EC Investigates Google for Abuse of Dominance

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

The European Commission (EC) announced today that it has opened an in-depth antitrust investigation into Google Inc.'s methods for displaying search results.

According to the EC announcement, the investigation will look into whether Google abused a dominant market position in online search by:

(1) Lowering the ranking of unpaid search results of so-called vertical search services and by according preferential placement of its own vertical search services;

(2) Lowering the “Quality Score" for sponsored links of competing vertical search services and thereby influencing the price paid for advertising and the corresponding rankings;

(3) Imposing exclusivity obligations on advertising partners that prevent certain types of competing ads; and

(4) Restricting the portability of online advertising campaign data to competing online advertising platforms. The EC is attempting to determine whether Google engaged in this conduct in an effort to shut out competitors.

Complaints by Search Service Providers

The EC said that the formal investigation followed complaints from search service providers. While not named in the EC announcement, the three complaining firms have been identified as U.K.-based search service and price comparison site Foundem, French legal search engine eJustice, and Microsoft-owned shopping site Ciao.

The EC noted that the investigation did not imply it had proof of any infringements.

IComp, the Initiative for an Online Competitive Marketplace, in a November 30 statement, expressed hope that the EC decision “will contribute towards the development of a healthier and more competitive online marketplace.” Foundem is among the members of the Internet business organization.

Google Response

In response to the EC announcement, Google posted a statement on its European Public Policy Blog, saying that it would “work closely with the Commission to answer their questions.” According to the post, Google “will continue to review complaints about Google's search and search advertising.”

European Commission, Microsoft Settle Dispute over Browser Tying

This posting was written by Darius Sturmer, Editor of CCH Trade Regulation Reporter.

The European Commission (EC) adopted a decision on December 16 that renders legally binding a set of commitments that were offered by Microsoft to boost competition on the web browser market.

The commitments address EC concerns that Microsoft may have tied its web browser Internet Explorer to the Windows PC operating system in breach of European Union rules on abuse of a dominant market position.

Under the commitments approved by the Commission, Microsoft will make available for five years in the European Economic Area (through the Windows Update mechanism) a “Choice Screen” enabling users of Windows XP, Windows Vista and Windows 7 to choose which web browser(s) they want to install in addition to, or instead of, Microsoft’s browser Internet Explorer. The commitments also provide that computer manufacturers will be able to install competing web browsers, set those as default and turn Internet Explorer off.

“Millions of European consumers will benefit from this decision by having a free choice about which web browser they use,” stated EC Competition Commissioner Neelie Kroes. “Such choice will not only serve to improve people’s experience of the Internet now but also act as an incentive for web browser companies to innovate and offer people better browsers in the future.”

Microsoft Senior Vice President and General Counsel Brade Smith declared the EC’s decision “a major step forward.”Smith added that the company “look[s] forward to building on the dialogue and trust that has been established between Microsoft and the Commission and to extending our industry leadership on interoperability.”

The decision follows a Statement of Objections sent to Microsoft in January 2009, outlining the EC’s preliminary view that Microsoft may have infringed Article 82 of the EC Treaty by abusing its dominant position in the market for client PC operating systems and distorted competition through the tying of Internet Explorer to Windows.

According to the EC, the tie distorted competition by giving Microsoft an artificial distribution advantage not related to the merits of its product on more than 90 percent of personal computers.

The Commission’s preliminary view was that this tying hindered innovation in the market and created artificial incentives for software developers and content providers to design their products or web sites primarily for Internet Explorer. The approved commitments address these concerns, the EC said.

This decision, which does not conclude whether there is an infringement, legally binds Microsoft to the commitments it has offered and ends the EC’s investigation. If Microsoft were to break its commitments, the EC could impose a fine of up to 10 percent of Microsoft’s total annual turnover without having to prove any violation of EU antitrust rules.

A clause in the settlement allows the EC to review the commitments in two years. Microsoft will report regularly to the EC, starting in six months’ time, on the implementation of the commitments and under certain conditions make adjustments to the Choice Screen upon EC request.

Justice Department Statement

In response to the announcement, Assistant Attorney General Christine Varney of the Department of Justice Antitrust Division issued a statement in which she commended the EC and Microsoft for resolving their disputes and lauded the settlement. “A settlement that helps to clarify obligations under European law allows the industry to move forward,” Varney remarked.

Interoperability

While the settlement ends litigation over Microsoft’s alleged tying, the EC’s investigation regarding interoperability continues. Kroes hailed Microsoft’s contemporaneous publication of an improved version of its July 2009 commitments to allow interoperability between third party products and several Microsoft products—including Windows, Windows Server, Office, Exchange, and SharePoint.

Under these commitments, Microsoft pledged to publish the technical specifications of the programs so that interoperability could be achieved by any interested party. Although this initiative was described as “very welcome” by Kroes, she noted that its “arrangements remain informal vis-a-vis the Commission.”

Therefore, Kroes cautioned, “[T]he Commission will carefully monitor the impact of Microsoft’s proposals on the market and take its findings into account in its assessment of the pending antitrust investigation.”

European Commission Fines Intel for Abuse of Dominant Position

This posting was written by John W. Arden.

Computer chip giant Intel was fined €1.06 billion ($1.45 billion) on May 13 for violating European Commission Treaty antitrust rules on the abuse of a dominant position (Article 82) by engaging in illegal anticompetitive practices to exclude competitors from the market of computer chips called x86 central processing units (CPUs).
In addition to imposing the fine, the European Commission ordered Intel to cease the illegal practices that were still ongoing.

“Intel has harmed millions of European consumers by deliberately acting to keep competitors out of the market for computer chips for many years,” said Competition Commissioner Neelie Kroes. “Such serious and sustained violation of the EU’s antitrust rules cannot be tolerated.”

The Commission found that Intel—while maintaining a dominant position in the x86 CPU market—engaged in two forms of illegal practices.

Exclusionary Rebates, Payments

First, Intel gave wholly or partially hidden rebates to computer manufacturers on the condition that they bought all, or nearly all, of their x86 CPUs from Intel. The chip manufacturer also made direct payments to major retailer Media Saturn Holding on the condition that it stock only computers with Intel x86 CPUs.

“Such rebates and payments effectively prevented customers—and ultimately consumers—from choosing alternative products,” the Commission stated.

Halt or Delay Products with Other Chips

Second, Intel made direct payments to computer manufacturers to halt or delay the launch of products containing competitors’ x86 CPUs and to limit the sales channels for these products, according to the Commission.

“By undermining its competitors’ ability to compete on the merits of its products, Intel’s actions undermined competition and innovation,” the Commission said.

“Abusive” Rebates

While some rebates can lead to lower prices for consumers, those offered by a company in a dominant position that are conditioned on a manufacturer buying less of a rival’s products or none at all are abusive according to settled case law of European Community courts, unless they are justified by some specific reasons.

In this case, the Commission did not object to rebates, but to the conditions Intel attached to the rebates, it was explained.

Promotion of Innovation

In a question and answer document released on Wednesday, the Commission said that this decision will promote innovation in the market because Intel’s practices stifled innovative products from reaching customers.

“Such practices deter innovative companies which might otherwise wish to enter and compete in the market. By ordering Intel to end its abusive practices, competition on the x86 CPU market will play out on the merits with the effect that innovation to the benefit of the consumer can flourish.”

The document refers to the “legal underpinning” of the Commission’s case, based on a consistent pattern of jurisprudence, including Case 85/87 Hoffmann-La Roche v. Commission; Case T-203/01 Michelin v. Commission; Case C-95/04 British Airways v. Commission; Joined Cases T-24/93 and others, Compagnie Maritime Belge v. Commission; and Case T-228/7 Irish Sugar.

The European Commission and the Federal Trade Commission kept each other regularly informed on their respective investigation of Intel.

Text of the press release and the questions and answers appear on the European Union website.

Intel’s Reaction

In a May 13 statement, Intel President and CEO Paul Otellini took “strong exception” to the Commission decision.

“We believe the decision is wrong and ignores the reality of a highly competitive microprocessor marketplace—characterized by constant innovation, improved product performance and lower prices,” Otellini said. “There has been absolutely zero harm to consumers. Intel will appeal.”