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7 Top Takeaways from EU’s Google-Android-Tying Charges
Submitted by Scott Cleland on Wed, 2016-04-20 12:53
The European Commission has charged Alphabet-Google with abusing its dominance in the market for “general Internet search services,” by implementing an Android “strategy of mobile devices to preserve and strengthen its dominance in general Internet search.” The EU objects to a variety of secret Google contract conditions to manufacturer licenses to leverage the dominant (>90% share) Android OS to secretly restrict and foreclose competition in ways that ultimately harm consumer choice and innovation. The EU effectively charged that Google has already anticompetitively extended its >90% dominance in search to dominance in the >90% share of the “licensable smart mobile operating system,” and to dominance in the >90% share of the “app stores for the Android” market.
Summary of 7 Top Takeaways from EU-Google-Android Antitrust Charges
The 7 Top Takeaways Explained
(1) Google-Android’s “open” defense is not the whole truth and nothing but the truth. There is a reason that when one has to swear to tell the truth in court, one has to promise to not only tell the truth, but also the whole truth and nothing but the truth. That’s because the truth is not a simple assertion, but what emerges from assertions being tested via investigation, cross examination and common sense. Google’s public defense against the EU’s Android-tying Statement of Objections, comes in simple blog post entitled: “Android’s Model of Open Innovation.” Google states very general and defensible honorific platitudes about its Android business model that are true as far as they go, because they focus superficially on what the public can see and what the Google branding touts.
The big problem with Google’s superficial defense is that the EU Statement of Objections does not challenge what Google says in its blog defense. The EU is charging that behind-the-scenes, out of public view, Google confidentially, secretly and anticompetitively behaves in ways that are not pro-openness, pro-competition, or pro-open-innovation like they claim in public.
The EU is charging that the facts that Google does not want the public to ever learn, actually dis-empower hundreds of manufacturers with secret contractual restrictions that effectively limit manufacturers choices, all to empower Google to profitably extend its dominance into other markets and foreclose potential competitive threats to Google. Simply, this case is about exposing and prosecuting heretofore secret anti-competitive Android-tying behavior that Google wants to keep out of public view.
If Google is truly innocent here and really wants the public to know that Google genuinely operates an “open” model and ecosystem, then why doesn’t Google effectively open-source the language in all of their OEM and network operator contracts on a Wiki so the public can see transparently, if Google is, or is not, using its Android gatekeeper power to discriminate in favor of Google at the expense of competition and competitive innovation? Isn’t the whole purpose and strength of a true open model the trust that true transparency and openness generate?
(2) EU is now the world’s de facto antitrust top cop, not the DOJ-FTC. Google is the obvious #1 global antitrust problem of interest to countries other than the U.S. Only the EU antitrust authority has charged Google with both search-bias and Android-tying abuses of dominance. In addition, the EU is now the only jurisdiction with: a holistic view of the Google-Android antitrust problem; the most facts and understanding of the markets; and the commitment and courage to lead the rest of world’s antitrust review of Google, sans DOJ-FTC.
(3) Begs a big question: Why did the FTC silently bury the 2012 FTC staff report on Android-tying? Now that we know that both the EU and Russian antitrust authorities separately concluded that Google’s tying of Android with Google Apps is an abuse of dominance, why did the FTC preemptively shut down its 2011-2012 Android investigation and then cover it up without any public communication or explanation?
We now know from the 2012 Google-FTC staff report that just before the FTC closed all its Google antitrust investigations, the FTC staff report stated: “Staff continues to investigate Google's conduct in the mobile [Android] arena and will address these issues in a supplemental memorandum;” (fn. 51, p120) and noted that “Since Google's release of the first commercially available mobile device running Android OS in October 2008, Android's market share has grown exponentially.” (fn. 51, p120)
The inexplicable nature of the FTC’s closure of its Android-tying investigation in 2013, adds to the many other facts that suggest that the FTC abruptly closed all FTC antitrust probes into Google for political reasons after the 2012 election. The FTC Chairman’s statement at the time made it clear “all of its competition-related investigations of Google were settled,” which would obviously include the Android-tying probe that the FTC staff in October 2012 said they were continuing to investigate and would prepare an Android “supplemental memorandum” for the Commissioners.
However, in all the statements explaining the settlement of supposedly all of the Google antitrust issues the FTC staff were investigating, there inexplicably is zero mention of the existence of the FTC staff’s official Android-tying investigation; what the staff discovered/concluded; or how the FTC finally decided to officially resolve the probe for the public record.
Even worse, there was no official vote of the FTC commissioners on closing the Android tying matter when they voted on four other issues in four different ways, 4-1; 3-0-2; 4-0-1; and 5-0. Were the other commissioners even told in the frenzied political rush to shut down all FTC Google antitrust probes, that they did not have a say in closing the FTC’s separate Android-tying investigation? Tellingly FTC Commissioner Rosch warned in his concurring and dissenting statement that: “… our “settlement” with Google creates very bad precedent and may lead to the impression that well-heeled firms such as Google will receive special treatment at the Commission.”
The FTC’s closure of its Android probe, is even more inexplicable and deceptive because in the FTC press statement the FTC Chairman claimed the FTC conducted an “incredibly thorough and careful investigation” in publicly explaining the three parts of the investigation that were settled with Google (i.e. abuse of: SEP patents, advertising APIs, and website opt-outs) and the two matters that resulted in no action or settlement despite commissioner concerns (i.e. search bias and unauthorized content scraping).
Why was there no explicit mention of the FTC’s Android-tying investigation or why the FTC decided to close it like they did with search bias and content scraping? Did Google politically insist in its settlement negotiations that the FTC’s Android investigation be closed with no public disclosure of why? Did the premature, inexplicable, and un-voted-on, closure of the FTC’s Android-tying investigation result from the “special treatment” that Commissioner Rosch warned against at the time?
(4) Android-tying is a relatively straightforward legal case. This Android case is a classic “bread and butter” straightforward antitrust case. For the layman it can be considered a repeat of, or the 2016 sequel to, the EU’s successful case against Microsoft for de facto tying its media player and Internet browser to its monopoly operating system. The hardest legal elements of this antitrust case are largely settled law as a result of the EU v. Microsoft legal precedent, e.g. relevant market definition of the licensable operating system market, which excludes Apple iOS, and that tying apps to a dominant operating system is an abuse of dominance and harms consumers and innovation. Moreover, the copious definitive evidence in this case is literally eight years of executed contracts with manufacturers; so the main evidence in this case is highly discoverable, finite, tangible, and straightforward.
(5) Android-Tying is very different from the search case. This case is about abuse of dominance in the wholesale OEM/network-operator smartphone market, not the consumer retail smartphone market. The EU has charged Google with abusing its dominance by effectively requiring contracts with ~400 original equipment manufacturers (OEMs) to accept a de facto exclusive ecosystem arrangement of Android and a pre-loaded set of prominently placed Google apps like search, Play store, Chrome, etc., if the OEM wants to offer Google’s free and best-marketed mobile operating system in the marketplace to sell its phones.
(6) Apple iOS is NOT an Android competitor for ANTITRUST purposes. The EU asserts in the lone footnote in its Fact Sheet that it has concluded that Apple iOS is not a competitor to Android in stating: “Android is a licensable operating system meaning that third party handset manufacturers can use it for their devices; as opposed to operating systems exclusively used by vertically integrated developers.” As the EU’s antitrust precedent, Microsoft v. Commission determines, Apple’s iOS is not a direct competitor to Android in the “licensable smart mobile operating system” market monopoly because Apple iOS is exclusive to Apple products and is not licensed to OEMs. Moreover, Google-Android and Apple-iOS have different customers, products, and business models. In addition their models differ in customization, monetization, economics, costs, intellectual property, and data protection. If Apple iOS is not a direct competitor in antitrust analysis, Google-Android commands >95% market share in the EU’s licensed mobile OS market.
It will be interesting to see if Google’s legendary PR operation can herd the media to not report the >90% Google Android’s market share that the EU investigation concluded, but continue to report the Google supplied ~80% Android smartphone shipment market share number, that is now not the relevant defined market for antitrust purposes.
(7) Android competition is on life support. The only other material “licensable smart mobile operating systems” right now are Microsoft, Nokia, and Blackberry, and together they have <2.5% global share of shipped smartphones in 2015 per Statista. That share is headed for further decline because Facebook-WhatsApp is signaling market reality in deciding to no longer support any OS other than Android and iOS, because only Google Play and Apple’s Appstore have the critical mass of apps and app developers to support a mobile innovation ecosystem.
Given that iOS is not licensable, and that the barriers to create another mobile OS/app development/monetization are de facto insurmountable, Google-Android has enormous incentives to preference its search, Play app-store, browser, products and services over everyone else’s.
If Microsoft -- the third most valuable company in the world that was willing to absorb >$15b in cumulative financial losses over several years trying to offer a competitive alternative: search engine, mobile search offering, mobile operating system, and app store to Google -- can’t compete with Google-Android and had to concede the mobile market to Google-Android in 2015 to cut its financial losses, the outlook for Android competition is effectively very bleak for the foreseeable future.
Android rules mobile.
Scott Cleland served as Deputy U.S. Coordinator for International Communications & Information Policy in the George H. W. Bush Administration. He is President of Precursor LLC, an emergent enterprise risk consultancy for Fortune 500 companies, some of which are Google competitors, and Chairman of NetCompetition, a pro-competition e-forum supported by broadband interests. He is also author of “Search & Destroy: Why You Can’t Trust Google Inc.” Cleland has testified before both the Senate and House antitrust subcommittees on Google and also before the relevant House oversight subcommittee on Google’s privacy problems.