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Wednesday, December 15, 2010
French Watchdog Warns Google Not to Abuse Dominance

France's antitrust watchdog considers that Google holds a dominant position on the advertising market linked to search engines, a result that could make Google vulnerable to lawsuits in France.

The Autorité de la concurrence considers that competition law can apply limits to Google's actions and provide a response to the competitive stakes brought to light by the actors, without the need to implement sector-wide regulations.

France's watchdog proposes targeted responses to the identified concerns.

In February 2010, a referral was made to the Autorité de la concurrence by the French Minister for the Economy, Finance and Employment, relative to the operation of competition in the online advertising sector, in application of the French Code of commercial law (Code de commerce).

As in the retail world, the Internet is playing a growing role in the daily lives of individuals and households. Search engines, and Google in particular, have become the entry point for online browsing. This central position has generated criticism and even concerns on the part of many actors, some of whom consider that they have been victim of unfair and even illegal actions on the part of Google. Schematically, this involves:

  • competing search engines that view that Google's hegemony results from efforts to close off markets, or other actors present on the Internet who fear that the conditions under which Google is diversifying into other markets do not fall within the framework of merit-based competition;
  • customers, i.e. advertisers or Internet site editors that are members of the Google advertising syndication network, that, in view of their low negotiating power, complain of arbitrary and opaque practices by Google;
  • the press, which is at the same time customer, partner, competitor and potential supplier of Google, that, over and above the objections indicated above, feels that it is being subjected to free riding and predatory pricing that would aggravate the sector's already difficult situation.

As a reminder, the "Creation and Internet" mission entrusted to Messrs. Patrick Zelnik, Jacques Toubon and Guillaume Cerutti, brought these concerns to light in the report delivered to the Minister for Culture and Communication in January 2010, and suggested a referral to the Autorité de la concurrence for an opinion.

The Autorité considers that Google holds a dominant position on the advertising market linked to search engines

"Search-related advertising represents a specific market that cannot be replaced (not substitutable) by other forms of communication, notably because it allows for very fine-tuned targeting, and because no other equivalent alternative offer exists in the eyes of advertisers," France's watchdog said. " Indeed, it makes it possible to approach a prospect when searching actively and therefore close to the buying act."

"In this market, many elements converge in order to indicate that Google holds a dominant position: market share, price level, nature of customers relations, margin level, etc. The entry barriers also appear to be high when it comes to developing an activity as a competing search engine, because of the investments at stake for the development of the algorithms and indexing of content, as well as due to the size effect."

"In and end of itself, this dominant position is not reprehensible: it results from a great deal of innovation, supported by significant and continuous investments. Only the abusive exercise of such market power could be sanctioned."

The Autorité de la concurrence has examined the competitive operation of the online advertising market and drafted, for several types of practices, an analysis grid that makes it possible to better grasp their compliance with competition law.

It has identified possible exclusionary conduct intended to discourage, delay or eliminate competitors through procedures that do not consist of merit-based competition (artificially high entry barriers, excessive exclusivity clauses in terms of their field, duration or scope, technical obstacles etc.), and possible operational abuses, whereby the search engine apparently imposes exorbitant conditions on its partners or customers, treats them in a discriminatory manner or refuses to guarantee a minimum degree of transparency in the contractual relations that it establishes with them.

Providing its opinion on a consultative basis, the Autorité makes no ruling as to the legality of such practices that would merit, in order to be pursued, often long and complex investigations. Nevertheless, this analysis framework clearly indicates that competition law can apply limits to Google's actions and provide a response to the competitive stakes pointed out by the actors.

After a recent referral by the Navx company with regard to Google's opaque and discriminatory practices, the Autorité de la concurrence ordered the search engine to implement a series of urgent interim measures, that were then confirmed and clarified as part of a commitment procedure. For its part, the European Commission has just initiated a formal investigation regarding Google, that is notably intended to consider the issue of how the search engine ranks Internet sites according to natural search results or within the framework of commercial links, a question that is the focus of many concerns.

The press is very concerned by the present opinion, since it is simultaneously Google's customer, partner, competitor and potential supplier.

The Autorité considers that the transparency obligations of the Sapin law should be transposed to the online advertising sector.

One of the reasons for publisher dissatisfaction has to do with the absence of any audit or data certification provided by Google, notably the net revenues on the basis of which the remittance owed to partners is calculated within the AdSense services. The Autorité de la concurrence calls on the lawmaker to clarify or complete the current legal framework stemming from the Sapin law such as to take into account the advertising sector's new operating conditions. This could result, for example, in the implementation of minimum "reporting" obligations as well as, for the most significant networks, an audit mechanism with possible verification by a third party certifying authority.

Press titles claim a "form of economic free riding" by Google via the "Google News" aggregator: by presenting the best from each publication, which no editor can obviously do individually, Google is positioning itself as the reference site for accessing information, without paying any financial consideration to the newspapers that bear the costs for creating quality information. It is very important for press publishers to be able to request and obtain exclusion from "Google News", but without necessarily being delisted by the Google search engine. The latter company has recently made commitments along these lines to the Italian competition authority: the indexing of press content in "Google News" must be uncoupled - by means of a simple and prior initiative on the part of publishers - from that of the content that can be accessed through the generalist search engine. The French Autorité de la concurrence will see to it that these commitments, that Google claims to have already implemented, are respected in France.

The Autorité also hails the initiatives made by the sector's actors to pool their resources and to promote the emergence of fee-based digital kiosks

"The press is currently faced with the digital challenge, and Google cannot seriously be designated as the main cause of the difficulties being experienced by the sector."

"In this regard, the Autorité hails the initiatives taken by the sector's actors to pool their resources and to promote the emergence of fee-based model. Major actors in the [French] national daily press (Libération, Le Figaro, L'Équipe, Les Échos, Le Parisien), together with several magazines (l'Express, le Point, le Nouvel Observateur), have announced the set-up of an economic interest group (EIG) for the purpose of developing a common online press portal."

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