor are currently much better services than Google Hotel Finder and Flight Search, this is a conclusion that lacks empirical support. It’s what I would call a “cocktail party conclusion.”

Regarding the notion that Google’s vertical search content “reduces the ability of consumers to find a potentially more relevant choice of specialised search services,” again this is a conclusion that without empirical evidence is unwarranted.

Regarding the defensive “competitors vs. competition” remarks from the EU: there may in fact be a long-term threat to competition because of Google’s market share. For example, Google Maps is an excellent service and Google’s presentation of Maps results virtually guarantees that third party mapping services will not get organic traffic. I’m sympathetic to the challenges of getting exposure in search results. However behind many of the assumptions, statements and conclusions in the EU docs is the idea that search is effectively the only channel for exposure and promotion. And while search is an extremely important channel the implication that it’s the only way to gain exposure is simply not accurate (see, e.g., online display, mobile apps, traditional media, etc).

The Commission essentially says it’s taking a different position than the FTC on vertical search because Bing and Yahoo have a combined 30 percent share in the US and represent an alternative source of traffic; whereas in Europe Google is much more dominant. That’s factually correct but the FTC didn’t decline to pursue the vertical search issue because of Bing and Yahoo’s market share. The agency faced a very tough legal challenge on that question (including the First Amendment). In addition there was no evidence of consumer harm — a discussion that’s been missing from the EU investigation almost entirely. From what I’ve seen and can tell, consumer harm is simply assumed.

The EU will not be regulating the Google algorithm but it is intervening in the SERP. Beyond labeling Google’s own services as “sponsored” or otherwise associated with Google the crux of the solution is a kind of “top three box.”

As I’ve argued before this is highly problematic. Who will be in the box? What about startups vs. incumbents? This will be a new source of controversy on an ongoing basis because Google will control who appears there. The FairSearch complainants and others will want “access” to that box.

One suggestion made by a third party was that Google’s “verticals” be subject to the same algorithm as its content-publisher competitors. While that would negatively impact Google’s vision of its user experience (and would have profound implications for Google Now and mobile search results) that’s a better approach than the “top three box” currently being proposed.

What do you think of all this?

Postscript: See our follow-up story. Google’s New European “Antitrust” Search Results: Here’s What They’ll Look Like.