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The European War on Google: The Android (Part I)

About The Author

Matt Bogdan (Former EU & International Law Editor)

Matt graduated with an LLB (2:1) from Durham University in July 2014. Most recently, he has been assisting with research on comparative company law at the Durham Law School. Matt is primarily interested in the TMT sector, but has also been involved in matters of public international law through Durham United Nations Society.

Google Inc. requires little introduction. With its Internet search engine and digital products permeating our everyday lives, the company attracts heavy global media coverage. An abundance of favourable news stories can be found online, including reports on Google’s work on providing Internet access to remote areas with high-altitude balloons or on the excellent working conditions the company provides for its employees. Nevertheless, the positives are matched, if not exceeded, by critical accounts of the company. This holds true especially for the European Union (EU), where Google has attracted extensive criticism on a plethora of matters, including but not limited to, concerns over the company’s handling of privacy issues and its alleged abuses of competition law in both web search and operating systems markets.

Most recently, the European Parliament has even passed a non-binding resolution to break-up Google, which apparently served as a symbolic message incentivising competition law enforcement by the European Commission (‘Commission’). This puts significant pressure on Ms Margrethe Vestager, who took office as the new European Commissioner for Competition last month and is already handling a recently reopened four-year old investigation into Google’s search and advertising business  (for an extensive look at the new Commission and its competition law enforcement mandate, see my last KCTL article). With the new DG Comp (i.e. the part of the Commission responsible for competition matters) in place and ready to act, a closer scrutiny of the allegations against Google is vital, especially perhaps since Ms Vestager has yet to find her hallmark investigation akin to the notorious 'Microsoft saga' or the Intel proceedings.

This series of articles will therefore address the key legal challenges to Google’s practices in relation to its position in the relevant markets. In this article, I will focus on allegations of abuse of a dominant position by Google in the operating systems (OS) market, where its Android OS enjoys approximately 85% of the global market share in smartphones. The Commission has not yet launched a formal investigation into Android, and may be potentially postponing it until its ongoing investigation into Google’s search engine practices is complete. Nonetheless, the possibility of such investigation being opened was already hinted at in the leaked correspondence of Mr Joaquin Almunia, the former Commissioner for Competition. While Ms Vestager certainly conceals her intentions better than her predecessor and claims not to be influenced by politics, the current ‘googlephobic’ atmosphere in Europe should at least influence us to do some analysing on our own. Before moving to the facets of the alleged infringement, a brief introduction of the subject matter of this discussion, the Android OS, will be provided.

Let Me (Briefly) Introduce You to Android

Android is an operating system (OS) designed for mobile handsets. It is based on an open source development model, which makes it publicly available for use and/or modification on a royalty-free license basis. Android itself consists of a number of elements, however for the purposes of this article, it essentially represents the foundation for a smartphone’s basic functionality (i.e. the basic user interface alongside some basic applications such as settings, dialling and phone, camera and gallery, calendar etc.). Importantly, what it does not automatically contain are the Google Mobile Services (GMS), or in other words, the applications and services provided by Google to enhance the basic user experience. GMS therefore includes all of the well-known Google applications, such as Gmail, Chrome, Google+, Maps, YouTube, GoogleDocs, Translate and the Google Play Store, which allows users to download additional apps onto their devices. Contrary to the Android OS, the GMS is neither open source, nor publicly available, but instead can be obtained by smartphone manufacturers (hereinafter referred to as OEMs, which stands for Original Equipment Manufacturers) through a separate, free of charge licence from Google. The distinction between Android OS and GMS is crucial for the ensuing analysis; thus, to reiterate, while the former constitutes a backbone providing basic user interface, the latter is an add-on enriching the basic functionality of the OS.

The Bundling Objection

The key objection raised in respect of Google’s Android relates to the practice of bundling. Bundling occurs where a dominant company ties a consumer in by offering goods only in bundles rather than on an individual basis. In cases where the goods offered come from disparate markets, bundling enables a company dominant in market A to easily build up its position in markets B, C, etc. This not only amounts to exploitation of consumers, but also has a chilling effect on the competition in the markets affected. Accordingly, bundling is expressly prohibited as an anti-competitive practice both in Article 101 and Article 102 of the Treaty on the Functioning of the European Union (TFEU), with most cases being brought under the latter. One of the most notable cases on bundling involved Microsoft’s practice of selling Microsoft Windows OS with a pre-installed copy of Windows Media Player. In that instance, Microsoft was found to be using its then dominant position in the operating systems market as leverage for gaining a stronger hold of the streaming media player market. One of the most fundamental prerequisites for the application of Article 102 is the existence of an actual bundle of distinct products, which is forced upon the customer as the only option available for obtaining at least one of these products.

i) Examining the Facts

Most fundamentally, the opposition to Google’s practices is based on the assertion that Google offers the Android OS in a bundle with GMS, thus utilising its dominant position in the mobile operating systems market as leverage for expanding into the mobile applications market. From a factual perspective, this is simply untrue since Android and GMS are available on separate licences. Thus, Android OS may be obtained, used and modified without licensing out the GMS. In China, it was estimated that more than 70% of Android phones lack GMS (when reading articles, please bear in mind that GMS are sometimes also referred to as Google Play services). Globally, approximately 20% of the Android ecosystem consists of Android forks (i.e. modified operating systems based on the open source Android, which usually do not offer GMS), while it is predicted that in 2015, 30% of Android phones will not have access to GMS. Good examples of Android forks include Amazon’s Kindle, which does not have factory access to GMS (although searching for ‘how to install Google Play on Kindle’ provides a number of unofficial solutions) as well as the new Android-based Nokia smartphones, which (surprise, surprise) lean towards Microsoft’s own suite of applications.

ii) A More Common Sense Approach?

While it is therefore factually apparent that Google does not offer Android OS and GMS in a take-both-or-leave-it bundle, the argument nonetheless follows that the distinction between the two is irrelevant in practice, as using Android without GMS is not a commercially viable option. It is argued that Android alone offers minimalistic and generally insufficient user experience, thus making GMS an ‘essential option’ to OEMs that either lack the financial and human resources necessary for developing an Android fork or are simply not willing to risk entering the mobile operating systems market with a new, untested product. This appears to be the case for most OEMs on the market (e.g. HTC, LGE, Sony), a state of business reality reinforced by Samsung’s recent and rather unimpressive attempt at introducing its own OS, Tizen. While the future of Tizen remains yet to be seen, the South Korean smartphone giant’s struggle in dropping Android indicates that OEMs may indeed be indirectly pushed to licensing out the GMS if they want to attract consumers with a competitive standard of smartphone user experience.

Taking this approach, the statistics above on the relatively high levels of non-GMS, Android-based devices found in China would merely represent an ‘exception proving the rule’. This is because inferring the EU business realities from Chinese business practices seems to be dubious at best given the heavier political and cultural influences on business in the latter region.

Further, as mentioned in Chillin’ Competition’s excellent entry on the potential investigation against Android, the fact that Google’s own app store, Google Play, is available only through the GMS package makes it even more compelling for OEMs to license out Android and GMS together. This is because Google Play is the leading, albeit not the only, repository of Android applications, which users can download (or more importantly, pay for and download) to enhance their smartphone experience.

Finally, the case for perceiving GMS as an ‘essential option’ is strengthened by Google’s very own and rather worrying practice of gradually transferring its Android applications to GMS and retarding Android’s development in favour of that of GMS. In practice, this means that GMS is getting more updates and more resources put into it, while Android’s offerings are gradually being depleted, thereby increasing the attractiveness of GMS to OEMs.

Understanding the Business Realities

While convincing arguments both for and against the existence of an ‘Android + GMS’ bundle exist, it is imperative to keep in mind the remaining legal components of a claim under Article 102 TFEU. For Android to be found guilty of an abuse of its dominant position, there would also need to be evidence to the bundle having a detrimental effect on the relevant market. Further, Google could also offset the claim by successfully arguing that the bundling in question is objectively justified or that it enhances efficiency.

In order to understand how these two elements of Article 102 could affect a competition infringement action against Google, it is necessary to consider the commercial realities of the rapidly developing Technology, Media and Telecommunications (TMT) industry. Anyone who owns a smartphone (and hopefully wisely uses it to read KCTL articles) should have noticed the gradual emergence of cloud computing by now. A great number of smartphone applications nowadays utilise cloud computing in order to deliver the smoothest, most advanced and coherent user experience to consumers (in case one doubts that, try switching off your Internet access and then using the applications on your phone). Unsurprisingly, the GMS applications are also increasingly cloud-based (e.g. Google calendar, Gmail, etc.), which allows consumers to use and store their data ‘in the cloud’ (i.e. on Google’s servers; if needed, see this brief explanation of what cloud computing actually is). As Dianne Hackborn of Google explains, Android is not designed to run cloud-based applications because such applications run on Google’s back-end services (back-end services include applications that support Google’s front-end applications, namely the GMS applications) and not on the platform where the Android was installed (i.e. the smartphone itself). Accordingly, the rationale for strengthening of the GMS offerings lies with the increased importance and popularity of cloud-enabled applications based on proprietary Google back-end services. Given that Google’s mobile OS business is based on an open source model (see an overview of the relevant business models by Chillin’ Competition), the company’s ability to offer cloud-based applications through the GMS is conducive to its success in the market.

Another way Google could attempt to justify its alleged bundling practice is by indicating the benefits thereof to consumers. With GMS being pre-installed as a whole, consumers gain access to a consistent, coherent and integrated user experience straight ‘out of the box’, akin to that provided by Google’s competitors relying on vertically integrated business models (e.g. Apple). Ensuring that consumers of Android-based smartphones have instant access to a full suite of Google services is also particularly important because most of us nowadays engage in cross-platform computing. To exemplify, any devoted Google products-user would surely be frustrated to find out that his new Android phone does not actually feature all of the services he chooses to use on his laptop or that he does not have access to the plethora of Android applications found on the Google Play store. Furthermore, bundling of GMS can also aid developers whose applications frequently have to rely on content being obtained from the GMS applications themselves (e.g. a ‘nearby pub application’ may require your Google Maps data to function properly). Naturally, making life easier for app developers has an indirect benefit for end consumers, whose user experience improves with a greater variety of fully functional applications. 

Finally, the claimants in a potential investigation against Google may have difficulties in clearly showing the detrimental effect of the alleged bundling on competition. While the Mobile Application Distribution Agreement (MADA) used by Google in licensing out its GMS to OEMs (this is based on the MADA that was ‘leaked’ in February 2014) does require that a complete suite of Google applications is pre-installed and given premium placement on the devices, it does not preclude either the OEMs or the users from installing other, competing applications on those devices. Further, users are also allowed to change their default applications to non-Google ones and may download competing App Stores. Thus, it is arguable that Google creates a more competitive OS environment than many of its competitors (notably Apple).

Concluding Thoughts

The current, anti-Google atmosphere prevalent in the European Union should certainly make Google cautious. With the investigation into its search engine reopened and under way, it is the highest time for the company to review its practices from a competition law standpoint. Without the investigation yet opened and with relatively scarce information available publicly, it is difficult to accurately predict whether the legal requirements for the application of Article 102 TFEU could be satisfied in a claim against Android. Nonetheless, so far it does appear that the claimants would have a rather tough time transposing the European googlephobic sentiment into a successful legal action.

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Tagged: Commercial Law, Competition, European Union, Technology

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