CCI’s PENALTY ON GOOGLE: ANALYSING ANDROID'S ANTI-COMPETITIVE AGREEMENTS
The post is authored by Kunwar Arpit Singh, a 5th year B.A. LL.B. (Hons.) student at the Christ University, Bangalore.
The Competition Commission of India (“CCI”) issued an order in October 2022 penalising Google INR 1337.76 crore for violations of provisions under the Competition Act, 2002 (“the Act”) for abusing its dominant position in the Android device market and ecosystem. The NCLAT has largely agreed to the CCI’s ruling and upheld the penalty; however, certain directions of the CCI have been set aside. CCI’s penalty on Google comes after the European Court of Justice (ECJ) approved the European Commission’s (“EC”) ruling on penalising Google on the same subject of abuse of dominance in the Android ecosystem. The author has analysed the anti-competitive agreements presently enforced by Google based on their technical merits and has analysed the rulings of the CCI, ECJ, and NCLAT along with their probable outcomes on Operating Systems (“OS”) and the smartphone market.
2. IMPOSITION OF THE GOOGLE APPLICATIONS
Google forced Mobile Application Distribution Agreements (“MADA”) on the manufacturers of Android devices. MADA mandated the installation of a set of Google-developed applications for various productivity and entertainment-related tasks. MADA also mandated the Google Play Store as an application store and the Google search bar on the home screen of Android devices, which acted as an entry point for the Google search engine. MADA was found to be placing unreasonable restrictions on the smartphone manufacturers and violating Sections 4(2)(a)(i) and 4(2)(d) of the Act, which define abuse of dominant position by an entity by imposing conditions on sale and placing unrelated supplementary obligations in a contract, respectively. CCI recognised the users’ inability to uninstall the pre-installed Google applications due to MADA and pointed out the restrictions on their choice. Section 19(3) of the act provides for considerations to be taken into account by the Commission to determine the agreement’s appreciable adverse effect on the market. One such consideration is provided for under 19(3)(e), which is “improvements in production or distribution of goods or provision of services”. Google’s action can be seen as somewhat restricting the distribution of applications.
Similarly, Apple has been under fire from the anti-trust authorities for restrictions imposed on the distribution of apps and related services like payments in the App Store of its non-licensable (iOS). The EC released its Statement of Objections in the ongoing Apple Case in February 2023. The Apple Case deals with Apple requiring app developers who want to sell digital in-app content to their consumers to use Apple’s in-app payment solution. This mandatory requirement restricts app developers’ ability to choose a payment processing system, especially given that Apple charges a 30% commission for processing payments, even though other payment processing solutions charge significantly lower fees. According to the EC’s Statement of Objections, Apple’s practices would constitute ‘unfair trading conditions’ in breach of Article 102 of the Treaty on the Functioning of the European Union, which deals with an entity's abuse of a dominant position. The EC has opined that Apple’s practices are detrimental to users of music streaming services who end up paying more and that it negatively affects the interests of music streaming app developers by limiting the consumer's choices. The situation in Google’s case is not entirely comparable, as Google does not entirely ban users from installing alternative applications on their smartphones, either through the Play Store or by sideloading the application of choice. The NCLAT, while setting aside CCI’s direction of allowing users to uninstall Google’s pre-installed apps, highlighted that under directives issued by CCI under Section 27 of the act, OEMs are free to install Google’s proprietary apps of their choice. Therefore, it was unnecessary to direct Google to allow the uninstallation of their apps. The users can anyway choose to disable any app in the latest versions of Android.
However, the ECJ and the CCI rejected Google’s contention that any “rational user” still had the choice to download any other alternative applications as they were just “one click away to download”. The ECJ put forth the ‘status quo bias’ of the user for the pre-installed applications on the device to reject Google’s contention. Status quo bias is one of the elements of ‘behavioural bias’, which the tech companies exploit to enforce their ecosystem. In the present context of Google Android, the ecosystem is the interconnectedness of Google’s services with the Android OS. Similarly, in the Microsoft case, the Windows Media Player was pre-loaded as the default media player on Windows OS computers. Customers had access to competing media players that could all be installed and used on the same machine. Nonetheless, the EC confirmed the presence of coercion on Microsoft’s side. Therefore, a user’s behaviour when using a service or a device will be inherently biased towards the services they are already familiar with. In Microsoft’s case, this behaviour bias was against the alternative media players to the Windows Media Player. In Google’s case, the same is true for all the available alternatives to Google applications.
The MADAs enforce the dominance of the Google Play Store in the Android app marketplace. Likewise, MADAs ensure Google a steady stream of revenue for every app installed on Google devices via the Play Store or any transaction made on the Play Store. Alternatively, installing an application on an Android device is difficult outside the Play Store. While installing an application from a third-party source or sideloading it on an Android device, the user has to manually enable the “allow installation from other sources” option in the settings. Such an added step towards application installation from a third-party source is an added reason for users to stick to those non-removable Google applications. It is also not in line with Google’s contention of a “rational user”, as any rational user is likely to continue using the existing Google applications instead of going through a complicated procedure as mentioned. The appellant tribunal referred to Article 6(4) of the Digital Market Act (“DMA”), which mandates OS developers to allow sideloading apps with required warnings and set aside CCI’s directive for a more straightforward sideloading process. However, the NCLAT did not consider the possibilities of behavioural biases against third-party app developers. The behavioural bias against third parties was recently taken up by the Italian Competition Authority’s 2022 Amazon Logistics case, where Amazon was found to favour its own retail business and sellers that use Amazon’s logistics by providing them easier access to “Buy Box” and “Prime”. The Buy Box prominently shows one seller’s offer and allows that product to be purchased more quickly. At the same time, the Prime program provides premium services to users and enables certain sellers to sell to Prime customers. The Authority discovered that access to Prime and the BuyBox is critical for increasing awareness and, thus, sales. Therefore, the market for logistics services was restricted to third-parties while favouring Amazon’s logistics services. Similarly, Google’s pre-installed apps, when combined with the added steps of side loading third-party apps, act as an entry barrier for third-party app developers.
3. EXPLOITING THE OPEN-SOURCE ANDROID
The Anti-Fragmentation Agreements (‘AFAs’) helped Google hinder the development of any other open-source Android OS (also called the Fork Android). They restricted any legible challenge to Google’s Android dominance. Through AFAs, the OEMs were restrained from manufacturing, distributing, or marketing devices based on Android. Google licences its apps only to OEMs that agree to the requirements of the AFA and whose devices meet the Android compatibility tests. CCI found Google to be in contravention of Section 4(2)(b) of the Act by restricting Android’s technical and scientific development and making Android one of the most ‘closed’ open-source programs. The NCLAT, however, turned down CCI’s direction to Google for allowing access to its Play Services Application Programming Interface (“API”) to OEMs, app developers, and competitors, citing reasons for protecting Google’s Intellectual Property (“IP”). Google’s cause with AFAs is also not supported by Section 19(3)(f) of the Act, which lays down the criteria for promoting the scientific and technical development of the product as an area of consideration for the CCI. CCI has already been stern against such tech-based agreements, which limit any technology’s scientific and technical development. CCI ruled in the Verifone India case that Verifone’s SDK Licence Agreement violated Section 4(2)(b) of the Act because the restriction on licencing, sale, or transfer of any software developed by buyers using Verifone’s licenced software was unfair and limited the availability of VAS services and the technical and scientific development of VAS services used in POS terminals in India.
In essence, the AFA restricted the installation of Google applications on a device running any Android OS other than that of Google. Dominant OS are known to take elementary actions to enforce their dominant position in the best manner possible. Again, a case in point is the Microsoft Case, where Microsoft, with its 90% share in the computer OS market in 2007, made it difficult for the competitors to make any alternative media player application to the Windows Media Player. The dominant position of Google applications and Google’s app store left these devices running Fork Android OS with much less capability than their Google Android counterparts at a similar asking price. Open-source Android is so reliant on Google that it would not be fair to call it open source at all. The Fork Android projects, backed by large organisations such as Mozilla’s Firefox OS, and Samsung’s Tizen OS, failed to impact the market. On the other hand, independent developers have never stood a chance in the market to begin with.
MADAs and AFAs should not be viewed in isolation. MADAs and AFAs both complimented each other. MADAs ensured that Google’s application on various media and entertainment-related tasks became the most popular, where users will likely spend most of their time. This, in turn, led to users swaying away from Android Forks, which were deprived of Google applications through AFAs as an impact of existing behavioural bias.
4.THE WAY FORWARD AND CONCLUDING REMARKS
Until now, Google has argued that CCI’s order will increase the cost of smartphones and affect the price-sensitive Indian market. There is some truth to Google’s argument about the price increase. The Fork Androids will not have Google’s Android safety and security features, and the manufacturers will have to invest on that end, and these costs will be passed down to the end consumers. Google’s revenue will suffer after its applications and search engine are not present on Android smartphones. They are likely to recover such losses from consumers.
However, the author believes that such price increases and other implementation issues are only temporary small bumps in the never-ending road of technological progress. A restriction-free licensable OS market will develop with time and become even more cost-effective than it already is. In Microsoft’s Case, it was found that Microsoft abused its near-monopoly market position in PC operating systems by deliberately restricting interoperability between PCs running Windows and non-Microsoft workgroup server OS. Non-Microsoft workgroup server OS users were forced to switch to Microsoft’s work group server OS. Microsoft was penalised for its practices and ordered to share interoperability information to non-Microsoft work group servers OS. It ensured that Microsoft could not leverage its dominant position in the PC OS market to get hold of the market in the smartphone OS market, which Apple and Google later dominated. Drawing lessons from the Microsoft case, the author suggests that Google should be directed to provide some limited access to the information relating to its Play Services API to OEMs and app developers to allow for the development of Android forks while protecting its IP.
Moreover, with so many smartphone manufacturers in the existing market, a competitive environment will be created with the manufacturers trying to provide the best software experience to consumers instead of advertising exaggerated hardware claims and indulging in other unfair trade practices. Finally, consumers will have a plethora of choices to choose from. All in all, the central objective and intent of the competition law will be upheld.