New Delhi: In a severe setback to Google, the National Company Law Appellate Tribunal (NCLAT) Wednesday concurred with the findings of the Competition Commission of India (CCI) that the popular search engine had abused its dominant position in the Android market.
A bench of NCLAT chairperson Justice Ashok Bhushan and Dr Alok Srivastava, member (technical), also affirmed the Rs 1,337.76 crore fine imposed on Google by the CCI.
Commenting on the merits of the CCI order passed in October 2022, the bench observed that the commission had recorded findings and conclusions after considering the evidence on record.
“Hence, we are unable to accept the submission of the learned senior counsel for the appellant (Google) that the order of the commission is replete with confirmation bias,” the bench noted while upholding the CCI’s findings relating to Google’s anti-competitive practices.
The CCI order was challenged by Google before the NCLAT, which is an appellate authority over the rulings passed by the CCI.
Like the commission, NCLAT went through the statements made by various competitors which, it said, showed the harm caused to them due to Google’s abuse of its dominant position.
Statements to the CCI by original equipment manufacturers (OEM) showed that “they were totally dependent on Google and that other search engines could not enter into commercial relationships with them due to restrictions imposed by Google through pre-existing commercial arrangements”.
The bench, however, gave some relief to Google as it set aside four directions of the CCI order that had imposed certain restrictions on the company.
These directions were that Google shall not deny access to its Play services application programming interface (APIs); Google shall not restrict uninstalling of its pre-installed apps by users; Google shall allow developers of app stores to distribute their app stores through Google’s Play Store and Google shall not restrict the ability of app developers in any manner to distribute their apps through side-loading.
While asking Google to deposit the fine amount within 30 days, the appellate tribunal declared that the CCI had adopted the correct criteria of “relevant turnover” to calculate the penalty. It turned down Google’s argument that the apps and services of Google that were not found to contravene any of the provisions of the Competition Act, 2002, should not form part of “relevant turnover”.
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Google’s arguments shot down
Google had challenged the CCI’s conclusion, contending that its analysis was solely based on the flawed premise that pre-installation of apps per se results in foreclosure of competing apps.
It said the company’s agreements — Mobile Applications Distribution Agreement (MADA) — do not prevent equipment manufacturers from pre-installing competing apps with similar functionality.
It was further argued that the commission’s finding, based on Windows phone operating system, was wholly incorrect. Google refuted the CCI finding that it reduced the ability and incentive for manufacturers to develop and sell devices operating on alternative versions of Android by making pre-installation apps mandatory.
The CCI defended its order by citing the revenue-sharing agreement between OEMs and Google under which the former receive substantial revenue from search services. This agreement, the CCI submitted, put various conditions on the OEMs, including the condition of not installing competing search apps in the device.
The OEM, which receives substantial revenue from Google, is always apprehensive to lose the revenue if it goes against the business model of Google, the appellate tribunal was told.
During the arguments, the counsel of CCI highlighted the importance of pre-installation as a distribution channel; inability of rival web browsers to neutralise the competitive edge secured by Google in the browser market; Google setting the de-facto web standards due to its dominant position in the browser market; impossible to uninstall Google Chrome on GMS (Google Mobile Services) devices and negative impact on competition in the relevant markets.
In its 189-page order, the NCLAT noted that the CCI had examined in-depth the bargaining power of Google vis-à-vis the OEMs in finalising the terms and conditions of an agreement.
The facts indicated OEMs’ lack of bargaining power and negotiating space with Google, and this clearly proved “harm to competition”, it said.
Various conditions of MADA, which include one under which Google retains sole discretion to change the list or bundle of GMS apps, and one mandating OEMs to seek approval of Google for launching devices, were also declared as anti-competitive.
“OEMs have no negotiation power and they have to accept the terms and conditions offered by the Appellant, and business compulsions oblige it to enter into MADA and other agreements,” held NCLAT, while making its declaration against Google.
How Competition Act was breached
The appellate tribunal decided against Google on all 11 counts that were framed by the CCI and held that the company had breached several sections of the Competition Act that prohibit an entity from abusing its dominant position.
Google’s contention that the CCI had not considered the evidence in the right perspective was not accepted by NCLAT which, on noticing submissions made by Amazon and eight OEMs, said various non-negotiable constraints contained in agreements ensured that fork developers — one who takes the source code from an open-source software programme and develops an entirely new programme — could not succeed.
The appellate tribunal also held that the CCI had conducted “effect analysis” while coming to the conclusion against Google.
Pre-installation of the GMS suite conditional to signing of agreements for all Android device manufacturers, it said, reduced the ability and incentive of devices manufacturers to develop and sell self-device operating or alternative versions of Android. This, it held, limited technical and scientific development, which is a breach of the Competition Act.
By perpetuating its dominant position in the online search market, Google has denied market access for competing search apps in violation of law, and this conduct, the NCLAT held, was anti-competitive.
According to the NCLAT, another factor which acted as an entry barrier to pre-install any competing general search apps by OEMs was the high payment made by Google to the manufacturers. This too was held as anti-competitive, going by the Competition Act.
NCLAT agreed with the CCI’s observation that Google had failed to bring on record any substantial pre-installation agreement between a competing search service provider and an OEM to show that its dominance was reduced in the relevant market.
“A positive finding has been recorded that competing general search services are not able to counter the competitive edge secured by Google for itself through pre-installation, which acts as an entry barrier for the competitors,” NCLAT observed in its judgment.
Google Chrome app’s agreement with Play Store and also tying up of YouTube app with Play Store were held to be in violation of the Competition Act.
On this account, too, the NCLAT refused to exercise its appellate jurisdiction and said the CCI’s findings on the same did not warrant its interference.
“The commission has also noted that Google (has) had a market share of more than 95 per cent since 2009 in the online general web search market. The commission has also held that tying between Play Store and Google Search has been used to achieve and perpetuate dominance by appellant and having anti-competitive effects. The competitive search engines have to take additional measures to compete with Google Search,” stated the tribunal’s judgment.
NCLAT did not accept Google’s contention that CCI’s order was vitiated on the ground that the commission did not consist of a judicial member. Other technical objections raised were also discarded.
The NCLAT said there was nothing to suggest that the October 2022 report by CCI’s Director General (DG) violated the principle of natural justice and that Google was not right in claiming that the DG had framed leading questions to obtain desired answers from the OEMs.
“From the sequence of the events and the facts brought on record, we are not satisfied that either the Director General was suffering from any bias or the principle of natural justice was violated. Investigation conducted by the Director General cannot be said to be vitiated due to the Director General framing leading questions to elicit information,” the NCLAT said, adding that the function of the DG was only inquisitive in nature, relevant for the purposes of the Competition Act.
With regard to the quantum of penalty, the NCLAT said that digital platforms such as the one operated by Google are interconnected. Therefore, the business model, incentives and revenue streams are a net result of such interplay of software and programmes, including various apps and services that are integral features of mobile services.
“Thus, the entire ecosystem of Google sitting on Android operating system in the mobile device becomes a source of revenue to Google and, therefore, the total revenue from all the apps and services in the device becomes the ‘relevant turnover,’” the appellate tribunal concluded.
(Edited by Nida Fatima Siddiqui)
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