(Not) a happy new year?

We have blogged about recent cases involving big tech here and here. With its first press release this year, the Bundeskartellamt found that Alphabet/Google has a “paramount significance across markets”. In this post, we provide an outlook on the potential implications this decision might have in the future.

Many people (and companies) start the new year with joyful anticipation. Disillusionment usually sets in (only) after a few weeks. For Alphabet/Google, it might have been quicker this time since the Bundeskartellamt determined at the beginning of January (while the New Year’s hangover still lasted) that Alphabet/Google has a “paramount significance across markets”. A decision which might have significant consequences for the company.

“Paramount significance across markets” – what is that again?

As a reminder: In January 2021, Germany amended its competition law. Among other things, the so-called “Digitalisation Act” introduced new tools to control the market power of large digital corporations. The centrepiece of the reform was the new Section 19a of the German Act Against Restraints of Competition, which provides the Bundeskartellamt with far-reaching powers vis-à-vis undertakings with a “paramount significance across markets”.

Section 19a is applied in a two-stage procedure:

  • In a first step, the Bundeskartellamt must determine that an undertaking is of “paramount significance across markets”. Such a decision is valid for five years from the date on which it becomes final.
  • In a second step, the Bundeskartellamt can then prohibit certain practices specified in the law. The investigation into whether a company engages in such prohibited practices may be conducted in parallel with the investigation into whether the company has a “paramount significance across markets”.

In determining the “paramount significance of an undertaking for competition across markets”, the Bundeskartellamt should – according to the law – take into account whether the undertaking in question has a dominant position on one or several market(s), its financial strength or its access to other resources, its vertical integration and its activities on otherwise related markets, its access to data relevant for competition and the relevance of its activities for third party access to supply and sales markets, and its related influence on the business activities of third parties. One of the key advantages over the established tools of market dominance is that the relevant markets do not have to be finally decided. Still in 2021, the Bundeskartellamt made use of its new tools and initiated proceedings against Alphabet/Google, Apple, Meta/Facebook and Amazon (formerly briefly referred to as “GAFAs”, but no longer quite appropriate after various renamings) in order to determine whether they had a “paramount significance across markets”.

Why Alphabet/Google as a company with “paramount significance across markets”?

The Bundeskartellamt found that Alphabet/Google holds a share of more than 80% on the market for search engines in Germany and thus has a dominant position on this market. According to the regulator, Alphabet/Google is also the main provider for search advertising. The Bundeskartellamt held that the company has significant influence over the access of other companies to a wide range of customers via its digital ecosystem consisting of GoogleSearch, Youtube, Android, Play Store and its advertising services, allowing Alphabet/Google to set rules and conditions for businesses across markets. According to the Bundeskartellamt, Alphabet/Google’s digital ecosystem allows it to collect large amounts of data relevant to competition. Last but not least, the regulator mentioned that the company’s large financial resources contributed to its “paramount significance across markets”.

So, what does this mean for Alphabet/Google?

Alphabet/Google has already announced that it will not appeal the decision (remarkably, cited in the Bundeskartellamt’s press release). Thus, at least for the next five years, the company will have the status as a company with “paramount significance across markets”, allowing the Bundeskartellamt to restrict certain practices, unless Alphabet/Google can show that such practices are objectively justified.

Two corresponding proceedings are already ongoing:

  • When the Bundeskartellamt initiated proceedings to determine whether Alphabet/Google had a “paramount significance across markets”, it also opened proceedings to determine whether the company makes the use of services conditional on the user agreeing to the processing of data from other services without giving the user sufficient choice as to whether, how and for what purpose such data is processed. This would be a restricted practice under Section 19a. The key question will be whether the users have sufficient choice to limit the data processing within Alphabet/Google’s digital ecosystem. In case the Bundeskartellamt comes to the conclusion that consumers do not have sufficient choice, the regulator will most likely require the company to change its data policies.
  • In June 2021, and following a third-party complaint, the Bundeskartellamt initiated another investigation concerning Alphabet/Google’s News Showcase service. With the News Showcase service, Alphabet/Google enables publishers to present news content more prominently. The content providers receive a financial compensation. The Bundeskartellamt admits that the service can be an attractive option for publishers to increase their reach. At the same time, the regulator has concerns that it may lead to discrimination against individual publishers. In addition, the Bundeskartellamt worries that comparable offers by other companies will be forced out of the market. It is particularly critical of the integration of the News Showcase service into Google’s general search results and could see this as an – for companies with a “paramount significance across markets” – unlawful form of self-preference within the meaning of Section 19a. The Bundeskartellamt is also investigating whether the conditions for participation in the service are particularly disadvantageous for the content providers and, in particular, make it overly difficult for them to enforce their copyrights. News Showcase was also subject to disputes in Australia and France, which inter alia led to Google initially not launching (and ultimately delaying the launch of) the service in Australia.

What will 2022 bring for Alphabet/Google?

With this decision in the first week of January, the Bundeskartellamt once again shows that it does not want to lose any time in making use of its new tools. Various statements by the Bundeskartellamt from last year also show that the proceedings against big tech have top priority. They will have to be prepared for the regulator pressing ahead quickly with the ongoing proceedings, possibly also in order to take action before the Digital Markets Act is introduced at EU level. It will be interesting to see how the cases will proceed – anything seems possible, from confrontational to cooperative.