mlex.summary: Big Tech antitrust probes in Spain coordinated with EU Commission, national chief says
The search giant has briefed some market players as well as EU officials on the changes to how it displays different categories of results and how that impacts users as they progress from Google’s search box to finding a service, MLex understands. Google is the target of an investigation into whether it is complying with the Digital Markets Act, which orders search engines to treat other services — such as price-comparison sites or hotel-booking platforms — in the same way as it treats its own (see here).The EC is readying formal charges — known as “preliminary findings” — over Google’s suspected non-compliance with the law. The company’s latest proposal is aimed at avoiding such a move by investigators, which would mark an escalation of the dispute and carry the risk of hefty fines. Google is understood to have said that, unless EU officials bless its approach, it may have to remove all specialized search results in the EU. The challenge for Google since the start of DMA obligations in March has been appeasing two different groups of users: merchants, hotels and other direct sellers, and specialized search engines that aggregate results from different sources and offer a comparison service. Its initial changes in March, which provided more visibility to comparison services that competed with Google’s own services, led to a drop of web traffic for some direct sellers of up to 40 percent. The Digital Markets Act obliges Google to fairly rank such services, and in September it proposed overhauling its compliance by presenting users searching for, say, a hotel room, with two boxes: one containing links to a selection of hotel websites, and the other with a selection of specialized search services comparing different rates. Now Google is planning to further tweak that solution to further increase the visibility of direct sellers. For example, users clicking on the hotel box would see more links leading directly to the hotel website and fewer leading to websites comparing prices, MLex understands. “Our proposed solution is fair and benefits both users and the different types of businesses being impacted by the DMA changes, giving people clearer choices between comparison sites and direct supplier sites like hotels,” said Oli Bethell, a director for legal affairs at Google. “Comparison sites are lobbying for even more changes, including a complete ban on relevant user information in search (like prices and imagery), which would hurt European businesses and consumers, and has no legal base in the DMA.” Please email editors@mlex.com
— Three pillars of adtech —
Earlier in the hearing, DOJ attorney Aaron Teitelbaum argued that internal documents show how Google’s three-pillar strategy maps onto the government’s market definition. “Google’s assertion that open web display advertising is some made up concept for this case is sort of like a zombie that keeps shuffling around despite having been laid to rest by the trial,” he said. Teitelbaum also attacked Google’s inconsistent position on how to define a product market, saying it directly contradicts an argument the tech giant made to the US District Court for the Northern District of California in another suit in 2021. In its motion-to-dismiss, Google alleged a single relevant product market. The tech giant challenged an ad tech product market definition that combined buy-side and sell-side tools. The California court agreed with that position as a basis for dismissing the private antitrust claim against Google. Google has repeatedly argued that “open-web display advertising” is not a well-understood defined category, and that there is “open web” and “display” advertising, but both are separate. Teitelbaum said that if there are two parcels of land, selling one of them isn’t a substitute because the inventory doesn’t go away. Using another analogy, Teitelbaum said that if a family has both a stove and a microwave, they are not reasonable substitutes but complements. Brinkema questioned the DOJ attorney, saying that even though the DOJ has spent significant time and effort arguing there are three separate tools and markets, Google counters by saying there is only one adtech stack. She said one of paragraphs in the government’s proposed findings of fact points to there being a two-sided market. The judge asked Teitelbaum to reconcile the two things. The DOJ attorney replied that the power to control prices and exclude competitors while saddling customers with unwanted features indicates monopoly power.
“They [publishers] can’t go anywhere else because they want access to that mass of advertisers on the other side of the exchange,” Brinkema said. “Will it truly make any difference if the court rules that there are not three separate markets?”
Teitelbaum replied that even if that were to happen, ultimately the DOJ will prevail on the argument that Google has monopoly power. However, the three product markets are not fungible and not reasonable substitutes, he said. Citing a 2024 ruling by the US Court of Appeals for the Fourth Circuit in Duke Energy Carolinas v NTE Carolinas, the DOJ attorney said it’s foundational that alleged anticompetitive conduct must be considered as a whole because Section 2 of the Sherman Act focuses on anticompetitive conduct and not on court-made subcategories of that conduct. In their lawsuit, the DOJ and states accuse Google of having “corrupted legitimate competition in the ad tech industry by engaging in a systematic campaign to seize control of the wide swath of high-tech tools used by publishers, advertisers, and brokers, to facilitate digital advertising.” The government has targeted two Google acquisitions which it seeks to unravel: the 2008 purchase of DoubleClick, which operated a market-leading publisher ad server, and the 2011 purchase of AdMeld, a leading yield manager (see here). Today’s closing arguments follow a three-week trial in September (see here).
— Product design, integration —
Today, Dunn also argued that the DOJ challenges its product design decisions because Google didn’t immediately provide rivals “comparable” access to its innovations, infrastructure and customers. However, Teitelbaum argued that Google’s years of exclusionary conduct to monopolize ad technology markets through acquisitions, customer restrictions and auction manipulations can’t be cast as product-design choices or technical work that immunize the company from antitrust scrutiny. “The question is whether Google’s technical work harmed competition and coerced customers. They used technical work to harm competition in the first place, so it’s just not the right question to ask,” the DOJ attorney said. Google has argued that the integration of Google Ads and AdX and the integration of AdX and DFP offers benefits when they are used together. DoubleClick for Publishers (DFP) is the industry’s leading publisher ad server and has been owned by Google since 2008. It is also referred to as Google Ad Manager. Google ad exchange, or AdX, matches buyers and sellers of ads, and it controls 56 percent of the global market and 47 percent of the US market. The judge asked Teitelbaum if he agreed there should be evidence that there was significant advantage to integration. She proposed a hypothetical situation in which Google had a widget that was the “absolute best,” for which customers would pay any amount. Teitelbaum replied that the tech giant didn’t make the best widget but that Google has pulled a variety of levers to force customers to buy the widget even though they didn’t like it very much,” Teitelbaum said. Brinkema also found the DOJ’s argument sparse in outlining why Google Ads was so detrimental, and asked the government to elaborate. Teitelbaum said Google Ads is the anticompetitive tie between DFP and AdX and when Google took away pricing floors from different exchanges during ad auctions, it took away publishers’ and advertisers’ ability to make better deals. “Google is not a defendant in this case because of its size,” the DOJ lawyer said. The government isn’t trying to force sharing or engage in central planning of a product but rather is trying to hold Google accountable for its “rapacious conduct.”
— Chat destruction —
During closing arguments, Dunn said the government hasn’t proved anticompetitive conduct and instead has been picky with sentences from evidence to make its case. Brinkema immediately interjected, saying Google itself has had a problem of keeping “history off” on internal chat communications among employees. The judge noted that US District Judge Amit Mehta of the District of Columbia — who recently found in a separate DOJ lawsuit that Google illegally monopolized the market for Internet search and search text ads — has said the evidence destruction doesn’t matter, “but it’s out there.” “You are close to dangerous territory because we don’t know all that [Google employees] were thinking or saying,” Brinkema said. The DOJ and states have filed a motion for adverse inference and sanctions against Google for allegedly having trained its employees to “communicate with care.” The practice of using chats that automatically delete within 24 hours has resulted in staff concealing discoverable communications, the DOJ said. The DOJ also alleged inappropriate uses of attorney-client privilege. Brinkema previously said that “this record creates a very serious problem for Google,” and opted for a “wait and see” approach on the request for an adverse inference (see here).
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Apple outlines defense against UK mobile browser antitrust concerns
Apple said that it rejects in particular the CMA’s findings regarding its Safari browser — which competes with rivals such as Google’s Chrome and Mozilla‘s Firefox — and regarding its browser engine WebKit and “in-app browsing” on its iOS mobile operating system.
The CMA found, first, that Apple specifies that mobile browsers in the UK must use WebKit, which limits the “extent to which competitors can differentiate their browsers and offer enhanced features to iOS users.” Second, it said Apple has “withheld access or has delayed giving” competing browsers using WebKit the same level of access and functionality as Safari — which it said accounts for 88 percent of mobile browsers on iOS in 2024. The CMA also pointed to concerns over in-app browsing, where web content is displayed while a user is still inside another app, for example, a social media or online marketplace service. MLex understands that some of Apple’s core defense arguments focus on user choice of third-party browser options through the App Store, which, the company argues, compete with Safari. Apple argues that this choice architecture, built into its operating system policies, offers competitive dynamics. In addition, Apple also focuses on the ability of users to change the default browser through iPhone settings.
Apple is also focusing its rebuttal arguments on the operation and role of WebKit in iOS, MLex understands. It will argue that the engine is an open-source web content code generator for all browsers and applications, and one that implements key security and privacy technologies for web browsing on iOS devices. Apple’s arguments to the UK regulator also include that WebKit offers user benefits through performance metrics such as power efficiency.
— Apple focus and market concerns —
Mobile browser markets are “not working well for UK businesses and millions of phone users,” the CMA said in its findings. “Apple’s policies are holding back innovation in the browsers we use to access the web on mobile phones,” it said. “Most concerns that have been identified relate to Apple’s policies.” It said Apple’s rules “restrict other competitors from being able to deliver new, innovative features” that could benefit consumers. Other browser providers, it said, have highlighted concerns that they have been “unable to offer a full range of browser features, such as faster webpage loading on iPhone.” “We have heard widespread, detailed and compelling evidence that the rules Apple sets due to its control of the iOS operating system limit the ability of mobile browsers other than Apple’s Safari to provide more innovative, differentiated features,” the CMA said. In addition, the enforcer provisionally found that a revenue-sharing agreement between Google and Apple significantly reduces financial incentives to compete in mobile browsers on Apple’s iOS mobile operating system.
the CMA said third-party browsers and browser engines have “struggled to gain significant footholds” in the relevant markets, as shown by low shares of supply. It also said there are low levels of switching between browsers, with just 16 percent of UK users having downloaded a different mobile browser from the one which came pre-installed with their phone.
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(November 26, 2024, 01:03 GMT | Insight) — The Brazilian Administrative Council for Economic Defense has granted partial approval of Mercado Livre’s preventive measure directed at Apple’s App Store policies, saying the policies create barriers to competition in the iOS ecosystem. CADE ordered Apple to cease applying restrictive clauses in its Apple Developer Program License Agreement and App Store Review Guidelines. In December 2022, Mercado Libre Argentina filed complaints in Brazil and Mexico accusing Apple of illegally dominating the market for IOS applications in its App Store. Since then, CADE has investigated the case and now has filed an administrative procedure against the Big Tech giant. CADE’s analysis concluded that Apple’s practices could effectively block competitors in the markets for app distribution, digital goods and in-app payment systems on iOS. Such practices “are capable of causing irreparable or difficult-to-repair harm not only to app developers, who are currently unable to distribute a wider range of digital products and services, but also to iOS users who are deprived daily, as long as such restrictive policies remain in force, of access to a more diversified range of goods, digital services, features and benefits, which could otherwise be offered in a scenario of robust competition in the affected markets,” CADE said.
— Mercado Livre’s request; CADE’s analysis —
Mercado Livre asked CADE to order Apple to allow ML “to sell, within its iOS application, general digital goods and services, including those made available or consumed in third-party apps.”
“Apple is already required to adopt, in other jurisdictions, similar adjustments to those requested in this preventive measure due to explicit legal provisions., CADE said, stating that “there is no evidence that these modifications, implemented to comply with legislation, pose irreparable risks to Apple’s business viability or bring negative impacts to app developers or iOS users,” as the company argued.
CADE said granting the preventive measure “will not create excessive burdens or irreversible obligations for Apple. It will simply extend to the Brazilian market some of the requirements already implemented in various European Union countries under the Digital Markets Act.”
— CADE’s decision —
CADE ordered Apple to cease, until a final decision on the case, enforcing several clauses from the Apple Developer Program License Agreement and App Store Review Guidelines. These clauses include restrictions preventing developers from: informing users about alternative ways to purchase products outside of in-app purchases; embedding buttons or links in apps that direct users to external purchasing options; distributing their iOS apps through means other than the App Store, such as sideloading or alternative app stores; and contracting Apple’s App Store distribution services without simultaneously using its In-App Purchase system.
“The approval of this measure, as currently outlined, will give developers and iOS users other options, allowing them the freedom of choice — currently denied — regarding distribution channels and payment processing systems for in-app purchases,” CADE said.
The authority also mandated that Apple provide mechanisms in Brazil within 20 days to offer additional app distribution and payment processing options and to publish the full decision on its website and formally communicate it in writing to iOS app developers.
£45M SEC FINE TO PLC FOR IMPROPERLY VALUING BUSINESS UNIT
UPS, the fabled courier-delivery service whose fortunes have been sinking as Amazon’s have been rising, agreed to pay $45 million to settle US SEC charges that it committed accounting violations in valuing one of its worst performing businesses. UPS was trying to sell that business, UPS Freight, and eventually did so after misrepresentations to investors regarding the unit’s earnings and other reported items and activities, the agency said. At the heart of the case is UPS’s obligations to stick to the “fair value” estimate of an asset when selling it in an orderly transaction between market participants, the SEC said. UPS determined in 2019 that UPS Freight, which transported less-than-truckload shipments, was likely to sell for no more than about $650 million. But UPS relied on an outside consultant’s valuation of UPS Freight — at about $2 billion — without giving the consultant necessary information to conduct a fair valuation of the business, the SEC alleged.
— 2020 —Also, the SEC’s order alleges that in 2020 UPS entered into a non-binding term sheet to sell UPS Freight for $800 million with adjustments to be made later that were likely to reduce the final price. Despite its own analysis and its entry into this term sheet, UPS relied again on a consultant’s valuation of UPS Freight to support not impairing the business’ goodwill. UPS also did not inform the consultant of the term sheet.
-2019- the SEC said, the consultant relied on assumptions from UPS that were clearly not ones a prospective buyer would make.
“Like the prior year, had UPS properly valued Freight and impaired goodwill, its earnings and other reported items would have been materially lower,” according to the SEC (see here). UPS sold the business to TFI International for $800 million in 2020.
UPS neither admitted nor denied the allegations. A UPS spokesperson said today that the settlement amount “had previously been fully accrued in our financial statements, and the settlement will not have a material effect on our business, financial condition, results of operation, or liquidity. The investigation with respect to UPS has concluded.”