This is the second post on the General Court’s judgment in Google Android (T-604/18) delivered earlier this year (which Google has in the meantime appealed to the Court of Justice). As in the first post (available here), I would like to discuss some issues that caught my attention while reading the judgment, rather than summarize each and every aspect of the ruling. In the first post I focused on the MADA pre-installation conditions, which the Commission had analysed as a form of tying that had the effect of strengthening Google’s dominant position in general search. In this post I would like to focus on the part of the judgment dealing with the so-called Anti-Fragmentation Agreements entered into between Google and OEMs. I will then lay down some brief remarks on how the Court approached the issue of market definition with respect to mobile ecosystems.
The anti-fragmentation obligations
By way of background, Google required OEMs wishing to pre-install on their devices the GMS Suite (which included Google apps like Search and Chrome) to first enter into an Anti-Fragmentation Agreement (“AFA”). Among others, the AFAs required OEMs to observe a minimum compatibility standard, as defined by Google. In practice, this meant that AFA signatories were prohibited from commercializing devices running on Android versions (“forks”) not approved by Google (“non-compatible” forks). Importantly, this obligation extended to all devices marketed by the OEM, including devices on which no GMS app was pre-installed.
In the contested decision the Commission did not consider the AFAs abusive as such (as e.g., exclusive dealing arrangements); instead, the Commission took issue with the fact that Google made the grant of licenses for the Play Store and Google Search conditional on OEMs accepting the anti-fragmentation obligations included in the AFAs. In other words, the Commission framed this as a tie-like leveraging abuse, whereby Google was using its market power in Android app stores / general search to impose additional obligations (=the anti-fragmentation obligations) that were capable of restricting competition. It is in this last part of the reasoning that the Commission examined the effect of the anti-fragmentation obligations on competition.
As observed by the Court, the Commission did not dispute Google’s right to impose compatibility requirements in respect of devices on which its apps were installed. Instead, the Commission took issue with the anti-fragmentation obligations only insofar these prohibited OEMs from marketing devices with non-compatible Android forks on which no Google apps were pre-installed. In other words, the Commission considered that, while it was legitimate for Google to impose compatibility requirements for devices featuring its apps, Google crossed the line by requiring OEMs to observe such requirements for all their devices.
The Court summarized the Commission’s theory of harm as follows:
- Non-compatible Android forks constituted a competitive threat to Google, and in fact a greater competitive threat compared to compatible Android forks.
- The anti-fragmentation obligations hindered the development of non-compatible Android forks.
- The capability of Google’s conduct to restrict competition was reinforced by the unavailability of Google’s proprietary APIs to fork developers.
- Google’s conduct maintained and strengthened its dominant position in the national markets for general search services, deterred innovation and tended to harm, directly or indirectly, consumers.
The Court essentially upheld the Commission’s analysis. The following points are of interest:
The anticompetitive nature of the objective pursued: Interestingly, when examining the anticompetitive nature of the practice in question, the Court started its analysis by discussing whether Google pursued an anticompetitive objective (paras. 837-841), which it distinguished from the issue of whether Google’s conduct actually restricted competition – despite there being no equivalent section in the Commission’s decision.
Relying on internal documents cited in the decision and Google’s own statements, the Court concluded that Google pursued an anticompetitive objective, in that its conduct was “knowingly implemented with the aim of limiting market access of non-compatible Android forks” (para. 841).
The potential threat from non-compatible forks: According to the Commission, non-compatible Android forks constituted a “credible” competitive threat to Google (and in fact a greater threat compared to compatible Android forks). This was a pre-requisite to the Commission’s analysis, since, if non-compatible Android forks posed no threat, then their exclusion could not amount to a restriction of competition.
The Court endorsed the Commission’s analysis, with one minor exception: it held that it was irrelevant whether non-compatible Android forks pose a greater competitive threat to Google compared to compatible Android forks; it sufficed to show that “the non-compatible Android forks would have been competitors of Android on the market for licensable OSs, which Google does not dispute” (para. 844). In that regard, the Court noted that non-compatible Android forks are licensable OSs, hence they are likely to compete with Android in the market for licensable OSs (para. 844).
Importantly, the Court set a rather low threshold for the Commission, as it held that Google did not establish that non-compatible Android forks could not in any event have constituted a competitive threat to it (para. 847).
Actual exclusion of non-compatible forks and causal link: The Court noted it was common ground that, during the infringement period, no non-compatible Android fork was able to exist on a lasting basis on the market. The Commission attributed this to Google’s conduct, while Google argued that the commercial failure of non-compatible forks was because of their inherent weakness and lack of commercial interest.
In that regard, the Court noted that Google did not dispute the evidence in the contested decision concerning the coverage of the AFAs; as such, the Court considered it was established that, during the infringement period, “the largest economic operators capable of offering a commercial market to developers of non-compatible Android forks were prevented from doing so by the AFAs.”
As regards the commercial failure of non-compatible forks (and in particular FireOS and AliyunOS), the Court was satisfied that the anti-fragmentation obligations played a role in the failure of FireOS and AliyunOS (paras. 850-851). In doing so, the Court implicitly rejected the need to distinguish between the effects of Google’s conduct from that of other factors (e.g., the quality of the non-compatible Android fork). It sufficed that AFAs were one of the reasons for the commercial failure of non-compatible Android forks. Put another way, Google had not managed to show that the commercial failure of such forks was exclusively the result of other factors.
The relevance of Google’s proprietary APIs: The Commission had argued that the effects of the AFAs were reinforced by the unavailability of Google’s proprietary APIs for non-compatible Android forks. The Commission did not dispute, as such, Google’s proprietary rights to the APIs it has developed (para. 853). The Court agreed with the Commission. On the one hand, the Court recited well-rehearsed case-law, whereby the exercise of an exclusive right linked to an IPR, cannot in itself constitute an abuse of a dominant position (para. 854). Even so, the Court held that the commercial policy of Google as regards the availability of its APIs must be taken into consideration as a contextual element in assessing the effect of the anti-fragmentation obligations (para. 855). Indeed, Google’s commercial policy in relation to its APIs constituted an incentive to enter into an AFA (para. 856).
Perhaps the most interesting part of the judgment is the section discussing Google’s proffered objective justifications. At a high-level, and at the risk of some simplification, the Court was willing to consider that Google’s conduct could be justified to the extent it was limited within the “Android ecosystem”, understood as the version of Android ‘controlled’ by Google. Even so, the Court did not accept the same to the extent Google’s conduct produced effects beyond the “Android ecosystem” and prevented the emergence of rival ecosystems. While Google argued that the latter (preventing the emergence of rival ecosystems) was necessary to achieve the survival of Android as a whole, the Court disagreed.
The need to protect compatibility within the Android ecosystem: Google argued that the conduct at issue was necessary to ensure compatibility within the Android ecosystem. The Court rejected this, recalling that the Commission did not take issue with Google’s measures to ensure compatibility of Android forks where the GMS suite was installed; it only challenged the AFAs insofar they prevented OEMs from offering non-compatible Android forks; as such, Google’s justification was considered as unrelated to the abuse and thus irrelevant (para. 878).
The need to prevent fragmentation to ensure the survival of Android: Google argued that the conduct at issue was necessary to prevent fragmentation, which would threaten the very survival of Android (para. 879). The Court rejected this argument based on the superior market power of the ‘Android ecosystem’ (para. 880). The Court admitted that, at the time of its launch, Android’s situation could have been likened to that of pre-existing open-source OSs which suffered from fragmentation (e.g., Symbian); however, “the extremely rapid growth of the ‘Android ecosystem’ from the early 2010s onwards makes Google’s claims regarding the hypothetical risk that the threat it describes to the very survival of that ‘ecosystem’ could have continued throughout the infringement period implausible” (Id).
In other words, the Court seems to be in principle open to the argument that the anti-fragmentation obligations may have been necessary to ensure the survival of Android at its early days, when it was first launched and its success was all but certain; however, once Android grew rapidly and attained a dominant position, Google could not credibly argue that fragmentation continued to pose an existential threat, and could thus not justify the anti-fragmentation obligations on this ground.
Freeriding: Google argued that the anti-fragmentation obligations are necessary to limit the “windfall effects” of its technology being made available to third parties. In essence, Google argued that developers of non-compatible Android forks would free ride on Google’s investments on Android.
The Court dismissed Google’s argument, holding that the right of an undertaking to reap the economic benefits linked to the services it develops should not be interpreted as a right to prevent any competitors from existing on the market (para. 868).
Moreover, the Court agreed with the Commission that it is inherent to an open-source software that information related to it can be used to develop forked versions thereof (Id). In essence, the argument is that, insofar Google itself chose an open-source model for Android – from which it profited – it could not rely on the risk of third parties benefiting from the disclosure of its technology.
Consideration of pro- and anticompetitive effects of the anti-fragmentation obligations:Google argued that the Commission had failed to weigh the pro- and anticompetitive effects of the anti-fragmentation obligations.
The Court recalled that the Commission did not dispute Google’s right to ensure compatibility within the Android ecosystem, and the pro-competitive effects of such compatibility, such as increased competition within the ecosystem (para. 889). Instead, the Commission took issue with the AFAs only insofar they erected barriers to the development of non-compatible Android forks, which lay outside the Android ecosystem; as the Court put it, “the obstacle in question [posed by the AFAs] produces its effects outwith the ‘Android ecosystem” (para. 890).
To borrow some analogies from vertical restraints, one could say that Google was trying to justify a restriction (in fact, an elimination) of inter-ecosystem competition relying on benefits to intra-ecosystem competition.
The Court did not rule out the possibility that such an argument could be raised as a matter of law; however, it held that Google had not established that restricting inter-ecosystem competition was necessary for Google to ensure compatibility within the Android ecosystem; as such, there was no need to engage in a balancing exercise, as suggested by Google (para. 891).
Market definition and dominance in mobile ecosystems
The part of the judgment dealing with market definition and dominance is not particularly groundbreaking, hence I will not dwell much on it. However, it does raise a couple of interesting issues.
By way of background, in its decision the Commission considered that Google held a dominant position in the markets for, among others, (a) licensable smart mobile OSs (with Android) and (b) Android app stores (with the Play Store). In both cases, Google faulted the Commission for failing to take proper account of the competitive constraint exerted by Apple and its ecosystem.
Dominance in the market for licensable OSs: The Court largely sided with the Commission, holding that the latter was entitled to take the view that, while Apple did pose an “indirect” constraint on Google (indirect in the sense that it was exercised at the level of app users and developers, not OEMs), such constraint was not sufficient to call into question Google’s dominance in the market for licensable OSs. In this context, the Commission was right to rely on a number of factors, including (i) the high user loyalty to OS; (ii) the relatively low user sensitivity to OS quality; (iii) the switching costs dissuading users from switching OS; (iv) Apple’s pricing policy; and (v) the behaviour of app developers.
There is nothing particularly surprising in this part of the judgment (which is in line with the recent findings of the CMA on the limited substitutability between Android and iOS), save perhaps for the fact that the Court endorsed the Commission’s application of a so-called SSNDQ (Small but Significant Non-Transitory Decrease in Quality) test to examine the reaction of users and app developers to a hypothetical deterioration in the quality of Android. The Court held that, in the case of a product which is very unlikely to lend itself to the classic hypothetical monopolist test (e.g., because competition on the market takes place on the basis of quality rather than price), the SSNDQ test constitutes relevant evidence for the purpose of market definition and assessing dominance, there being no need to define a precise quantitative standard of quality degradation. According to the Court, “[a]ll that matters is that the quality degradation remains small, albeit significant and non-transitory” (para. 180).
Dominance in Android app stores: Of interest, the Court did not engage in a separate examination of Google’s arguments concerning the relationship between the Play Store and the App Store. Instead, the Court held that the relationship between the Play Store and the App Store could not be disentangled from the relationship between Android and iOS: “to assess the competitive constraint exerted by the App Store on the Play Store is effectively to consider the competitive constraint exerted by iOS on Android” (para. 248). This leads to an assessment of competition between systems (para. 250). The merits of Google’s arguments concerning the App Store thus depended on the merits of Google’s arguments concerning iOS; since the Court rejected the latter as unfounded, it also rejected the former (para. 253).