Google breathes sigh of relief as €1.49bn fine reversed

Author: Andrew J. Zammit

Background

The EU General Court has annulled the European Commission’s 2019 decision to fine Google €1.49bn for its abuse of its dominant position in the online search advertising intermediation market. The Commission had investigated Google’s conduct between 2006 and 2016. 

According to the Commission, Google was dominant in the market for online search advertising intermediation in the European Economic Area (‘EEA’) since at least, 2006.  Google had abused its dominance by including clauses within its contracts with its customers (websites) which prevented them from using other online search advertising intermediaries. The Commission held that through its conduct, Google was capable of restricting competition in the relevant product market in the EEA.

The General Court however, held that the Commission failed to take into account all the relevant circumstances of the case when assessing anticompetitive effects.

Details

Many websites (such as newspapers websites, blogs or travel sites aggregators) often have an embedded search function.   When a user uses this search function, the website would deliver both search results and search adverts, which appear next to the search results.

Search adverts do not typically emanate from the advertiser directly but from an intermediary. The website publisher in turn shares the revenue generated from the search advertisement with the intermediary. Since 2003, Google has operated an advertising platform called AdSense for Search (‘AFS’). To use AFS, publishers generating sufficient revenue could enter into a “Google Services Agreement”.  These agreements, however, contained clauses which restricted or prohibited the display of advertisements from competing firms.

In its 2019 decision, the Commission concluded that Google enjoyed a dominant market position in (i) almost all the national markets for online search advertising in the EEA; and (ii) the EEA-wide market for online search advertising intermediation.

This conclusion was based, in particular, on Google’s very high market shares exceeding 85% for most of the period. The market is also characterised by high barriers to entry including very significant initial and ongoing investments required to develop and maintain general search technology, a search advertising platform, and a sufficiently large portfolio of both publishers and advertisers.

According to the European Commission, Google had abused that position of dominance in the two product markets in breach of Article 102 of the Treaty on the Functioning of the European Union (‘TFEU’), specifically through the inclusion of clauses in contracts with websites with prevented Google’s rivals from placing search advertisements on those websites. In reaching its conclusions, the Commission reviewed hundreds of agreements which were individually negotiated.

The agreements, according to the European Commission, prevented Google’s rivals from competing on the merits, due to (i) clauses outright banning website publishers from sourcing online advertisements from Google’s rivals (so called ‘exclusivity clauses’), (ii) clauses reserving the most valuable advertising space for Google (so called ‘premium placement clauses’), and (iii) clauses requiring websites to seek Google’s written approval before making changes to how rival advertisements were displayed.

The Commission stated, “Google reserved for itself by far the most valuable commercial space on those websites, while at the same time controlling how rival search adverts could appear.” Based on the evidence, it found that “Google’s conduct had harmed competition and consumers, and stifled innovation. Google’s rivals were unable to grow and offer alternative online search advertising intermediation services to those of Google.  As a result, owners of websites had limited options for monetizing space on these websites and were forced to rely almost solely on Google.”

Google failed to demonstrate that the clauses created any efficiencies capable of justifying its practices.  As a result, the Commission fined Google €1.49bn, representing 1.29% of Google’s 2018 revenues, taking into account the duration and the gravity of the infringement.

Google Appeals

Google appealed the European Commission’s decision, and in September 2024, the EU General Court annulled the decision.

The General Court held that the Commission had failed to demonstrate to the requisite legal standard that Google’s conduct was capable of restricting competition. The Commission claimed that an assessment of the effects of Google’s conduct was not required because case law established that exclusivity clauses are anti-competitive by their very nature.

Google, on the other hand, argued that, based on the 2017 landmark judgment of the Court of Justice in Intel (C-413/14P), this was merely a rebuttable presumption. The Commission disagreed, arguing that Intel only applied to exclusivity payments and rebates, and not to exclusivity clauses.

While the case was still ongoing, the Court of Justice in the Unilever case (C-680/20) ruled that Intel did apply to exclusivity clauses as well.

In this context, the General Court concluded that, “the Commission was wrong to consider, primarily that it had not been required to verify whether that clause could restrict competition in the light of all circumstances of the case.”

This therefore meant that in its effects assessment, the Commission had failed to consider all the relevant circumstances of the case, including the duration of the exclusivity obligation which in some of the agreements was less than one year (even if renewed or extended several times). Moreover, the Commission seemed to give little value to the fact that the agreements gave publishers unilateral termination rights. These factors were important considerations that the Commission should have weighed more carefully when assessing the contract clauses it deemed abusive.

The General Court held that the Commission should not have limited itself to merely considering the cumulative duration of the GSAs to which those publishers were subject. The Commission should have also verified whether publishers had the opportunity to source from Google’s rival intermediary firms during the negotiation of any renewals or extensions of the GSAs, or whether they enjoyed a unilateral termination right with respect to those GSAs.

The General Court also held that the Commission had not established that the clauses within the GSAs had deterred innovation or helped Google to maintain or strengthen its position of dominance in the relevant product and geographic market.

This ruling is the latest in a series of cases dealing with exclusivity clauses where the EU courts have ruled against the European Commission, criticising its effects assessment.  Cases such as Intel and Qualcomm have been annulled.  The General Court’s decision is, however, subject to appeal to the Court of Justice on points of law.