Russia: Google abused Android dominance

17.09.2015

Global Competition Review (GCR)

Google has been found to have abused its power over pre-installed applications on Android smartphones and tablets, Russia’s Federal Antimonopoly Service announced yesterday.

The case appears to be the first competition ruling against the tech giant after years of investigations by antitrust enforcers around the world.

The FAS found that the company broke Russian competition law by limiting what apps manufacturers could install on devices that run Google’s Android operating system, according to a statement.

However, the enforcer opted to end its proceedings against the company for allegedly engaging in unfair competition, “due to absence of the violations of the antimonopoly law in the actions analysed by the commission.” The statute barring unfair competition lists illegal conduct such as the dissemination of false information and intellectual property infringement.

The Russian abuse of dominance decision takes on a different branch of Google’s business than the statements of objections from the European Commission and the Competition Commission of India. Those reports, sent to Google earlier this year, focused on its core search and advertising business.

Google has responded to the European Commission and reportedly has sought more time and information for its reply to the Indian authority. Neither enforcer has made a final decision against the company.

The European Commission has also opened a separate competition investigation into Android, but has yet to release any preliminary findings about it. Korea’s Fair Trade Commission raided Google’s local offices in an Android probe, but dropped the case in 2013.

The FAS started its case against Google in February following a complaint from Yandex, a Russian company that competes with Google in search and applications, including a browser, but does not offer its own operating system. The nation’s largest internet company, Yandex boasts a market share of more than 57 per cent in Russian online search.

Yandex claimed that Google was anti-competitively bundling its mobile service apps with the Google Play Store, through which Android users can download apps, games, books, music and movies; requiring device makers to install Google’s search engine as the default; and demanding preferential placement for Google app icons on the initial screen of smartphones and tablets running Android.

The FAS said its commission established that Google violated the law by conditioning the availability of the Google Play app store, which controls the addition of apps to the Android operating system, on the “mandatory pre-installment of Google applications and Google search system and mandatory priority positioning on the device home page.

“Actions undertaken by Google also resulted in prohibiting pre-installment of applications of vendors,” the authority said.

FAS deputy head Alexei Dotsenko said a full decision will be drafted and sent to Google within 10 working days along with an order to cease the abuse of dominance.

“In particular, FAS can request to adjust contracts with vendors of mobile devices, excluding such clauses from the agreements that restrict installing applications and services of other developers of such devices,” Dotsenko said.

The law also allows for imposing a monetary penalty of up to 15 per cent of Google’s revenues in Russia. The administrative proceedings may begin in October 2015.

In a statement, Yandex said it welcomes the ruling and an investigation that “confirmed the existence of agreements on prohibition of pre-installation of competitors’ apps – in part, it was not denied that Yandex was specified in these agreements.”

The company noted that “Russia is the first jurisdiction to have officially recognised these practices as anticompetitive,” and pointed to precedents such as the European Commission’s finding that Microsoft had abused its operating system dominance and would have to offer a choice of browsers. Other observers have said this is the first competition decision against Google of which they know.

“We believe the FAS’s decision will serve to restore competition on the market,” Yandex said.

Evgeny Khokhlov of Antitrust Advisory, who counselled Yandex in the matter, said both the complainant and the defendant were entitled to submit motions, produce evidence, present reports and comment on the position of the other parties in extensive oral hearings.

“Yandex was actively involved in the investigation, provided an unprecedented amount of supporting evidence, materials and economic data, including as related to the theory of harm. For that purpose a prominent economic counsel was also engaged, which is still rare in competition cases in Russia,” he said. Charles River Associates advised Yandex on economics.

Khokhlov added, “The way the investigation was handled by FAS demonstrates that FAS is prepared and well-fit to deal with cutting edge and complex cases like the Android case against Google.”

Artur Rokhlin and Fadeev Victor, a partner and an associate respectively at INFRALEX, noted that Yandex’s complaint initially was considered by the FAS under the unfair competition provision. Evaluating it instead under abuse of dominance increased the maximum possible fine from 500,000 rubles (€6,500) to 15 per cent of revenue – a fine they said would be one of the largest in the Russian enforcer’s history.

“Abuse of dominance in the Russian Federation is one of the most serious administrative offences,” Rokhlin said.

Vitaly Dianov, head of the antitrust group at Goltsblat BLP, said Google has the right to challenge the FAS’s order in court within three months of its being issued. The court owes no deference to the FAS’s findings, and can quash the authority’s decision if the FAS fails to prove its position, he said.

“We might expect that the case of such high profile could have required more time” than seven months, Dianov said. “The antimonopoly proceedings were highly confidential and non-transparent to the mass media. However, Yandex used the media to distribute its concerns.”

Google and its local counsel in Moscow did not respond to requests for comment.

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