COMPETITION LAW UPDATE | GOOGLE LOSES ITS MONOPOLY1
The National Company Law Appellate Tribunal (NCLAT) vide its Order in Google LLC & Others vs Competition Commission of India & Others dated 29 March 2023, upheld the ruling (Impugned Order) of the Competition Commission of India (CCI) passed against Google LLC (Google). Consequently, Google has been directed to deposit the amount of penalty imposed upon it by the CCI to the tune of INR 13.37 Billion for violation of the anti-competitive provisions laid down in the Competition Act 2002 (Act).
Google had acquired Android Operating System (Android OS) back in 2005. Since then, Google has been the owner of the most used Operating System (OS) in India and hence enjoys a dominant position in the market for licensable OS for smartphones in India.
However, Google`s several practices were found to amount to abuse of dominant position as defined under the Act. Consequently, in October 2022, CCI held Google to be in violation of the anti-competitive regulations in force in India and for abusing its dominant position in multiple markets within the Android ecosystem.
CCI observed that Google operates and manages not only Android OS licensing, but also licenses its other proprietary applications such as YouTube, PlayStore, Google Search and Google Chrome.
Naturally, Original Equipment Manufacturers (OEMs) such as Samsung and Motorola, enter into multiple agreements with Google for grant of licenses for the use of Android OS and other Google applications in their smartphones. It was observed that through the conditional clauses in these agreements, such as preinstallation of the bouquet of Google apps on OEM devices and clauses meant to ensure total exclusion of its competitors, assure that Google continues to accord a significant competitive edge over its competitors. Such practices of Google have also created entry barriers for competitors of Google to enter or operate in the concerned markets.
Therefore, CCI imposed a monetary penalty of INR 13.37 Billion on Google under Section 27 of the Act for violating Section 4 of the Act (sited below) and further laid down certain directions to be complied with by Google. The Impugned Order was challenged before the NCLAT, wherein an order upholding the Impugned Order was passed on 29 March 2023.
RELEVANT STATUTORY PROVISIONS:
Section 4 of the Act defines dominant position as a position of strength enjoyed by an enterprise in the relevant market in India, which enables it to:
i. operate independently of competitive forces prevailing in the relevant market; or ii. affect its competitors or consumers or the relevant market in its favour.
Further, the aforesaid Section also provides that there shall be an abuse of dominant position if an enterprise or a group inter alia-
a) directly or indirectly, imposes unfair or discriminatory condition in purchase or sale of goods or service (excluding discriminatory conditions which may be adopted to meet the competition); or
b) limits or restricts technical or scientific development relating to goods or services to the prejudice of consumers; or
c) indulges in practice or practices resulting in denial of market access [in any manner]; or
d) makes conclusion of contracts subject to acceptance by other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts; or
e) uses its dominant position in one relevant market to enter into, or protect, other relevant market.
NCLAT accepted the contention of the appellants that Section 4 of the Act requires an effect analysis in addition to a fact or per se analysis. That is to say, it is not sufficient if a dominant market player has engaged in abusive practices as defined under Section 4 of the Act, it must further be proven that such practices have had a real effect on the market and have not been ineffective.
Applying the effect analysis, NCLAT upheld the findings of CCI that Google was in violation of several provisions of the Act. Hence, Google is liable to pay a monetary penalty of INR 13.37 Billion. Further, NCLAT upheld six of the ten directions passed in the Impugned Order and the same were to be implemented within 30 days of the NCLAT Order. The upheld directions are as follows: : (1) OEMs to not be compelled to pre-install the entire bouquet of Google apps nor be directed as to their placement; (2) licensing of PlayStore to not be linked with pre-installation of Google apps; (3) no incentivization for ensuring exclusivity to Google services; (4) no anti-fragmentation obligations on the OEMs and complete freedom for them to develop devices based on other Operating Systems apart from Android; (5) to not prohibit OEMs from selling smart devices based on Android forks; (6) giving users the freedom to choose their default search engines along with the freedom to alter their default setups later.
Considering that India is a growing market of start-ups and innovation, it becomes imperative that the established giants in the market are not allowed to create barriers to entrance or to the growth of newcomers and competitors. The sanctions imposed on Google are stringent and have the capacity to change the dominance enjoyed by Google. However, Google may appeal against the NCLAT Order thereby, further delaying compliance with the directions.
Further, NCLAT went beyond its judicial powers by holding that Section 4 of the Competition Act requires an effect analysis as opposed to just a fact analysis. Interestingly, NCLAT analysed that the CCI has in the past applied both approaches, and yet went on to hold that the only appropriate test to be applied under Section 4 of the Act is the effect analysis. Further, NCLAT failed to observe that while Section 3 of the Act specifically refers to effect as an essential ingredient therein, Section 4 doesn`t. This shows the express legislative intent to exclude the effect analysis from the purview of Section 4. NCLAT has hence gone beyond its powers and effectively carried out a legislative function.
Author: Bhushan Shah - Partner | Veena Hari - Associate
This update was released on 04 May 2023.
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