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European Commission

[Check Against Delivery]

Joaquin ALMUNIA

Vice President of the European Commission responsible for Competition Policy

Public policies in digital markets: reflections from competition enforcement

Chatham House Competition Policy Conference 2014

London, 30 June 2014

Ladies and Gentlemen:

I thank Dr Niblett for his kind invitation to take part in the Chatham House Annual Competition Policy conference 2014.

You have chosen an important theme for our discussions today. Ensuring proper competition conditions in regulated markets is clearly a priority for competition enforcers and one that has kept the EU competition authority quite busy. The European Commission has been active in all the areas covered by the sessions of the day – telecom, patents, energy, and financial markets.

For my keynote address, I have selected a topic that can show the interplay between competition policy and other policy domains. I am referring to the challenges posed by the digital economy and in particular by the rise of dominant platforms.

The most talked-about investigation we currently have in this area involves Google. Apart from the wide debate it has sparked, this investigation shows that competition law tools are flexible enough to deal with competition concerns in industries where technology advances rapidly.

However, the Google investigation has also shown that one competition case should not be used as a proxy to address wide-ranging issues going beyond the scope of competition policy raised by the business practices of international, unregulated, and dominant platforms.

So, on the basis of our practice, I would like to reflect on the challenges posed by the rise of the digital economy, the array of public policies required to address them, and the proper place of competition control among these policies.

I believe EU public policy should pursue two main objectives in digital industries: creating the best conditions for them to flourish in Europe and, at the same time, preventing the potential risks that powerful platforms pose for businesses, users and society at large.

But, first, let me quickly update you on the Google case and review the other complaints we have received about the company’s practices.

The latest development in the case we opened in November 2010 is that we have sent pre-rejections letters to all the relevant complainants relating to our areas of concern. They now have another opportunity to respond to the Commission’s preliminary reasoning regarding the suitability of the proposed remedies. This means that the Commission is currently in listening mode and will carefully review all the responses we will receive.

As to the other complaints we have received, the Commission is investigating certain Google practices relating to the Android ecosystem. We are currently in the fact-finding stage and formal proceedings have not been opened. In addition, in recent weeks we have also received several complaints on a wide range of allegedly anti-competitive practices by Google. I will say a few words on all these later.

As is well known, these practices are investigated under Article 102 of the Treaty. Let me stress that the article prohibits the abuse of dominant positions, not the position in itself. Companies should be encouraged for being competitive, innovative and successful. This is a key driver for growth and job creation. However, the Treaty does give to the Commission the responsibility to go after the companies that unlawfully use their market power to the detriment of competition and consumers.

***

Having made these preliminary remarks, I would now like to illustrate the current case in some detail.

After a thorough analysis, the Commission found that Google’s practices raised four competition concerns. Let me briefly outline them and the reasons why I provisionally considered the latest set of commitments proposed by Google to be effective in restoring competition.

Firstly, there is Google’s use of original content from other websites in its own web search services without consent. If these sites wish to opt out from allowing Google to use their content, they have no other option than being excluded completely from Google's general search service. The proposed commitments unequivocally break this link. Opt-out will be permitted without consequence on the ranking in general search.

Secondly, Google imposes exclusivity agreements on publishers – such as online newspapers – who want to use its search advertising intermediation programmes to display Google ads on their web sites. Google has agreed to remove these exclusivity requirements.

Thirdly, the company imposes contractual restrictions on the management and transferability of online search advertising campaigns from Google to other platforms. Google’s proposed commitments would remove these restrictions.

Last but not least, the Commission is concerned about Google artificially displaying its own specialised services – such as Google Shopping and Google Places – in a prominent manner to the detriment of rival services and without informing its users that such results do not result from the natural search engine.

One effect of this practice is that of reducing the visibility of competing specialised search services, thus diverting traffic away from them even when such services are potentially more relevant.

Google’s proposed commitments address this concern in two main ways. First, users would be clearly informed that Google’s specialised search services are different from normal search results as these will be clearly labelled and kept separate.

Second, three rivals will appear next to Google’s results in a comparable visual format. Given that the space available to rivals is limited, an objective selection mechanism had to be designed to select them. This selection mechanism rests on relevance and, in cases where Google currently monetises the space that will be made available to rivals, through an auction. As is common in the industry, rivals would pay the bid price whenever customers actually click on their links and are directed to their websites.

This part of the remedy has attracted vocal criticism. Some rivals would have preferred a mechanism that gave them free access to the prominent display. Others, a system that prohibited Google from promoting its own specialised search services on its main search page. However, the Commission’s aim is ensuring that consumers are not harmed by alleged abuses, and I believe that the guaranteed and visible display of three rivals achieves this in a balanced way.

These are the main facts of the case. What are the next steps?

As I said, each complainant has received a pre-rejection letter in which the Commission explains in detail why it believes that the proposed commitments I have just described would solve the competition concerns. We will receive the complainants’ comments in the coming weeks. The comments will be carefully reviewed and then I will decide whether or not the commitments need to be improved.

This means that the current investigation is probably drawing to an end, but I suspect this case is only the beginning of further EU antitrust enforcement in the digital economy.

As I said earlier, the Commission has received quite a number of other complaints about a wide range of Google practices. The most advanced investigation is related to Android, although no formal proceedings have been opened. We are currently trying to ascertain whether there are unjustified restrictions of competition in this area. Just a few days ago, a formal complaint was lodged by Aptoide, a rival apps store to Google Play Store.

As to the other complaints, they have been lodged by companies as diverse as publishers, a telecom operator, an association of picture industries and photo libraries, and an advertising platform. In general, they make three broad allegations:

The use of Google ‘s dominant position in search to push other services – e.g., Google+ and YouTube– and foreclose competitors;

Google’s terms and conditions for AdWords – its auction-based offering of advertising space – and AdSense – its offering of advertising services on publishers’ webpages.

The use by Google of images from third-party websites.

We also have a complaint on Google’s alleged attempt to put pressure on independent music labels to extract better terms for its new streaming service on YouTube.

I would like to stress an important point here. All these complaints were not included in the current investigation because they focus on different areas of Google's business activities. This was a deliberate choice. As past experience shows, looking at each complaint separately may turn out to be faster and more efficient.

Besides, our rules specify that, for a complaint to be formally considered, it must be well-argued and it must concern a competition problem. We don’t want to waste the Commission’s resources on complaints that are not related to antitrust or are used as tools in commercial disputes.

We are following our usual procedures. At present, we are conducting preliminary analyses and these will allow us to decide whether we will have to open new proceedings. DG Competition’s expert staff will look into these and possibly future allegations for quite some time. Google’s compliance with EU competition law will be closely monitored.

Ladies and Gentlemen:

I will now move to the allegations regarding Google’s activities that are not related to antitrust. These include domains as diverse as corporate taxes, data privacy, copyright, and net neutrality.

I strongly believe that the conduct of Google and of other companies in digital industries should be monitored with care. But this should be done in each case using the most suitable policy instruments.

The issue of tax optimisation, for instance, is the subject of a recent report issued by the Commission’s High Level Expert Group on Taxation of the Digital Economy. Among other things, the report called for a more unified approach towards tax evasion and less harmful tax competition.

I fully support this common EU approach. In the specific context of State aid control, I am looking into certain tax practices – the so-called "tax rulings" – and the special fiscal treatment of intellectual property – the so-called "patent boxes" – in some Member States. Earlier this month, I announced the opening of in-depth investigations to make sure that decisions by tax authorities in Ireland, The Netherlands, and Luxembourg comply with the EU rules on State aid.

As to data privacy, it is a fact that Google and other large digital players collect and keep unprecedented amounts of data, including personal data, which can be retrieved and used across their services. This is a legitimate cause for concern which, however, lies beyond the remit of competition policy.

Google’s data-protection policy has been investigated in France, Germany, Italy, The Netherlands, Spain, and the U.K. There are also initiatives at European level. Let me recall the ECJ ruling last May on the right to be forgotten and the Commission’s ongoing reform to strengthen online data-protection rights, which has been discussed by the European Parliament and the Council.

Google is also often accused of adopting too broad an interpretation of copyright law and disregarding authors’ rights and remuneration. To address these issues, a new type of copyright for publishers was introduced in Germany in August 2013 and a similar amendment was proposed in Spain last February.

These national responses go in the right direction, but I believe that these issues are best tackled at EU level. The lack of EU copyright harmonisation in certain areas makes it easier for Google and other companies to exploit loopholes. At the end of last year, the Commission launched a review of EU copyright rules.

Also, following the adoption of the Orphan Works Directive and the Directive on Collective Management of rights, the Council’s programme for the next three presidencies pledges to make progress on the issues of corporate taxation, data protection, and copyright.

Finally, let me mention the issues related to net-neutrality – another area that lies well beyond the reach of competition policy. Here the allegation is that Google and other over-the-top players request that Internet service providers should treat all data on the same footing. Telecom companies complain that these companies benefit from increased bandwidth but do not contribute to the investments required to expand it. YouTube is often given as an example of what telecom companies regard as free-riding. Again, what is needed is a common EU approach. This issue is being debated by Member States in the context of the Single Telecom Market.

Ladies and Gentlemen:

Taken together, all these issues point to the pressing need for EU-wide common approaches to the challenges posed by Google and other players in the digital era.

Their centrality for Europe’s economy and their pervasive presence in the lives of the vast majority of our fellow citizens are turning this into one of the defining domains of EU policy making.

As to the continuing debates involving Google in practically every country of the Union, let me repeat that each one of the various concerns and allegations should be tackled using the most suitable policy instrument.

To uphold the rights and legitimate interests of Europe’s citizens and to create the best possible conditions for the success of EU firms in the knowledge age, competition control should continue to be one of the public policies to deploy – but by no means the only one.

I am stressing this because the commitments proposed by Google last February have become the focal point of all the concerns and fears that consumers, competitors, and governments have about the company. This is unfortunate, because it distracts from the broad and co-ordinated strategy the situation calls for and from the design, debate and enforcement of the right policy mix.

Having said this, the practices and business models adopted by digital-industry players will continue to be closely monitored by DG Competition. This crucial sector will remain a top priority for EU competition policy for many years to come.

The present investigation, hopefully coming to an end with the adoption of a decision before the end of my mandate, will be the first, not the last one regarding the issues raised by the emergence of few, prominent players in the digital sectors.

Thank you.


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