Google hit with record EU fine over 'unfair' shopping searches

If Google doesn’t make changes, it faces penalty payments of up to 5 per cent of the average daily worldwide turnover of Alphabet, which is Google’s parent company

Josie Cox
Business Editor
Tuesday 27 June 2017 11:52 BST
Google hit with record EU fine over 'unfair' shopping searches

Google has been slapped with a record-breaking €2.4bn (£2.1bn) fine by European regulators for abusing its dominant position in the fiercely competitive and rapidly expanding world of online shopping.

The European Commission said that the search engine has 90 days to end the misconduct. If it does not, it faces penalty payments of up to 5 per cent of the average daily worldwide turnover of Alphabet, which is Google’s parent company.

“Google’s strategy for its comparison shopping service wasn't just about attracting customers by making its product better than those of its rivals,” said commissioner Margrethe Vestager, who is in charge of competition policy.

“Instead, Google abused its market dominance as a search engine by promoting its own comparison shopping service in its search results, and demoting those of competitors,” she said.

“What Google has done is illegal under EU antitrust rules. It denied other companies the chance to compete on the merits and to innovate. And most importantly, it denied European consumers a genuine choice of services and the full benefits of innovation,” she added.

For years EU authorities have been crafting their case against Google, claiming the search engine giant favours its own search results over those of other websites.

Google has consistently denied wrongdoing and Tuesday’s ruling will deal a sharp blow to the group, especially because online shopping searches are one of the company’s most important sources of sales growth as it takes on rivals as diverse as Facebook and Amazon.

It also indicates that the EU is cracking down on misconduct and will send a message of zero tolerance to other players. It's the biggest fine ever handed to a single company in an EU anti trust case, beating a nearly €1.1bn penalty that US chipmaker Intel was forced to pay back in 2009.

“The decision is a real kicking for Google. The fine is around double the amount of the previous largest fine issued by the commission, showing how seriously the behaviour is viewed,” said Oliver Fairhurst, associate and competition law specialist at law firm Lewis Silkin.

He said that in addition to Google having to rethink the way in which it operates, it might also mean that the company faces legal claims from competitors - and even consumers - who say that they lost out because of the behaviour.

“One major caveat to all this though is that Google is very likely to appeal, and any such appeal process may take us well into the 2020s.”

Google reportedly uses a type of online advertising known as Product Listing Ads, or PLAs. The format lets a marketer place an ad for an item with large images and price information in the prime digital real estate at the top of search result pages.

The commission said that since 2008, Google has systematically given prominent placement to its own comparison shopping service, while demoting rival comparison shopping services in its search results. Research shows that consumers are much more likely to click on results that are more visible.

Even on a desktop, the commission said, the ten highest-ranking generic search results on the first visible page together generally receive approximately 95 per cent of all clicks on generic search result. The top result receives about 35 per cent of all the clicks.

Comparison shopping services rely to a great extent on traffic to be competitive, meaning that Google’s engineering of search results skewed the market unfairly.

Kelkoo, a European shopping comparison site, which helped bring the case against Google, welcomed the commission’s decision.

"This is a big day for the industry and consumers in Europe. With this decision, the commission is saying that Google has broken the law and now needs to stop its abuse and allow competition back into the marketplace”, said Richard Stables, the Kelkoo's CEO.

But he also stressed that it is paramount to have "a very strong monitoring trustee and oversight to ensure that the remedy is put into practice correctly by Google”.

Kelkoo claims to have lost out on ten years of development and growth as a result of Google’s practices.

“But this decision will allow us to focus on innovation and to provide consumers with wider choice and lower prices and that’s what’s really exciting,” Mr Stables said.

Mark Patterson, a Fordham Law School Professor who specialises in antitrust law and internet law, said that the decision offers a “window” into “the dark side of Google’s algorithms” but also said that it emphasises the need for more rigorous monitoring as tech companies become more dominant and powerful.

According to Reuters, scores of other companies had filed complaints about the way in Google operates, not just around online shopping, including consumer reviews website Yelp, TripAdvisor, price comparison site Foundem, News Corp and lobbying group FairSearch.

Separately on Tuesday, the commission said that it had come to the preliminary conclusion that Google has abused a dominant position in two other cases, which are still being investigated.

The first relates to Google’s Android operating system, where the commission is concerned that Google has “stifled choice and innovation in a range of mobile apps and services by pursuing an overall strategy on mobile devices to protect and expand its dominant position in general internet search”.

The second pertains to AdSense, Google’s advertising tool. The commission said that it is concerned that Google has reduced consumers’ choice by preventing third-party websites from sourcing search ads from Google's competitors.

“Today's decision is a precedent which establishes the framework for the assessment of the legality of this type of conduct,” the commission said.

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