The EU General Court largely upholds Google's standard Android penalty

Competition in Digital Ecosystems: Google Android Verdict

In the Google Android Rule On 14 September 2022, the General Court of the European Union addresses the treatment of competition in and between digital “ecosystems” under EU competition law.

At the heart of the €4.6 billion fine under appeal in the case was the European Commission’s discovery that Google had occupied a dominant position in the licensed operating systems (OS) market for smart mobile devices. Google argued that this narrow definition of the market failed to take into account the competition between, on the one hand, the Android ecosystem, which consists of mobile devices and apps based on Google’s Android operating system, and on the other hand, Apple’s ecosystem based on Apple’s iOS operating system. the system.

The General Court recognized both the potential difficulties in applying the principles of uniform competition law to define the market in the digital economy, and the need to take into account the constraints of exiting the market. However, it eventually endorsed the committee’s approach.

The starting point for the commission’s position on market definition and dominance was the observation that smartphone manufacturers (OEMs) who wanted to license an operating system had only one option, Android. Apple had its own operating system for the iPhone (iOS), but Apple chose not to license iOS to other OEMs. Google argued that the narrow focus on open selection of OEMs ignores direct competition between devices using Apple’s Android OS and iOS.

The court agreed that because Apple did not license iOS, iOS and Android are not interchangeable from the OEMs’ point of view. So the competitive importance of Apple’s iOS had to be assessed at the level of end markets for phone users and app developers.

With regard to users, the court found that users’ choice between ecosystems was based on multiple factors and could not be reduced to the operating system alone. The operating system was an important factor in choosing a smartphone, but it was not the only one. Switching between ecosystems was prompted primarily by new hardware launches, not OS changes.

Android users showed great loyalty to the Android ecosystem: 82% refused to switch to Apple when buying a new device in 2015. But that loyalty doesn’t seem to be driven by the quality of the operating system. Figures for May 2017 showed that only 7.1% of Android users were running the latest version of the Android operating system on their devices, six months after it was made available. Likewise, a very small percentage of users who switched to an Apple device said they did so because of the quality of the operating system.

Alternatively, user loyalty can be attributed to difficulties encountered when switching ecosystems, for example in transferring personal data, having to repurchase apps, or having to re-learn the way their devices work. The fact that Apple launched an app to facilitate the transition from Android to iOS tended to show that switching costs were a concern. For users of lower-end devices, Apple’s pricing policy seems to act as an obstacle to the switch, as at least 50% of Android devices are sold at lower prices than Apple’s.

Regarding potential limitations from application developers, the court found that to the extent users were unlikely to switch to another mobile operating system, the same would be true for application developers, who were reasonably unable to abandon the majority of their customers.

Overall, the court concluded that the commission was justified in treating the Apple ecosystem as an “indirect limitation” on Google and found that this limitation was not sufficient to call into question Google’s dominance. In assessing the significance of the limitation, the panel examined the potential for users (and application developers) to switch in response to a small but significant non-transitional decline in quality (SSNDQ). This is different from the Small but Large Non Temporary Price Increase (SSNIP) test. However, the court upheld this approach. Competition can occur in terms of quality and innovation as well as in terms of price. This was a case of a product that was unlikely to make way for traditional price-based SSNIP testing. In fact, Google seems to have argued that for an operating system, quality was the determining factor in consumer choice.

Conclusions and Comments

In this, as in all cases, the outcome on market definition and dominance was largely dependent on facts. However, for those considering how to deal with competition between digital ecosystems—or even more traditional earlier and later market systems such as razors and razors or copiers and toner cartridges—the general court approach seems beneficial. The court was quick to identify separate markets at the OEM and user level. He then asked if the competition taking place at the user level is driven solely (or at least to a large extent) by OS quality. Once the court decided that many factors, including but not limited to operating system quality, were relevant to user choice, Google was facing an uphill battle to prove that Apple’s indirect limitation was sufficient to avoid finding dominance.

In the digital economy… traditional criteria such as the prices of products or services or the market share of the project in question may be less important / …

#Competition #Digital #Ecosystems #Google #Android #Verdict

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