The Competition Commission of India (CCI) has ordered two weeks Google penalized twice — for abusing its dominant position with its Android mobile operating system (OS) and for taking anti-competitive measures in its in-app billing and payment processing. Aside from levying a total fine of over Rs 2,000 crore, the antitrust agency has issued a number of directives that could impact Google’s business.
The Android Verdict
On October 20, the IHK imposed a Penalty of Rs 1,337.76 crore on Google for abusing its dominant position with its Android system. It also “directed Google to desist and desist from anti-competitive practices” and asked it to implement around 10 measures.
Android OS, a proprietary product of Google, is licensed to device manufacturers. Google links or bundles certain Google applications and services such as Google Chrome, YouTube, Google Search, etc. distributed on Android devices with other Google applications, services and/or Google application programming interfaces (APIs).
Device makers receive a percentage of Google search revenue from their devices in return for preinstalling Google apps. This lowers costs for device manufacturers while allowing Google to grow its user base.
The case was brought by three whistleblowers who claimed to be “consumers of Android smartphones” rather than device makers themselves.
Abuse of a dominant position
Section 4 of the Competition Act prohibits the abuse of a company’s dominant position. “Dominant Position” means a position of strength enjoyed by a company in the “Relevant Market” in India which enables it to operate independently of the competitive forces prevailing in the Relevant Market; or influence its competitors or consumers or the relevant market in its favour.
Citing data from the IDC Center for Consultancy & Research Pvt. Ltd, CCI stated that Android is a “dominant player” in the market – in the licensable operating system for smart mobile devices in India, Android’s market share increased from 35.4% in 2014 to 98.47% in 2018.
Google argued that it was not the dominant player in the market as consumers had a choice between its Android devices and Apple’s iOS operating system. However, the IHK distinguished between the non-licensable, closed-source iOS and the licensable, open-source Android.
“To understand the level of competition between Google’s Android ecosystem and Apple’s iOS ecosystem, it is also important to note the difference between the two business models, which affects the underlying incentives behind business decisions. Apple’s business is primarily based on a vertically integrated smart device ecosystem focused on selling high-end smart devices with cutting-edge software components. While Google’s business is driven by the ultimate intention of increasing the number of users on its platforms so that they interact with its revenue-generating service, i.e. online search, which directly affects Google’s sales of online advertising services ‘ said the CCI in its order.
The Play Store decision
On October 25, shortly before the resignation of CCI Chairman Ashok Kumar Gupta, the Commission imposed a Rs 936.44 crore penalty against the company for “abusing its dominant position in relation to its Play Store policies”.
This ruling includes a series of three cases brought against Google by the Alliance of Digital India Foundation, which claims to be an alliance of individuals aiming to improve the start-up ecosystem in India; Match Group, whose portfolio companies include dating apps like Tinder, Hinge, OkCupid and Ablo; and a confidential third party complainant.
The Commission found that Google engaged in anti-competitive practices in its app billing and payment processing by favoring Google Pay over other providers. The Play Store charges app providers a 30% commission for permission to use the Play Store payment system and Google Play in-app billing. The app providers’ complaint was that they didn’t have an opportunity to favor alternative payment aggregators that charge lower commissions than Google.
With a cease and desist order, the CCI instructed Google to change its behavior within a specified period of time. This includes allowing mobile app developers to use third-party payment services in their app store.
How is the penalty calculated?
Under Section 27 of the Competition Act, the CCI has the power “to impose such penalty as it deems appropriate, which shall not exceed ten percent. the average of sales for the preceding three financial years to any person or entity involved in such agreements or abuses…”
In the Android case, the CCI imposed a penalty of 10% of revenue “generated or arising/accumulated in India or attributable to services rendered in India”.
In a landmark 2014 decision, the Supreme Court ruled that the penalty should not be imposed on the “overall sales of the defaulting company” but on the “relevant sales”. Based on this ruling, Google argued that the revenue from the allegedly infringing product/service should be taken into account when determining the amount of the fine. However, the commission contradicted the argument, saying it “couldn’t ignore the ad-supported business model and multi-product Android ecosystem.”
In the Play Store ruling, the CCI imposed a penalty of 7% of total revenue from Google’s operations in India.