EU Fines Google

AP Photo/Olivier Matthys

EU Hits Google With $5 Billion Fine For Antitrust Violations

July 18, 2018 - 3:43 pm
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BRUSSELS (WCBS 880/AP) -- Google has been hit with a record-setting $5 billion fine from the European Union for antitrust violations.

The regulators hit Google Wednesday for forcing cellphone makers that use the company's Android operating system to install Google search and browser apps.

“The claim from the EU is that Google gives this away for free, but requires Android handset makers like Samsung to run in a bundle of Google apps, and the EU is effectively saying Google can no longer do that, and they have 90 days to sort of remedy that, or they’ll face a daily fine, Bloomberg’s Mark Bergen explained to WCBS 880’s Kevin Rincon and Mack Rosenberg.

The European Union said Google's practices restrict competition and reduce choices for consumers.

Google can easily afford the fine, CBS News Technology Consultant Larry Magid noted.

“This is less than me buying a cup of coffee at Starbucks from their coffers now,” Magid told WCBS 880’s Steve Scott and Paul Murnane. “I think they can afford it.”

But the ruling could hurt the company's business model, which relies on giving away its operating system in return for opportunities to sell ads and other products.

Google immediately said it will appeal, arguing that its free operating system has led to lower-price phones and created competition with its chief rival, Apple.

Android has "created more choice for everyone, not less," Google CEO Sundar Pichai tweeted.

The fine, which caps a three-year investigation, is the biggest ever imposed on a company by the EU for anticompetitive behavior.

It is likely to stoke tensions between Europe and the U.S., which regulates the tech industry with a lighter hand and has complained that the EU is singling out American companies for punishment.

Magid said the fine against Google reminds him of to the U.S. antitrust cases against Microsoft – against which Google went on to become a major competitor.

“I’ve been around long enough to remember the Microsoft antitrust cases – both in the United States and Europe – and it reminds me a lot about that, back in the late 90s, early 2000s, you remember… one judge tried to break Microsoft up over the same issue. In that case, it was bundling the browser with Windows 95, and Microsoft argued: ‘Hey, you can still install third-party browsers, and by the way, we might end up no longer dominating the market. There could be competition.’” Magid said, “and guess what – Google became that competition that kept Microsoft from dominating the browser market.”

In its ruling, the EU said Google broke the rules by requiring cellphone makers to take a bundle of Google apps if they wanted any at all.

The bundle contains 11 apps in all, including YouTube, Maps and Gmail, but regulators focused on three that had the largest market share: Google's Search and Chrome apps, and its Play Store app marketplace.

Magid said he was perplexed by the fine, given that Android users are not limited to using Google apps.

“I’m a little bit confused about this one, frankly, because I have an Android phone, and I know I have lots of choice over what browsers and other apps I can use. Yes, Google does bundle them, but on the other hand, you can download others from the app store,” he said.

The EU gave Google 90 days to come up with remedies that could allow rival search apps and browsers onto more phones. Failure to comply risks a further penalty of up to $15 million a day.

The EU also took issue with Google's payments to wireless carriers and phone makers to exclusively pre-install the Google Search app.

It ruled, too, that Google broke the law by forcing manufacturers that took its apps to commit to not selling devices that use altered versions of Android.

EU Competition Commissioner Margrethe Vestager said "companies must compete on their merits," playing by rules that favor consumers and open markets.

Vestager said that given the size of the company, the 4.34 billion euro fine is not disproportionate.

The penalty is on top of 2.42 billion euro fine ($2.8 billion) that regulators imposed on Google a year ago for favoring its shopping listings in search results.

Google's parent company, Alphabet, made $9.4 billion in profit in the first three months of the year and is said to have over $100 billion in cash reserves.

"The important thing is not to be distracted by the size of the fine. What is important is that Google has to change its abusive behavior," said Rich Stables, CEO of the rival search engine Kelkoo.

Android is an open-source operating system that Google lets cellphone makers use for free. As a result, it is the most widely used system, beating even Apple's iOS.

The EU wants to ensure that phone makers are free to pre-install apps of their choosing. It also wants cellphone makers to be able to more easily use altered versions of Android, like Amazon's Fire OS.

Google argues that letting phone makers choose their apps could hurt the company's main means of making money through Android — advertising and the sale of content and apps. Apple, in contrast, makes most of its money from the sale of devices.

Giving phone makers more freedom to use altered versions of Android could also hurt Google. Samsung, a hugely popular maker of Android phones, could break off and take much of the Android system with it.

Daniel Castro, vice president of the Information Technology and Innovation Foundation, a think tank in Washington, said the ruling "is a blow to innovative, open-source business models."

European regulators have set the pace in shaping rules for the tech industry.

The EU has clashed repeatedly with Microsoft over the years, fining it over its bundling practices and its promotion of its Internet Explorer browser.

In 2016, the EU ruled that Apple was getting preferential treatment deal from the Irish government and demanded it pay $15 billion in back taxes. The EU has also tangled with Amazon and Intel.

European regulators have likewise taken a harder line on data privacy. After the scandal this spring involving the misuse of Facebook users' personal data during the U.S. presidential election and other campaigns, the EU began enforcing tougher new rules.

Such punitive regulatory actions are less likely in the U.S., where the focus is more on consumers, Bergen said.

“A lot of these cases, Google had the FTC looked at Google for search. There have been some other cases around Android, and they’ve dropped, you know, Google will come back and say that they believe the Android provides more consumer choice; that it actually has kind of created this flourishing economy where you can have handsets as cheap as now $100 across the world, whereas their biggest rival here is Apple, which has made it much more expensive to buy an iPhone,” he said.

Some U.S. lawmakers have said the country should go more aggressively after Google, but by and large, Europe is far more aggressive on antitrust issues, Bergen said.

The Google crackdown comes at a sensitive time for trans-Atlantic relations, with President Donald Trump lambasting the EU as a "foe" only last week. The U.S. imposed tariffs on EU steel and aluminum this year, and the EU responded with duties on American goods.

"We have to protect consumers and competition to make sure consumers get the best of fair competition," Vestager said. "We will continue to do it, no matter the political context."

(© 2018 WCBS 880. The Associated Press contributed to this report.)