Google Facing Provisional Penalty of $162 Million from CCI for Abuse of Market Dominant Position

Google Facing Provisional Penalty of $162 Million from CCI for Abuse of Market Dominant Position

The Competition Commission of India (CCI) has imposed a provisional penalty of Rs 1,337.76 crore ($162 million) on Google for abusing its market dominant position in the Indian market through practices leading to search bias and search result manipulation. This CCI order comes just a few days after the European Union’s antitrust watchdog, the European Commission (EC), fined Google €2.42 billion ($2.79 billion) on similar grounds and ordered the company to change its business practices within 90 days or face additional penalties of up to 5% of its average global revenue in the preceding three years.

A brief overview of Google’s business model

Google is an American multinational technology company that specializes in Internet-related services and products. These include online advertising technologies, search, cloud computing, software, and hardware. Most of its profits are derived from AdWords, an online advertising service that places advertising near the list of search results. In February 2011 Google announced plans to restructure its business operations to become a Delaware corporation called Alphabet Inc., having no relation to prior companies that used that name.

A brief overview of the issue

Competition Commission of India (CCI) has imposed a provisional penalty of Rs 1,337.76 crore ($162 million) on Google for abusing its market dominant position in Internet search and web advertising services. In an order issued yesterday, CCI said it has found Google to be dominant in a relevant market as well as abuse its dominance by imposing restrictions on its advertisers and partners. It also said that such conduct resulted in denial of benefits to consumers. Google was leveraging its dominance in online general web search and online syndicate search services to strengthen its position in online syndication service for advertisement placement through restrictive contract conditions, CCI noted. The commission further added that Google had abused its dominant position by restricting advertisers from placing their ads with rival search engines like Microsoft Bing, Yahoo!, Ask Jeeves etc. The restriction is likely to have prevented competition among search engines which could have led to a better deal for consumers, CCI said. This would amount to abuse of dominance under Section 4(2)(b)(i) read with Section 3(3)(i) of the Act. Henceforth, Google shall not enter into any agreement containing such clauses or any other clause having equivalent effect in future, it added.

A summary of key points made by the order

The Commission has imposed a fine of Rs. 1,337.76 crores on Google for abusing its dominance in online web search and online search advertising services through practices resulting in search bias, by way of which it favored its own search results over those of its competitors; and by giving an unfair advantage to another Google product, i.e., Google Adwords, whose share increased disproportionately against rival companies. This is violation of Section 3(3) (i) and (ii) read with Section 4 of the Competition Act, 2002. The penalty amount is roughly equivalent to US$ 162 million (Rs 964 crore). The order imposes a penalty on Google based on its revenue from its India operations. A significant portion of Google’s global revenue comes from India operations and hence it was appropriate that a portion of penalty should be based on Indian revenues. The Order states: In view of all these factors, we have considered it appropriate to impose a financial penalty upon Google at Rs 131.37 crore per month for every month up to December 2015. In total, therefore, we propose to impose a financial penalty of Rs 497.2 crore ($ 74 million) payable by Google within 60 days from today. It may be noted that even if there is no finding of an abuse as regards other types of services such as mobile or news aggregation or local business listings etc., then also Google will have to pay a sum of about $ 25 million [approximately Rs 145 crores] towards our cost associated with investigations and proceedings under section 34(1)(d). The following are some key observations made by CCI: A. Search Bias: Search engines like Google derive their revenue primarily from advertisements. To maximize their profits, they need to increase traffic volumes. For increasing traffic volumes, search engines use different techniques including search bias wherein they show search results in favor of their own products/services or against those of their competitors. Such practice leads users to perceive that certain products/services are better than others since they appear higher up on the list of search results page. Thus, users tend to click more often on them because it appears that those particular products/services are better than others since they appear higher up on the list of search results page.

Reaction from different stakeholders

The Competition Commission of India (CCI) has imposed a provisional penalty of Rs 1,337.76 crore ($162 million) on Google for abusing its market dominant position in online general web search through practices leading to search bias and search manipulation. The CCI also referred to Section 19 (2)(b)(i)(ii) and 19 (2)(b)(i)(iii) of the Competition Act, 2002 while framing allegations against Google. In view of above allegations it can be expected that there will be mixed reactions by different stakeholders including internet users, advertisers etc., which may further create challenges to Google in terms of decision making and other such activities. It is pertinent to mention here that Google was earlier fined €2.4 billion by EU’s antitrust regulator last year for similar reasons. It is worth noting here that both these cases are still pending adjudication before respective courts/tribunals. However, if one closely looks at these decisions then one would observe that they have not taken into account emerging competition in e-commerce sector as well as changes occurring due to emergence of social media platforms like Facebook and Twitter which are increasingly becoming preferred source of information/news among people worldwide. This could be another reason why US based companies like Microsoft and Facebook have been opposing imposition of any kind of restriction on freedom of speech and expression under guise of protecting consumers or preventing abuse or misuse by big companies with deep pockets.

Conclusion

Competition Commission of India fined Google a total of Rs 1,337.76 crore ($162 million) in respect to three separate violations. The said penalties are imposed on Google due to its abuse of dominant position in three distinct areas; bundling of applications, interference with search results and exclusivity agreements. Further fines will be levied based on comments received from stakeholders during a 60-day consultation period.