CCI introduces Leniency “Plus” regime in India- Will it suffice?
Has Google finally conceded its alleged anti-competitive conduct in India? Or it is a mere delaying tactic to pacify India’s furious Antitrust regulatory regime , which seems to be bent upon teaching Google a lesson or two like those in the European Union and United States .
On 25th January 2023, Google announced changes in its App policies for OEMs, the Smartphone makers in India by allowing them to license Applications individually.
The unilateral announcement came two days before the 7 days’ time period granted by the Supreme Court of India vide its interim order dated 20 January 2023 refusing to grant stay against the market correcting directions passed by India’s fair market watchdog, the Competition Commission of India (CCI) vide its order dated 20 October 2022, giving Google 90 days to implement ( which expired on 19th January) , against which the appeal filed by Google is pending before the National Company Law Appellate Tribunal (NCLAT) is pending . The NCLAT’s interim order dated 21 December 2022 (refusing to stay the CCI substantive directions but granting partial stay against the penalty of Rs. 1337.67 Crores (I Crore=10 million) by directing Google to deposit 10% of the said penalty) was challenged by Google in the Apex Court. The gist and timelines of the various orders passed by the Regulator /CCI ,the Appellate tribunal and the Supreme Court can be read in this media update on Google by The Economic Times dated 28 January 2023 .
Like in other jurisdictions, including the European Union and United States, Google in India has been facing antitrust inquiries, mainly for alleged abuse of dominance, in the following 4 cases[1] :
- Google Imposing conditions for use on its Android OS on Smartphone manufacturers in India.
- Google alleged abuse of dominance by Google Pay in the market for online app-based payments in India .
- Google’s agreements with OEMs of Smart TVs
- Further , recently vide its order dated 7th January 2022, CCI has ordered another investigation against Google for unfair and arbitrary payment terms for news content.
The present announcement by Google relates to the first cases at Sl. No.1 above , which is worth noticing , since Google’s arguments on merits of its first appeal against the first CCI order dated 20 October , 2022 ( “Android Case order “) before NCLAT are yet to be opened . Incidentally, Supreme Court vide its above order dated 20th January ,2023 has also directed NCLAT to decide Google’s appeal by 31 March ,2023 .
CCI has till date decided the first two cases vide its orders dated 20 Oct 2022 & 25 Oct 2022 and Google’s appeals are pending against both these orders before the NCLAT, which, as aforesaid , are now to be disposed off by the NCLAT before 31 March 2023 .
Let us have a quick and brief recap of both the CCI orders both in the Android case and the online app-based payment decisions.
CCI order dated 20.10.2022- “Android Case Order”
(For sake of brevity , I am reproducing the gist of the allegations , Google’s arguments and CCI decision on each , as stated in the CCI Press Release dated 20 October 2022)
Smart mobile devices need an operating system (OS) to run applications (apps) and programs. Android is one such mobile operating systems which was acquired by Google in 2005. The Commission in the instant matter has examined various practices of Google w.r.t. licensing of this Android mobile operating system and various proprietary mobile applications of Google (e.g. Play Store, Google Search, Google Chrome, YouTube, etc.).
For this purpose, the Commission delineated following five relevant markets in the present matter:
a. Market for licensable OS for smart mobile devices in India
b. Market for app store for Android smart mobile OS in India
c. Market for general web search services in India
d. Market for non-OS specific mobile web browsers in India
e. Market for online video hosting platform (OVHP) in India.
During the inquiry, Google argued about the competitive constraints being faced from Apple. In relation to understanding the extent of competition between Google’s Android ecosystem and Apple’s iOS ecosystem, the Commission noted the differences in the two business models which affect the underlying incentives of business decisions. Apple’s business is primarily based on a vertically integrated smart device ecosystem which focuses on sale of high-end smart devices with state-of-the-art software components. Whereas Google’s business was found to be driven by the ultimate intent of increasing users on its platforms so that they interact with its revenue earning service i.e., online search which directly affects sale of online advertising services by Google. Further, in relation to app stores, the Commission noted that the demand for the same, come from three different sets of consumers i.e., (a) Smart device OEMs who wish to install an app store to make their smart devices commercially viable and marketable; (b) app developers, who want to offer their services to the end users; and (c) end users to wish to access app stores to access content or avail other services. The Commission examined the substitutability between Google’s Play Store for Android OS and Apple’s App Sore for iOS from the perspective of all three demand constituents and found that there is that no substitutability between Google’s Play Store and Apple’s App Store. The Commission further noted that there might be some degree of competition between the two mobile ecosystems i.e., Android and Apple, however, that too is also limited at the time of deciding as to which device to buy. At that stage also, the Commission was of the considered view that the primary and the most significant factor in the mind of an end user is the hardware specification and the device price.
Based on its assessment, the Commission found Google to be dominant in all the above-mentioned relevant markets.
Google operates/ manages the Android OS as well as licences its other proprietary applications and OEMs use this OS & Google’s apps in their smart mobile devices. Accordingly, they enter into multiple agreements to govern their rights and obligations viz. Mobile Application Distribution Agreement (MADA), Anti-fragmentation Agreement (AFA), Android Compatibility Commitment Agreement (ACC), Revenue Sharing Agreement (RSA), etc.
MADA assured that the most prominent search entry points i.e., search app, widget and chrome browser are pre-installed on Android devices, which accorded significant competitive edge to Google’s search services over its competitors. Further, 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.
AFA/ ACC guaranteed that distribution channels for competing search services is altogether eliminated by prohibiting OEMs from offering devices based on Android forks. It ensured that OEMs 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 OEMs, offering devices based on forks. Similarly, the android fork developers also could not find distribution channels for their fork OSs as almost all the OEMs were tied with Google. Simultaneously, RSAs helped Google to secure exclusivity for its search services to the total exclusion of competitors. 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.
The Commission opined that the markets should be allowed to compete on merits and the onus is on the dominant players (in the present case, Google) that its conduct does not impinge this competition on merits. By virtue of the agreements discussed above, Google ensured that users continue to use its search services on mobile devices which facilitated un-interrupted growth of advertisement revenue for Google. Further, it also helped Google to further invest and improve its services to the exclusion of others. Thus, the underlying objective of Google in imposing various restrictions via MADA, AFA/ ACC and RSAs was to protect and strengthen its dominant position in general search services and thus, its revenues via search advertisements.
The Commission concluded that,
(i) mandatory pre-installation of entire Google Mobile Suite (GMS) 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 Act. These obligations are also found to be in the nature of supplementary obligations imposed by Google on OEMs and thus, in contravention of Section 4(2)(d) of the Act.
(ii) 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 Act.
(iii) 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 Act.
(iv) 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 Act.
(v) Google has leveraged its dominant position in the app store market for Android OS to enter as well as protect its position in OVHPs market through YouTube and thereby contravened provisions of Section 4(2)(e) of the Act.
(vi) 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 Act.
13. Accordingly, in terms of the provisions of Section 27 of the Act, the Commission imposed a provisional monetary penalty of INR 1337. 76 Crores[2] , as well as issued cease and desist order against Google from indulging in anti-competitive practices that have been found to be in contravention of the provisions of Section 4 of the Act. Some of the measures that were indicated by the Commission are as follows:
i. OEMs shall not be restrained from (a) choosing from amongst Google’s proprietary applications to be pre-installed and should not be forced to pre-install a bouquet of applications, and (b) deciding the placement of pre-installed apps, on their smart devices.
ii. Licensing of Play Store (including Google Play Services) to OEMs shall not be linked with the requirement of pre-installing Google search services, Chrome browser, YouTube, Google Maps, Gmail or any other application of Google.
iii. Google shall not deny access to its Play Services APIs to disadvantage OEMs, app developers and its existing or potential competitors. This would ensure interoperability of apps between Android OS which complies with compatibility requirements of Google and Android Forks. By virtue of this remedy, the app developers would be able to port their apps easily onto Android forks.
iv. Google shall not offer any monetary/ other incentives to, or enter into any arrangement with, OEMs for ensuring exclusivity for its search services.
v. Google shall not impose anti-fragmentation obligations on OEMs, as presently being done under AFA/ ACC. For devices that do not have Google’s proprietary applications pre-installed, OEMs should be permitted to manufacture/ develop Android forks based smart devices for themselves.
vi. Google shall not incentivise or otherwise obligate OEMs for not selling smart devices based on Android forks.
vii. Google shall not restrict un-installing of its pre-installed apps by the users.
viii. Google shall allow the users, during the initial device setup, to choose their default search engine for all search entry points. Users should have the flexibility to easily set as well as easily change the default settings in their devices, in minimum steps possible.
ix. Google shall allow the developers of app stores to distribute their app stores through Play Store.
x. Google shall not restrict the ability of app developers, in any manner, to distribute their apps through side-loading.
CCI order dated 25.10.2022- “Online app-based payment order”
(Again for sake of brevity , I am reproducing the gist of the allegations , Google’s arguments and CCI decision on each , as stated in the CCI Press Release dated 25 October 2022)
For app developers, app stores have become a necessary medium for distribution of their apps to the end users and the availability of app store(s) is directly dependent on OS installed on a smart device. An appreciation of the market dynamics in licensable mobile operating system in India makes it evident that Google’s Android OS has successfully reaped the indirect network effects. Google’s Play Store constitutes the main distribution channel for app developers in the Android mobile ecosystem, which allows its owners to capitalize on the apps brought to market.
Based on its assessment, the Commission found Google to be dominant in the markets for licensable OS for smart mobile devices & market for app stores for Android smart mobile OS, in India.
Selling of in-app digital goods constitutes an important means for app developers to monetize their creations/innovations. However, for in-app digital goods to be distributed to purchasing users, developers must configure their apps so that all purchases of the digital goods go through Google’s payment system, which processes the transactions.
Google’s Play Store policies require the App developers to exclusively and mandatorily use 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. Further, app developers cannot, within an app, provide users with a direct link to a webpage containing an alternative payment method or use language that encourages a user to purchase the digital item outside of the app (anti-steering provisions).
If the app developers do not comply with Google’s policy 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. 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 has also examined the allegations of exclusion of rival UPI apps as effective payment options on Play Store. It was found that Google Pay has been integrated with intent flow methodology whereas other UPI apps can be used through collect flow methodology. It was noted that the intent flow technology is superior and user friendly than collect flow technology, with intent flow offering significant advantages to both customers and merchants and the success rate with the intent flow methodology being higher due to lower latency. Google has informed the Commission that it has recently changed its policy and has allowed rival UPI apps to be integrated with intent flow.
Based on its assessment, the Commission concluded that:
1. Making access to the Play Store, for app developers, dependent on mandatory usage of GPBS for paid apps and in-app purchases constitutes an imposition of unfair condition on app developers. Thus, Google is found to be in violation of the provisions of Section 4(2)(a)(i) of the Act.
2. Google is found to be following discriminatory practices by not using GPBS for its own applications i.e., YouTube. This also amount to imposition of discriminatory conditions as well as pricing as YouTube is not paying the service fee as being imposed on other apps covered in the GPBS requirements. Thus, Google is found to be in violation of Section 4(2)(a)(i) and 4(2)(a)(ii) of the Act.
3. Mandatory imposition of GPBS disturbs innovation incentives and the ability of both the payment processors as well as app developers to undertake technical development and innovate and thus, tantamount to limiting technical development in the market for in-app payment processing services. in violation of the provisions of the Act. Thus, Google is found to be in violation of the provisions of Section 4(2)(b)(ii) of the Act.
4. Mandatory imposition of GPBS by Google, also results in denial of market access for payment aggregators as well as app developers, in violation of the provisions of Section 4(2)(c) of the Act.
5. The practices followed by Google results in leveraging its dominance in market for licensable mobile OS and app stores for Android OS, to protect its position in the downstream markets, in violation of the provisions of Section 4(2)(e) of the Act.
6. Different methodologies used by Google to integrate, its own UPI app vis-à-vis other rival UPI apps, with the Play Store results in violation of Sections 4(2)(a)(ii), 4(2)(c) and 4(2)(e) of the Act.
9. Accordingly, in terms of the provisions of Section 27 of the Act, the Commission directed Google to cease and desist from indulging in anti-competitive practices that have been found to be in contravention of the provisions of Section 4 of the Act, as detailed in this order. Some of the measures, in this regard, are indicated below:
(i) Google shall allow, and not restrict app developers from using any third-party billing/ payment processing services, either for in-app purchases or for purchasing apps. Google shall also not discriminate or otherwise take any adverse measures against such apps using third party billing/ payment processing services, in any manner.
(ii) Google shall not impose any Anti-steering Provisions on app developers and shall not restrict them from communicating with their users to promote their apps and offerings, in any manner.
(iii) Google shall not restrict end users, in any manner, to access and use within apps, the features and services offered by app developers.
(iv) Google shall set out a clear and transparent policy on data that is collected on its platform, use of such data by the platform and also the potential and actual sharing of such data with app developers or other entities, including related entities.
(v) The competitively relevant transaction/ consumer data of apps generated and acquired through GPBS, shall not be leveraged by Google to further its competitive advantage. Google shall also provide access to the app developer of the data that has been generated through the concerned app, subject to adequate safeguards, as highlighted in this order.
(vi) Google shall not impose any condition (including price related condition) on app developers, which is unfair, unreasonable, discriminatory, or disproportionate to the services provided to the app developers.
(vii) Google shall ensure complete transparency in communicating to app developers, services provided, and corresponding fee charged. Google shall also publish in an unambiguous manner the payment policy and criteria for applicability of the fee(s).
(viii) Google shall not discriminate against other apps facilitating payment through UPI in India vis-à-vis its own UPI app, in any manner.
10. In relation to computation of penalty, the imposed a penalty @ 7% of its average relevant turnover amounting to Rs. 936.44 crore upon Google on provisional basis, for violating Section 4 of the Act. Google has been given a time of 30 days to provide the requisite financial details and supporting documents.
COMMENT: The unilateral
announcement by Google to comply with the main market correction measures directed
by the CCI in the first Android case order dated 20 October 2022 is a positive development which should be welcomed
. This is perhaps the beginning of realisation of the weak defences developed
by Google’s large legal antitrust teams so
far , in support of its apparent anti-competitive conduct of forcing its tied
products , including its proprietary applications , down the throats of the OEMs/Smartphone
manufacturers , which was clearly
violative of the settled jurisprudence and International guidelines on the subject
of abuse of market power and the now admitted responsibility of a dominant
player to maintain competition inn the downstream markets . I wish Google being
one of the foremost leaders of the Big Tech will lead by example by settling
with CCI and stop defending the indefensible!
[1] These 4 pending cases are excluding the first Antitrust case decided against Google in 2018 by CCI, in which , vide its order dated 8.2.2018 , CCI imposed a penalty of INR 136 Crores for Google’s abuse of dominance in the market for online general web search and web search advertising services” in India reported in this blog at https://www.competitionlawyer.in/cci-imposes-penalty-of-rs-136-crores-on-google-for-abuse-of-dominant-position/
[2] In relation to computation of penalty, the Commission noted that there were glaring inconsistencies and wide disclaimers in presenting various revenue data points by Google. However, in the interest of justice and with an intent of ensuring necessary market correction at the earliest, the Commission quantified the provisional monetary penalties on the basis of the data presented by Google. Accordingly, the Commission imposed a penalty of Rs. 1337.76 crore upon Google on provisional basis, for violating Section 4 of the Act. Google has been given a time of 30 days to provide the requisite financial details and supporting documents.
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