Why did CCI write Google a bad report card?10 min read . Updated: 16 Sep 2015, 07:53 AM IST
The antitrust regulator has submitted a report making a prima facie case of Google abusing its dominant position
On Monday, The Economic Times reported that the director general of the Competition Commission of India (CCI) has submitted a damning report on Google, making a prima facie case of Google having abused its dominant position.
But what does it mean?
The answer is not straightforward, as the director general report dated 24 August, a copy of which Legally India has seen, runs into more than 6,000 pages including annexures and has over 2,000 pages of responses submitted by Google alone.
The original complaint against Google to CCI was made in 2012 by matrimonial site BharatMatrimony and was joined by Jaipur-based not-for-profit Consumer Unity and Trust Society (CUTS).
The director general has received reports from numerous other companies with complaints against Google [the list of those who responded is a who’s who of Indian and global tech companies, including Microsoft, Yahoo, Rediff, Facebook, MakeMyTrip, TripAdvisor, Yatra, Cleartrip, Nokia’s Here Maps (before it was sold to Microsoft), Flipkart, Times Internet, JustDial, Info Edge, Network18 and more than 10 major ad agencies.]
Google did not respond to requests for a comment for this story.
Google—or Alphabet, as its parent company is now known—makes most of its money from search advertising—a product it calls AdWords.
AdWords allows anyone to bid on certain search terms—such as “buy used new car"—which will then appear at the top of Google’s search results, distinguished from so-called “organic" or “natural search results" underneath it with a small yellow “Ad" textbox token.
Google has long prided itself on the quality of its search results, which are arrived at by a very complex and top-secret algorithm that is constantly tweaked in order to filter out spam and useless information from among the billions of pages Google has stored on its server farms.
It also says that it operates a strict internal wall separating advertising from its search results; that is, Google says that a company advertising on Google will not impact the organic search results.
The quality of Google’s search results has made it the most popular search engine in the world, and its business model has made it one of the most valuable and profitable companies in the world.
I get it, Google’s pretty great. Why should that matter?
Competition law does not look kindly at companies that grow too large and powerful. If a company has a so-called dominant position in a market, this opens the door to potential abuse of that dominant position against rivals, consumers, suppliers and customers, who may not have the option to use a different company because there are very few significant competitors.
The CCI director general found that Google is dominant in India in the “Web search" and “search advertising" markets.
Google tried to argue that its relevant market is “information", which would also include social networks such as Facebook and other online resources such as Wikipedia. If you are looking at a larger market other than just search, Google would have a much lower market share.
The director general disagreed and found that Google had a dominant position in both Web search and search advertising, with a market share of more than 85% in Web search in the period between 2009 and 2014.
Google’s dominant position would open it up to a potentially huge liability under Section 4 of the Competition Act, 2002, for certain behaviour that smaller companies that are not in a dominant position normally get away with as good-old-fashioned aggressive competitive business practices.
What kind of behaviour are we talking about here?
The CCI director general found a number of Google’s actions with respect to its advertisers and competitors in search, as well as other products, to be potentially in violation of competition law.
So Google’s search is biased?
Since it rolled out the so-called update to its search engine dubbed “Universal Search" in 2007, Google has tightly integrated some of its offerings into its search results.
This includes, for instance, prominent snapshots of its own Google Maps or Google Places products automatically popping up right at the top when searching for addresses or places, or preferential placement of profiles and pages hosted on its Google+ social network that aimed to compete with Facebook.
The director general’s report states: “Google is found to be indulging in practices of search bias and by doing so it causes harm to its competitors as well as users. Investigation has revealed that Google integrates/blends its own specialised/vertical search services, options, features in its online general web search services in universal results and commercial units using mechanisms that do not apply in an equivalent manner to non-Google websites/web content."
“Therefore, Google’s conduct is found to be anti-competitive in terms of section 4(2)(a)(i), 4(2)(b)(ii), 4(2)(c) and 4(2)(e) of the Act."
What do those sections mean?
Under section 4(2)(a)(i), a company in a dominant position is abusing that position if it “directly or indirectly imposes unfair or discriminatory" conditions on those it is selling services to (advertisers forced to effectively bid in ads against Google’s homegrown services that have an unfair advantage).
Section 4(2)(b)(ii) catches a dominant company that “limits or restricts technical or scientific development relating to goods or services to the prejudice of consumers" (that is, if Google stopped other companies, such as rival online maps providers, from building up market share and consequently preventing other services from improving and growing to the detriment of consumer choice).
Section 4(2)(c) prohibits dominant companies from indulging in practices “resulting in denial of market access in any manner" (that is, if Google pushes one of its own services above another companies’ in the search results, this could deny that company access to a large number of search engine users).
Section 4(2)(e) prohibits a company using “its dominant position in one relevant market to enter into, or protect, other relevant markets" (that is, for example, Google keeping out other online mapping providers by its effectively cross-selling or cross-promoting promotion of its own Google Maps services in its search results).
What else did the director general not like about Google?
The director general also concluded that several other facets of Google’s business were anti-competitive, relating to inadequate trademark protection of advertisers, Google’s terms and conditions requiring any dispute with its clients to be arbitrated in California and a general lack of transparency.
In 2012, the Delhi high court ruled against several companies that bid for Google search ad keywords for competitors’ trademarks so that a search for BharatMatrimony on Google, for example, would throw up advertisements for competing matrimonial sites above the search results.
The high court restrained Shaadi.com, Times Business Solutions and several other companies from buying BharatMatrimony trademark keywords from Google from advertising against Consim Infor Pvt. Ltd’s trademarks, which included BharatMatrimony.
There has been no final judgement in the case yet, but the director general has found that Google still did not adequately block businesses from using competitors’ trademarks, forcing a competitor to also advertise for its own existing trademark on Google in order to rank among the sponsored search results at the top of the page.
BharatMatrimony, for instance, alleged that despite complaining repeatedly since 2008, Google did not effectively stop competitors from using its trademarks, by allowing competing matrimonial services to continue advertising against keywords that included misspellings, or the trademarks containing spaces.
Furthermore, the ranking system used by Google to determine the order that ads would be displayed in could mean that the actual trademark holder’s ad against its own trademark could rank lower than a competitor’s ad against that same trademark.
The director general concluded in the report: “Google is found to be abusing its dominance in online web search and online search advertising markets to impose unfair condition on the trademark owners (particularly those who have notified their trademarks to Google) whose trademarks are being allowed to be bid as keywords by third parties in online search advertising, in violation of section 4(2)(a)(i) of the Act."
“As per the Adword mechanism, the ads that appear first may not be the most relevant for the users and may appear at that position due to the higher bid of the entity."
“The competitors get the opportunity to hitch a ride on the goodwill and brand value of the trademark owner, thereby hampering fair competition."
“Further there is scope for Google to use the system in a discriminatory manner and ensure that its own trademarks are not subject to (violation)."
But AdWords is quite a straightforward deal, isn’t it?
While Google generally operates a bidding system for keywords, where the businesses willing to bid the highest per click are most likely to be featured, Google also uses algorithms to determine which ads will perform best in its opinion and will therefore generate the most revenue, be most relevant to users, and create the biggest impact for advertisers.
However, the director general was unimpressed with how Google’s algorithms ranked paid-for search ads, calling the process opaque and not letting advertisers figure out how it worked: “The complex nature of determination of quality score coupled with nondisclosure of adequate information to advertisers renders the entire process opaque and non-transparent and susceptible to manipulation and amounts to imposition of unfair conditions on advertisers in violation of section 4(2)(a)(i) of the Act."
“Google is thus found to be abusing its dominant position by not making such details available to its advertisers and following no transparent procedures."
Doesn’t Google also advertise on Google?
Yes, Google too relies on Google for traffic to some of its products, verticals and sidelines, and buys AdWords for certain key words. Google has always claimed that those ads, which the director general called “house ads", are “bought" at arm’s length by Google’s marketing or product teams from Google’s AdWords team (though presumably it all comes out in the wash on the same balance sheet at the end of the year).
However, the director general concluded that: “Certain aspects of Google’s policy for its house ads give it an additional competitive edge (redacted). It...is thus found that there does not exist a level playing field for third parties competing with Google’s house ads. The checks are inadequate to prevent preferential treatment."
Google is very protective of its technology and many of the submissions made by Google to the CCI were heavily redacted to protect this.
And while the director general report is confidential, it is shared with the parties to the complaint and some of Google’s confidential information therefore did not make it into the final report.
So what’s the issue with API?
The director general said Google does not allow other search advertising providers sufficient access to data and campaigns that Google’s customers have created within Google.
Other search engines, such as Microsoft’s Bing, which has been struggling to win market share from Google, would like to be able to automatically allow customers to migrate ad campaigns they are running with Google to Bing. Such migration is generally done with a bunch of code called an Application Programming Interface (API), which would allow a customer to also run a customized Google ad campaign with minimal effort on a search engine with a minimal market share (such as Bing).
The director general found that Google’s ad products currently did not give sufficiently powerful API access to smaller rivals, and this could potentially be used as a tool for discouraging advertisers from “multi- homing" their ad campaign, thereby denying rivals market access (remember section 4(2)(c) above?)
Well, the director general’s office is merely CCI’s investigative arm, or metaphorically, its police force. The director general investigates a complaint and prepares a massive file with all potential violations of competition law it can find.
This does not necessarily mean that Google is guilty as charged—Google and its lawyers will have a chance to respond to the report by 10 September, which will be followed by a hearing on 17 September (though Google did not respond to an emailed request for comment for this story).
If CCI ultimately rules against Google, Alphabet could be on the hook for 10% of its global annual turnover, which would be a whopping $6 billion.
CCI could also order the break-up of Google into independent entities, even if only in India, if it thinks that this is the only way to make the Big G play nice.
Of course, if Google doesn’t like CCI’s decision, it can always appeal to the Competition Appellate Tribunal and then to the Supreme Court. So this is far from over.
However, other global regulators that have had long-running antitrust battles with Google, trying to deal with its size and the technological landscape, could end up being emboldened by CCI’s finding: only last week, Google sent a 100-page response to the European Union competition regulator denying charges that its shopping price comparison website is harming rivals.
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