CCI | Google faces penalty of Rs. 1337.76 crores for abusing its dominant position in multiple markets in the Android Mobile Device Ecosystem; Cease and Desist order issued

Competition Commission of India: The Commission Bench comprising of Ashok Kumar Gupta (Chairperson), Sangeeta Verma and Bhagwant Singh Bishnoi (Members) in a significant 293-page ruling, imposed a heavy penalty on Google of Rs. 1337.76 crores for abusing its dominant position in multiple markets in the Android Mobile device ecosystem thereby contravening Sections 4(2)(a)(i), Section 4(2)(b)(ii), Section 4(2)(c), Section 4(2)(d) and Section 4(2)(e) of the Competition Act.

The Commission exercising its powers under Section 27 of the Competition Act, also directed Google to cease and desist from indulging in anti-competitive practices that have been found to be in contravention of the provisions of Section 4 of the Competition Act.

Background of the Case

The informants stated that Android is an open-source mobile OS i.e., it can be freely used and developed by anyone. Android Open Source Project (AOSP) is the fundamental Android source code subject to a basic license. Majority of smartphones and tablet manufacturers in India were stated to use the Android operating system in combination with a range of Google’s proprietary applications and services i.e., the Google Mobile Services (GMS) – a collection of Google applications and Application Programme Interface (APIs) that help support functionality across devices like Google Maps, Gmail, and YouTube which are available only through GMS and cannot be downloaded separately by device manufacturers. In order to obtain the right to install these applications and services on their Android devices, manufacturers need to enter into certain agreements with Google. The Informants also alleged that end-users cannot avail such services directly.

The informants alleged that depending upon which “Android” device OEMs/ device manufacturers want to offer, they have to sign one or more agreements i.e.,

(a)Android without GMS: If an OEM wants to manufacture a ‘bare” Android device, it needs to only pass technical tests and accept the Android License Agreement but in bare Android devices, OEMs are not permitted to include any of the GMS such as Google Maps, Gmail and YouTube.

(b)Android with GMS: In order to obtain GMS, an OEM has to enter into two additional agreements with Google (i) Mobile Application Distribution Agreement (“MADA”) and (ii) Anti Fragmentation Agreement (“AFA”).

Allegations: The informants made the following allegations—

• Google mandates smartphone and tablet manufacturers to exclusively pre-install Google’s own applications or services in order to get any part of GMS in smartphones manufactured in/ sold in/ exported to/ marketed in India. Such conduct was claimed to have hindered the development and market access of rival mobile applications or services thereby violating Section 4 read with Section 32 of the Act.

• Google ties or bundles certain Google applications and services distributed on Android devices in India with other Google applications, services and/ or Application Programming Interfaces (APIs) of Google. This conduct illegally prevents the development and market access of rival applications and services.

• Google prevents smartphone and tablet manufacturers in India from developing and marketing modified and potentially competing versions of Android (so-called “Android forks”) on other devices.

The Director General investigated the allegations and concluded that pre-installation of entire GMS suite under MADA amounts to imposition of unfair condition on the device manufacturers. It was further concluded that Google by making pre-installation of Google’s proprietary apps (particularly Google Play Store) conditional upon signing of AFA/ ACC for all Android devices manufactured/ distributed/ marketed by device manufacturers, reduced the ability and incentive of device manufacturers to develop and sell devices operating on alternative versions of Android, thereby limiting technical or scientific development to the prejudice of the consumers. Thus, Google had perpetuated its dominant position in the online search market resulting in denial of market access for competing search apps. The DG also found that Google’s behaviour amounts to the imposition of an unfair or discriminatory condition, limiting and restricting the technical and scientific development of apps to the prejudice of users, and in the denial of market access by Google in violation of Sections 4(2)(a)(i), 4(2)(b), and 4(2)(c) of Competition Act.

Google’s Stand

• Google stated that it makes the source code of Android available for free via the Android Open-Source Project (‘AOSP’) and under an open-source licence known as ‘Apache licence’ and the governance model of Android is run by Google, which determines the roadmap and decides on features and new releases as also tightly controls the compatibility of derivatives. The Commission noted that Google owns the IPR to the Android OS. As per the branding guidelines the name ‘Android’ and the Android logo, are property of Google LLC and not part of the assets available through the Android Open-Source Project. Since, Google operates/ manages the Android OS as well as licences its other proprietary applications and OEMs use this OS and Google’s apps in their smart mobile devices thus, they enter into multiple agreements to govern their rights and obligations like- Mobile Application Distribution Agreement (‘MADA’); Anti-fragmentation Agreement (‘AFA’); Revenue Sharing Agreement (‘RSA’) to name a few.

• Google stated that unlike other mobile platforms, Android allows competition within its eco system, thus promoting intra-brand competition whereby OEMs can customize and modify Android OS to create differentiated software and features.

• Google argued that DG’s Investigation Report failed to satisfy the Competition Act’s legal requirements to define a relevant product market. The DG erroneously ignored the constraint from Apple’s App Store, which competes head-to-head on innovation and quality with Google Play Store. It also denied the findings of the Investigation Report that app stores on non-Android platforms do not compete with Play because users do not switch away from Android devices due to switching costs moving to a non- Android device.

• Google also argues that the OS and app store can compete together as a system against other mobile OSs and App stores.

Observations of the Commission

The Commission while perusing matter noted that the allegation in the present matter primarily relates to the practices of Google w.r.t. licensing of Android mobile operating system and various proprietary mobile applications of Google and went on to elaborate the functioning of the Android OS ecosystem and Google’s activities in the same. The Commission made the following observations—

• It was noted that Operating Systems (OSs) are complex software products that control the basic functions of the device on which it is installed and enabling the users to use their device easily. The Commission noted that the DG expertly distinguished between OSs for personal computers vis-à-vis smart mobile devices to assess whether they belong to same relevant market. Commission further noted that smartphone OSs and tablet OSs belong to the same product market due to similarity in device architecture. It was thus held that all licensable smart mobile deice OSs are part of the same relevant market; however, non-licensable OSs do not belong to the same relevant market as that of licensable OSs.

• Google has an important influence in the development of Android OS as it does most of the development of the source code of the Android platform for which Google has admitted having invested a substantial amount of money. The Commission also noted the need to have a Google Account is the only option for the users to avail various services of Android OS.

• The Commission noted that no new OS developer has been able to enter the market of licensable smart mobile OS in the last five years. On the contrary, the exit of Microsoft’s Windows Phone OS the market in 2016 and inability of Amazon’s Fire OS to make any footprint in the Indian market has further consolidated the market power of Android OS thereby leaving the OEMs much more dependent on Google. Mobile handset manufacturers are fully dependent on Google’s Android and are not in a position to either develop or promote entry of any alternative OS developer which could threaten Android OS. Smart device ecosystem of Apple and Google have emerged as the two major mobile ecosystems, former being non-licensable and closed source whereas latter being licensable and open source. The end consumer is locked-in to the OS and faces substantial switching costs, primarily in terms of cost of new smart device.

• Appreciating the market dynamics, the Commission observed that evident that Google’s Android OS has successfully reaped the indirect network effects that characterize the market of operating systems and relevant factors that define competition landscape, in unison, indicate that the relevant market of licensable mobile operating systems in India has tipped in favour of Google Android OS.

• The Commission noted that app stores for (a) other licensable smart mobile OSs viz. Microsoft Windows Phone OS, and (b) non-licensable smart mobile OSs viz. Apple’s AppStore for iOS, do not belong to the same product market as that of app stores for Android OS.

• Commission observed that within an ecosystem, the app developers prefer to focus on the development of apps for an app store which can facilitate reaching out to maximum number of users on Android OS. Given the sheer scale secured by Google for itself through pre-installation on virtually all of the Android devices has prompted to app developers to devote their resources in developing apps compatible with Play Store. It was further observed that Given the fact that Google’s Play Store offers highest number of apps and also offers a greater quality of apps, the Android device user seems to have a preference for Google Play Store and consider it as a ‘must have’ app. Thus, the preference of the user also reinforces the dominant position of Googly in the relevant market for app stores for Android OS in India.

• It was observed that Google determined RSAs not only indicate inadequate bargaining power of OEMs vis-à-vis Google, but the quantum of payments made under RSAs by Google to the OEMs also operate as an entry barrier for the competing search engines. It clearly demonstrates that other competitors are in no position to match Google in terms of revenue share offered to avail pre-installation of their respective search services.

• The Commission noted that Google has made huge investments to develop its Online Video Hosting Platform i.e., YouTube to bring it to a position of dominance. After a detailed analysis of the data and evidences provided in this respect, it was observed that YouTube enjoys a dominant market share, and the customer/ user of the Android smart phones continue to have status quo bias in favour of pre-installed app i.e., YouTube in India.

Findings by the Commission: With the afore-stated observations the Commission determined the following—

• Regarding Relevant Market, the Commission stated that there are 5 relevant markets in the instant matter- Market for licensable OS for smart mobile devices in India; Market for app store for Android smart mobile OS in India; Market for general web search services in India; Market for non-OS specific mobile web browsers in India and Market for online video hosting platform in India.

• The Commission also found Google to be Dominant in all the afore-stated relevant markets.

• It was found that the conduct of Google of tying Play Store with Google Chrome significantly restricted competition in the relevant market(s) by foreclosing distribution channels for rivals and thereby, deterring their incentive to innovate and offer choice to users.

• The Commission further found that the restrictions imposed vide various clauses of AFA/ ACC are unreasonable and disproportionate in scope and has resulted in foreclosure of its competitors in OS market.

Conclusions Drawn: The Commission observed that competition is about experimentation, failures, successes and choice, Google’s role of a referee for the Android ecosystem is at best paternalistic but its anti-competitive harm cannot remain unchecked as innovative response of competitors is stymied by Google’s conduct.

• MADA, AFA/ ACC and the RSAs impose various restrictions on the signatory OEMs. The Commission is of the view that various covenants under these agreements cannot be examined in silos i.e., one agreement at a time. These agreements operate in tandem and the interplay between these agreements has manifested multiple anti-competitive outcomes in the markets.

• Mandatory pre-installation of entire GMS suite under MADA (with no option to un-install the same) and their prominent placement amounts to imposition of unfair condition on the device manufacturers.

• Google has perpetuated its dominant position in the online search market resulting in denial of market access for competing search apps.

• Google has leveraged its dominant position in the app store market for Android OS to protect its position in online general search.

• Google has leveraged its dominant position in the app store market for Android OS to enter as well as protect its position in OVHPs market through YouTube.

• Google, by making pre-installation of Google’s proprietary apps (particularly Google Play Store) conditional upon signing of AFA/ ACC for all android devices manufactured/ distributed/ marketed by device manufacturers, has reduced the ability and incentive of device manufacturers to develop and sell devices operating on alternative versions of Android.

Important Remedial Measures-

• OEMs shall not be restrained from (a) choosing from amongst Google’s proprietary applications to be pre-installed and should not be forced to pre -install a bouquet of applications, and (b) deciding the placement of pre-installed apps, on their smart devices.

• Licensing of Play Store (including Google Play Services) to OEMs shall not be linked with the requirement of pre-installing Google search services, Chrome browser, YouTube, Google Maps, Gmail or any other application of Google.

• Google shall not deny access to its Play Services APIs to disadvantage OEMs, app developers and its existing or potential competitors.

• Google shall not impose anti-fragmentation obligations on OEMs, as presently being done under AFA/ ACC.

• Google shall not restrict un-installing of its pre-installed apps by the users.

• Google shall allow the developers of app stores to distribute their app stores through Play Store.

[Umar Javeed v. Google LLC, Case No. 39 of 2018, decided on 22-10-2022]

Advocates who appeared in this case :

For Google— Dr. Abhishek Manu Singhvi and Mr. Arun Kathpalia, Senior Advocates with Mr. Sameer Gandhi, Ms. Hemangini Dadwal, Mr. Ravisekhar Nair, Mr. Toshit Shandilya, Mr. Parthsarathi Jha, Mr. Mohith Gauri and Ms. Atish Ghoshal, Advocates along with Ms. Auraellia Wang, Mr. Thomas Bohnett and Ms. Aditi Gopalkrishnan

*Sucheta Sarkar, Editorial Assistant has prepared this brief.