The subject of “predatory innovation” in the Google hearing (T-621/17)

The background story

It all started on Wednesday, February 12, 2020. ALL? The (first) Google hearing, of course. It has been a long wait, but hopefully worth it. Previously on the Google Saga, the European Commission has announced the decision (in June 2017), has published it (in December of the same year), and ever since, has fined Google two more times. An appeal has been lodged in all three cases, and the General Court has published the report of the first hearing two days ago (link). I have decided to add my voice to the noise surrounding the case.

The truth is, I would be tempted to write (again) about the absence of substantial analyses related to consumer welfare (the EC is making the point that less choice = always bad for consumers, when in fact, behavioral studies show that it is way more complicated than that), or, about the standard of proof and “potential” effects (when the EC is sanctioning “new” kind of practices, why not requiring it to PROVE that they really are harmful rather than just discussing potential effects?!). Instead, I will focus on the “first part of the fifth plea in law: the practices in issue are qualitative improvements within the scope of competition on the merits and cannot be classified as abusive” (¶ 307 to 328).

The issue at stake

This fifth plea is about (potential) predatory innovation, although it is not naming it as such. I see two points here. One, the European Commission had a hard time grasping related practices. As underlined by Google (supported here by CCIA), the EC has used the term leveraging to qualify the practices while it is indeed “an ‘umbrella’ term covering different types of abuse” (¶ 328). These particular practices are (potential) predatory innovations, a term that one could define as “the alteration of one or more technical elements of a product to limit or eliminate competition” (link). Putting names of things helps in understanding them; after all, “what is well understood is clearly stated” (Nicolas Boileau, 1674).

Two, I find the legal assessment of these practices to be unsatisfactory, on both sides. For one thing, Google defends that its practices are “qualitative improvements” (¶ 307), and that it has a “right ‘to compete better’ by improving the quality of its technologies and its specialised product search and product ad services” (¶ 309). No one would disagree with that last statement, but it gets trickier. Google adds indeed that “the claim that [it] engaged in favouritism (…) [does] not change the fact that its grouped product results and product ads improved the quality of its general search service” (¶ 310). In short, Google is arguing that, overall, because these different modifications improved its services, they should be deemed legal. This is what I call the “package” analysis.

Meanwhile, the European Commission, supported by the German Government, argues the exact opposite, underlining that “improvement in a service does not prevent that improvement constituting abuse of a dominant position” (¶ 319). Here, the “package” is deemed illegal because it allegedly contains anti-competitive modifications. The same reasoning already appeared in the European Commission’s decision in which it held that “[t]here is no indication in the case law that alleged improvements in product designs should be assessed under a different legal standard to that developed to assess the use of a dominant position on one market to extend that dominant position to one or more adjacent markets.” (¶ 652) It showed the Commission’s willingness to qualify alleged improvements as potential anti-competitive practices when their overall effect is deemed negative, without further trying to distinguish between the two.

A “law and technology” approach

This is not satisfying. As I have argued elsewhere (link), modifications made to digital products and services are often more readable than they are with non-digital products and services. Indeed, the exact purpose of each line of code is identifiable, and as a consequence, any modification made to the code can be analyzed individually, on its own merits.

Sure, one single modification of the code may sometimes improve the product and create an anti-competitive effect, all at once. In such cases, I believe the “package” argument still holds and that the modification should be deemed legal if it improves the product in any way. But generally speaking, each alteration of the code has a purpose that can be distinguished from other modifications. In such cases, the “package” argument should be rejected in favor of careful and elaborate analysis (see the graph below).

In the Google case before the General Court, it all comes down to evaluating this statement: “Google reiterates that it could not have included the results of competing comparison shopping services in Product Universals without affecting the quality of its service” (¶ 328). If true, then the “package” argument holds in favor of Google. If untrue, “the package” argument does not hold and a distinction between product improvements and product display & placement has to be made. In short, when the European Commission said in its decision that “the abuse established by this Decision concerns simply the fact that Google does not position and display in the same way results from Google’s comparison shopping service and from competing comparison shopping services,” (¶ 662) the issue is whether Google behaved this way because it wouldn’t have been otherwise possible to improve its product the way it did, or if the behavior had an anti-competitive purpose distinct from the improvements.

Let’s bring a “law & technology” approach to the table!

Dr. Thibault Schrepel
@LeConcurrential

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For more on predatory innovation, see:

Graph taken from Thibault Schrepel, The “Enhanced No Economic Sense Test”: Experimenting With Predatory Innovation,
7 N.Y.U. J. INTELL. PROP. & ENT. L. 30, 53 (2018)