Commission Fines Google €2.4 billion – What They Got Wrong and Why it Matters

On June 27, The European Commission fined Google €2.42 billion for abusing dominance as a search engine by giving advantage to its own comparison shopping service.

Google’s “flagship” product is its search engine, with a global market share of over 78% and over 90% in the EU. 90% of Google’s revenues come from selling advertising on its search engine. The present case concerns another product, its comparison shopping service, currently named Google Shopping. When entering a product name, Google Shopping compares products and prices online and presents the results to end-users. In doing so, Google accesses other platforms such as Amazon or eBay. Google Shopping is embedded in Google’s search engine so that it is not necessary to visit Google Shopping separately. A regular search for a product on its main engine prominently displays Google Shopping results at the top. This, in Commission’s view, is Google’s main transgression.

The Commission is currently running three separate cases against Google. The present case should not be confused with a similar but conceptually different one the Commission is running against Google’s practices concerning its Android operating system. That investigation into Google’s Android has been running from 2015 and has not concluded yet. It should equally not be confused with the Commission’s 2016 investigation of agreements between Google and partners of its online search advertising intermediation programme AdSense. While Google’s dominance in the search market is what connects these cases, the underlying legal basis on which the Commission relies is not the same in them and they should be analysed separately.

The investigation dates back to 2010. After a lengthy investigation, the then-commissioner Joaquín Almunia sought to reach a deal with Google in 2012, avoiding formally charging it, a strategy for which he was heavily criticised. After Margrethe Vestager assumed office in November 2014, the case started moving at a somewhat faster pace. The Commission sent the original statement of objections in September 2015. Google outlined its responses to the Commission in a blog post in November 2016. The supplementary statement of objections has been sent in July 2016 to which further responses followed.

In reaching its present decision, the Commission’s starting point is that there should be competition between comparison shopping services. Google has used its dominant position on the search market to allegedly illegally promote its own comparison shopping service. The Commission’s argument is that Google has:

  • “systematically given prominent placement to its own comparison shopping service”
  • “demoted rival comparison shopping services in its search results”

Put in simple terms, the Commission claims that Google is not only relying on its dominance in the search market to push its own comparison shopping service but is taking active steps to ensure that rivals’ services are not readily accessible. The Commission concludes that Google is dominant in the search engine market and that it has abused its dominance by giving its own shopping service an illegal advantage.

In comments to the original and supplemental statement of objections, Google indicated that it believed the Commission’s definition of the relevant market to be narrow. In choosing to focus on comparison shopping websites only, the Commission was ignoring the broader dynamics of consumer shopping. Google’s June 27, 2017 response to the decision repeats in an abbreviated form the arguments heard before. In Google’s view, the Commission does not provide convincing reasons for only targeting the more recent version of its shopping product which has been available for many years without objection. Furthermore, the Commission does not adequately address the overall decline of comparative shopping products which Google believes to be a direct result of the increasingly popular Amazon and eBay. Google’s November 2016 response claims

that online shopping is robustly competitive, with lots of evidence supporting the common-sense conclusion that Google and many other websites are chasing Amazon, by far the largest player on the field.

If one is to look for market power, one has to see what market that power is supposedly exercised on. There is no doubt that market definition in online markets is a rather complicated exercise. At present, horizontal search engines (Google, Bing, etc), vertical search engines (e.g. Pricerunner) and vendor platforms (Amazon, eBay) all compete for the same custom. Furthermore, the SSNIP test (small but significant and non-transitory increase in price) does not seem to be effective in narrowing down the market for online shopping. It can be said with some confidence that Google’s competitors are not only the other comparison shopping websites (nor even other search engines) but other intermediaries in general. This is especially true of younger generations who increasingly use platforms like Facebook, Instagram or Snapchat for their search needs. Firms with different business models can and do compete within the same market.

Research suggests that product comparison shopping is affected mainly by the frequency of internet usage, perceived usefulness, and ease of use. The Commission has not provided a forward-looking market definition nor did it prove that Google might be dominant on such a market (as opposed to more narrowly defined one). The Commission’s argument concerning dominance on the search engine and the related advantage would only work if the consumers would access a more significant share of competitors’ services either in the total absence of Google Shopping or in it being “downgraded” in ranking or placed alongside others. But, evidence suggests that consumers access comparison shopping sites largely directly and not trough Google simply because it is easier and more useful to do so. Google’s withdrawal from this market would have no effect on traffic that these other sites get.

In summary, it seems that the Commission’s approach is based on a specific and narrow market definition. Users do not seem to engage in comparative shopping of the kind Commission believes them to. An average shopper accessing Google is well aware of alternatives and uses them anyway. To say that there is no single market for online search today borders on banality and yet the Commission seems to read too much into the fact that 90% of users in the EU use Google. Further to that, the Commission believes that Google should treat own products and those of competitors equally, by no means a foregone conclusion.

The Commission’s decision is important for several reasons. While Vestager DG COMP may very well have learned the lessons from the political fallout from Almunia’s attempt to strike a deal, the importance of threading carefully cannot be overestimated. Almunia’s attempt to compromise reflects the realities of modern platforms – they tend to be dominant for a short while, they are ubiquitous and they perform a public service. Heavy handed approach may backfire. The present decision may be rendered meaningless much faster than with the 2007 Microsoft case in a rapidly changing search market.

More importantly perhaps, the somewhat hasty approach may be a signal of a messy situation to follow both in further Google cases and a plethora of other high-tech issues currently pending or coming in the future. The case is likely to continue for a considerable period as it gets appealed to Court.

Is Sharing Torrents on Online Platforms a Communication to the Public ? – CJEU’s Judgment in Stichting Brein

On June 14 the CJEU delivered its judgment in Stichting Brein case (not to be confused with the C-527/15 Stichting Brein, which is also about ‘communication to the public’ and in which CJEU ruled that the sale of multimedia players with pre-installed add-ons is communication to the public).

The present case concerns Stichting Brein, the rights holders’ association from the Netherlands, and Ziggo and XS4ALL, internet service providers. The latter had a number of customers who availed themselves of the services of online sharing platform TPB, an indexing service for BitTorrent files. It was established as a fact that the majority of works indexed through TPB were protected by copyright and shared without the rightholders’ consent. Stichting Brein applied to courts requesting that Ziggo and XS4ALL be ordered to block access to TPB. The question then concentrated on whether the individual posters, the TPB or the intermediaries were engaged in communicating the works to the public. The Hoge Raad referred the case to CJEU, asking, essentially, if TPB’s actions amount to communication to the public at all.

The questions referred to the Court were:

Is there a communication to the public within the meaning of Article 3(1) of the Copyright Directive by the operator of a website, if no protected works are available on that website, but a system exist … by means of which metadata on protected works which is present on the users’ computers is indexed and categorised for users, so that the users can trace and upload and download the protected works on the basis thereof?

If the answer to Question (1) is negative:

Do Article 8(3) of the Copyright Directive and Article 11 of the Enforcement Directive 2 offer any scope for obtaining an injunction against an intermediary as referred to in those provisions, if that intermediary facilitates the infringing acts of third parties in the way referred to in Question 1?

The two groups of questions are conceptually unrelated. By the first, the Court is asking if TPB’s actions amount to communication to the public as per Article 3(1) of the Copyright Directive. By the second, the court is asking if the facilitating intermediaries (Ziggo and XS4ALL) can nevertheless be subject to an injunction (even where their activity is not communicating to the public).

Advocate General Szpunar, in his opinion, emphasises the lack of proper definition of ’communication to the public’ and refers to Court’s case law which had so far helped clarify the concept. In particular, the acts of communication and the presence of a public need to exist.1 The player makes an act of communication “when it intervenes, in full knowledge of the consequences of its action, to give its customers access to a protected work, and does so in particular where without that intervention its customers would not, in principle, be able to enjoy the broadcast work.” The second criterion requires two separate conditions to be fulfilled: the communication must be directed at indeterminate but fairly large number of recipients2 and it must target a new audience. The second condition is not fulfilled where the work is already been made available on another website. As will immediately be clear, all sorts of difficulties may arise as to what qualifies as a work already made available. In Advocate General’s summary (paragraphs 41 and 42) of the Court’s cases, two situations can be discerned in which a new public clearly exists:

  • a work made available without the consent of the copyright holder amounts to communication to the public since the original holder did not envisage the new public gained through the act
  • communication through technical means different than the initial communication3

(It is worth noting here that it is not entirely clear whether the Court’s case law amounts to the first conclusion and it is questionable whether the second one should apply.) AG Szpunar takes the position that TPB’s actions are a communication to the public and gives three reasons. First, the fact that files are cut-up in the process of transmission and downloaded from multiple sources simultaneously is irrelevant for the fact that complete works are enjoyed at final destination. Second, potential users of peer-to-peer networks fulfil the first criterion of indeterminate number of users. Third, the ‘new public’ criterion is also satisfied since not only is the rightholder’s consent absent but the new technical means had been used for transmission. Finally, the AG says that, although it is the users who willingly upload the files and leave the computers connected to the network, it is the indexing site that makes the ultimate transmission possible. While active knowledge (and refusal to rectify) remains a condition for an intermediary’s liability, the “necessary and deliberate” actions of operators demonstrate the possession of full knowledge and are, therefore, “simultaneously and jointly” making the works available.

The Court’s judgment repeats the basic premises on which Article 3(1) of the Copyright Directive works, in particular the absence of consent and the new technical means. The Court adds that the for-profit nature “is not irrelevant” without offering further explanation as to how and why it might become relevant. The key point is made in paragrapoh 36:

[…] the fact remains that those operators, by making available and managing an online sharing platform such as that at issue in the main proceedings, intervene, with full knowledge of the consequences of their conduct, to provide access to protected works, by indexing on that platform torrent files which allow users of the platform to locate those works and to share them within the context of a peer-to-peer network. […] without the aforementioned operators making such a platform available and managing it, the works could not be shared by the users or, at the very least, sharing them on the internet would prove to be more complex.

The Court downplays the subjective element which, both in the AG’s opinion and in the Court’s own previous case law features somewhat more prominently. Whereas AG’s opinion suggests that the operator must have been aware that the work had been available (thus exempting bona fide intermediaries), the final judgment puts focus on the facts that the indexing site is essentially a co-infringer. The final ruling is, therefore:

The concept of ‘communication to the public’, within the meaning of Article 3(1) of Directive 2001/29/EC of the European Parliament and of the Council of 22 May 2001 on the harmonisation of certain aspects of copyright and related rights in the information society, must be interpreted as covering, in circumstances such as those at issue in the main proceedings, the making available and management, on the internet, of a sharing platform which, by means of indexation of metadata relating to protected works and the provision of a search engine, allows users of that platform to locate those works and to share them in the context of a peer-to-peer network. (emphasis added)

In spite of the somewhat unsurprising conclusion of the Court, some doubts remain.

First, a significant number of cases in which CJEU interpreted communication to the public relate to hyperlinks and not to peer-to-peer setups. It is not clear to what extent the conclusions made in those cases can be translated to the present ones. Although the Court does refer to its well-known Svensson and GS Media judgments, both of these were criticised at the time. Neither the Court nor Advocate General attempt to develop a new approach to P2P platforms.

Second, some aspects of the previous case-law are questionable. The fact that it is not necessary to establish the existence of the new public where new technical means are used is, in view of this author, problematic and may not be applicable to a range of situations. Likewise, the role of the extent of the rightholder’s consent is not properly explored. It seems that the CJEU believes that a rightholder who consented for something to be posted would be precluded from suing for infringement where that work gets linked to from elsewhere. While it is possible to defend that position, it is not clear that the drafters of Article 3 had intended that effect at all.

Third, while it may be clear that TPB is in full knowledge of the infringing nature of the traffic that it facilitates, this will not always be the case. The Court’s present case-law concerning the relevance of knowledge is confusing. The Court’s hyperlinking line of cases (GS Media) establishes the presumption of knowledge for commercial sites, saying that commercial providers who hyperlink are simply presumed to be knowledgeable about the infringing nature of the activity. Paragraph 47 of that judgment makes the subjective element part of the equation. Advocate General suggests (paragraph 52) that platform’s actual knowledge must exists. The AG suggests that GS Media approach is not appropriate here. The Court mostly disregards the knowledge factor in the present case and does not go into the applicability of its presumption system to P2P cases, leaving the subjective factor open for further confusion and interpretation. Finally, while the existence of intermediaries’ liability in light of Articles 12-15 of the E-Commerce Directive does depend on the subjective factor, these articles do not apply in cases where platforms are primary infringers or co-infringers.

Fourth, the Court’s judgment emphasises indexation, metadata and the provision of a search engine as decisive elements which make TPB a communicator but these exact elements can also be ascribed to search engines such as Google or instant messaging services. The judgment does not offer many clues which can be used to distinguish infringing P2P sites from other sites in the future.

Fifth, the intermittent reliance on profit as a criterion (also featuring in GS Media) is puzzling, especially in the absence of a longer explanation from the Court concerning the possible roles it may play. While the existence of commercial interests may play a role in highlighting the poster’s intentions regarding the public it wants to reach and possible lack of good faith, it cannot and should not play a role in determining whether a work has or has not been communicated to the public. Particularly damaging might be an attempt to conclude that an undertaking operating without profit should not be considered to be making a communication to the public – a possibility which still exists in the present setup. A possible interpretation would be that a for-profit shortcut would simply exempt court from looking at other factors but this interpretation is not supported by Article 3(1).

In summary, while the Court’s judgment is not surprising and can easily be defended on the basis of the facts presented to it, it does little to clarify the increasingly muddled situation surrounding communication to the public in the digital world.

In light of the fact that the first question was answered positively, the second question had not been answered. Nothing is lost here since the Court’s position on injunctions against intermediaries is relatively well-established.

  1. C-160/15 GS Media, link.
  2. A condition usually satisfied by a website C-466/12 Svensson, link.
  3. C-607/11 ITV, link