On 19th January 2023 the Indian Apex Court vide its decision in an Appeal filed by Google , refused to interfere with the National Company Law Appellate Tribunal’s (NCLAT) Order dated 4 January 2023.
NCLAT refused to grant interim stay in Google’s Appeal arising from an order of the Competition Commission of India dated 20th October 2022, whereby the Competition Commission Of India (CCI) imposed a penalty of Rs 1337.76 crore on Google for abusing its dominant position in multiple markets in the Android Mobile device ecosystem. An additional penalty of Rs 936.44 crore was imposed on Google by CCIs order dated 25th October2022 for abusing its dominant position with respect to its Play Store policies.
Supreme Court while declining to interfere with the order of the NCLAT, suggested the NCLAT to dispose of the appeal by 31 March 2023
Case Against Google As Per CCIs Order Dated 20 October 2022
The focus of investigation was various practices of Google while licensing its Android mobile operating system and various mobile APPS of Google, such as Play Store, Google Search, Google Chrome, YouTube, etc. to Android device manufacturers
Google was held to have abused its Dominant Position In India, the markets of licensable OS for smart mobile devices, Market for app stores for Android smart mobile OS, Market for general web search services, Market for online video hosting platform (OVHP)
Google while licensing its Android Operating System to equipment manufacturers also licenses its other APPs by entering into various Agreements such as
a. Mobile Application Distribution Agreement (MADA)
b. Antifragmentation Agreement (AFA),
c. Android Compatibility Commitment Agreement (ACC),
d. Revenue Sharing Agreement RSAs
Mobile Application Distribution Agreement (MADA)
MADA grants licence to Android equipment manufacturers for free distribution of Google’s proprietary apps referred to as Google Mobile Services or GMS (viz. Google Play Store, Gmail, Google Maps, Google Search, Google Chrome, YouTube, Google Play Services, etc.) to the end users within the specified territories.
These apps of Google are offered in the form of a ‘bundle’, i.e., if the device manufacturer wishes to install even one app out of the GMS, it has to pre-load the full suite of apps on the devices. MADA also prescribes placement requirements of Google applications on the device’s panel/screen, with no option to uninstall
MADA thus accorded significant competitive edge to Google’s search services over its competitors.
Google also secured significant competitive edge over its competitors, in relation to its another revenue earning app i.e. YouTube in the Android devices. The competitors of these services could never avail the same level of market access which Google secured and embedded for itself through MADA. Network effects, coupled with status quo bias, create significant entry barriers for competitors of Google to enter or operate in the concerned markets
Antifragmentation Agreement (AFA),
Android Compatibility Commitment Agreement (ACC),
Under the AFA/ ACC, the device manufacturers are inter alia restrained from manufacturing, distributing, or marketing devices based on Android forks (i.e., modified versions of AOSP code of Android which do not meet the requirements of CDD and CTS). Google licenses its apps only to those device manufacturerss who agree to requirements of AFA/ ACC and whose devices meet the Android compatibility tests.
Google’s applications or GMS (viz. Google Play Store, Gmail, Google Maps, Google Search, Google Chrome, YouTube, Google Play Services, etc.) are not available on Android fork devices.
Google’s reasoning is that the AFA is aimed to ensure that Android does not become fragmented.
According to CCI ruling, this guaranteed that distribution channels for competing search services is altogether eliminated by prohibiting device manufacturers from offering devices based on Android forks. It ensured that device manufacturers are not able to develop and/ or offer devices based on forks, which are outside the control of Google.
In the absence of these restrictions, the competing search services could have availed of sufficient distribution channels in partnership with device manufacturers, offering devices based on forks. Similarly, the android fork developers also could not find distribution channels for their fork OSs as almost all the device manufacturers were tied with Google.
Revenue Sharing Agreement RSAs
The RSA inter-alia provides for exclusive preinstallation of Google Search and Google Assistant in Android devices.
The agreement forbids the device manufacturers from preloading or otherwise installation of any third-party application, bookmark, product, service, icon, launcher, third party hot-word in the qualified device that is an alternative service to Google Search and Google Assistant.
Google shared search advertising revenues with device manufacturers , provided that the device did not pre-install any competing general search service on any device within the defined portfolio of smart devices.
If a device manufacturers pre-installs such a service on any device, it loses the revenue share payments not only for that particular device but also for all the other devices in its portfolio on which another general search service may not have been pre-installed.
This helped Google to secure exclusivity for its search services to the total exclusion of competitors.
According to CCI, these agreements operate in tandem and the interplay between these agreements has manifested multiple anti-competitive outcomes in the markets, as detailed above.The combined results of these agreements guaranteed a continuous access to search queries of mobile users which helped not only in protecting the advertisement revenue but also to reap the network effects through continuous improvement of services, to the exclusion of competitors.
With these agreements in place, the competitors never stood a chance to compete effectively with Google and ultimately these agreements resulted in foreclosing the market for them as well as eliminating choice for users.
CCI concluded that:
a. Mandatory pre-installation of entire GMS suite under MADA (with no option to un-install the same) and their prominent placement amounts to imposition of unfair condition on the device manufacturers and thereby in contravention of the provisions of Section 4(2)(a)(i) of the Competition Act.
b. These obligations are in the nature of supplementary obligations imposed by Google on OEMs and thus, in contravention of Section 4(2)(d) of the Competition Act.
c. Google has perpetuated its dominant position in the online search market resulting in denial of market access for competing search apps in contravention of Section 4(2)(c) of the Competition Act.
d. Google has leveraged its dominant position in the app store market for Android OS to protect its position in online general search in contravention of Section 4(2)(e) of the Competition Act.
e. Google has leveraged its dominant position in the app store market for Android OS to enter as well as protect its position in non-OS specific web browser market through Google Chrome App and thereby contravened the provisions of Section 4(2)(e) of the Competition Act.
f. Google has leveraged its dominant position in the app store market for Android OS to enter as well as protect its position in Online Video Hosting Platform market through YouTube and thereby contravened provisions of Section 4(2)(e) of the Competition Act.
g. Google, by making pre-installation of Google’s proprietary apps (particularly Google Play Store) conditional upon signing of AFA/ ACC for all android devices manufactured/ distributed/ marketed by device manufacturers, has reduced the ability and incentive of device manufacturers to develop and sell devices operating on alternative versions of Android i.e., Android forks and thereby limited technical or scientific development to the prejudice of the consumers, in violation of the provisions of Section 4(2)(b)(ii) of the Competition Act.
Case Against Google As Per CCI Order dated 25th October 2022
The Allegation:
Google requires the App developers listed on Google Play Store to exclusively and mandatorily use the Google Play’s Billing System (GPBS) not only for receiving payments for Apps (and other digital products like audio, video, games) distributed/sold through the Google Play Store but also for certain in-app purchases i.e. purchases made by users of Apps after they have downloaded/purchased the App from the Play Store.
If the app developers do not comply with Google’s demand of using GPBS, they are not permitted to list their apps on the Play Store and thus, would lose out the vast pool of potential customers in the form of Android users
The question that CCI considered was whether making the use of Google Play’s billing system (GPBS), exclusive and mandatory by Google for App developers/owners for processing of payments for App and in-app purchases and charging 15-30% commission is violative of provisions of the Competition Act?
Whether making access to the Play Store dependent on mandatory usage of GPBS for paid apps and in-app purchases is one sided and arbitrary and devoid of any legitimate business interest.
The app developers are left bereft of the inherent choice to use payment processor of their liking from the open market.
The Commission was of the view that:
The conduct of Google constitutes an imposition of unfair condition on app developers, while Google follows discriminatory practices by not using GPBS for its own applications i.e., YouTube is not paying the service fee as being imposed on other apps covered in the GPBS requirements.
Google’s restrictions for mandatorily using GPBS also have significant negative effect on the improvements and innovative solutions that third party payment processors / aggregators would be able to bring to the market.
It takes away the incentives and ability that such payment aggregators would have to innovate in payment solutions by restricting their entry into this market.
Mandatory imposition of GPBS also discourages app developers from developing its own in-app payment processor especially the free download apps that contain in app purchases in India.
Google provides a truncated access to the app developers to the trove of data collected from the apps/ Play Store, while retaining full control over such data for monetization on commercial basis.
These practices distort competition and disturb innovation incentives as well as ability of the app developers to undertake technical development and innovate in their respective sphere of business activities.
LAW-IP AND MORE 