NCLAT upholds CCI’s Verdict Rs. 1,337.76 Crore fine on Google for Abuse of Dominant Position, Grants Partial Relief on Four Grounds

NCLAT upholds CCI’s Verdict Rs. 1,337.76 Crore fine on Google for Abuse of Dominant Position, Grants Partial Relief on Four Grounds

The National Company Law Appellate Tribunal (NCLAT) by its division member of Justice Ashok Bhushan (Chairperson) and Dr Alok Srivastava (Technical Member) while upholding the fine of Rs. 1,337.76 crore imposed by the Competition Commission of India (CCI) on Google for abuse of its dominant position in the Android Market, set aside four key directions issued by the Competition Commission.

The appeals filed by the two appellants- Google LLC and Google India Pvt. Ltd. (hereinafter referred to as ‘Google’) the order dated 20 October, 2022 passed by the Competition Commission of India (CCI).

The CCI by the impugned order had found Google to have abused its dominant position in contravention of the provisions of Section 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, 2002 (hereinafter referred to as ‘Act, 2002’). In terms of the provision of Section 27 of the Act, 2002, Commission 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 Act and directed certain measures to be taken by Google and further in exercise of power under Section 27 Sub-clause (b), CCI imposed penalty to the tune of INR 1337.76 Crore.

The brief facts of the case are that in the year 2008, Google’s Android was featured as an open-source licensable operating system for a smartphone. In the year 2009-10, Google signed Mobile Applications Distribution Agreement (MADA) with Original Equipment Manufacturers (OEMs) under which the OEMs get a suite of Google's apps. The OEMs also have to sign AntiFragmentation Agreement (AFA) which required OEMs to observe baseline compatibility standards. Google also signed Revenue Sharing Agreement (RSA) with OEMs.

Thereafter in 2015, European Commission (EC) initiated proceeding against Google’s Android licensing practices in Europe and before which authority, proceedings were initiated for infringement of Article 102 of the Treaty of the Functioning of the European Union. The EC took a decision on 18.07.2018 which found Google having abused its dominant position in the relevant market in the European Union. European Commission imposed penalty and fine on Google.

The Commission expressed its prima facie opinion in the order that mandatory pre-installation of entire GMS suite under MADA amounts to imposition of unfair condition on the device manufacturers and is thereby contravention of Section 4(2)(a)(i) of the Act.

The Commission held Google to be dominant in all relevant markets and was held to have abused its dominant position in contravention of provisions of 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 Act.

Senior Advocate Arun Kathpalia appeared for Google LLC and argued that CCI's order suffers from confirmation bias and is based on a similar order of the European Commission (EC) in 2018. The Counsel contended that the company's agreements do not prevent equipment manufacturers from pre-installing competing apps with similar functionality.

The Counsel rebutted the CCI finding that Google reduced the ability and incentive for manufacturers to develop and sell devices operating on alternative versions of Android by making pre-installation of Google's apps mandatory.

According to him, mere dominance in a market does not mean abuse of dominance, and the reason Google is popular among users is because of its effectiveness. Google is the most searched term on Bing, the search engine owned by Microsoft, Kathpalia said.

Appearing for CCI, Additional Solicitor General (ASG) N Venkataraman presented the CCI's case before the NCLAT.

ASG argued that Google's policies in India can be summarised up in five phrases: digital feudalism, digital slavery, technological captivity, chokepoint capitalism and consumer exploitation.

The ASG sharply pointed out that the companies that did not sign Google's contracts have gone extinct. NCLAT was told that all these agreements are linked to one another, and cannot be signed independently.

The ASG contended that Google abused its dominant position in the Android Operating System (OS) market to indulge in unfair trade practices by restricting entry of other applications in its Play Store.

It was further submitted by the ASG, that Google manages 98% control of the smartphone market in the country and if it is found to be violating competition laws, the competition watchdog has the duty to direct the tech giant to mend its ways.

Following issues came up for consideration before the bench of CCI:

Whether for proving abuse of dominant position under Section 4 of the Competition Act, 2002 any ‘effect analysis’ of anticompetitive conduct is required to be done? And if yes; what is the test to be employed?

The NCLAT while reverting to Section 4, Explanation to Section 4, sub-section (2) observed that the explanation clearly provides that unfair or discriminatory condition in purchase of sale of goods or service shall not include such discriminatory condition or price which may be adopted to meet the competition.

The bench observed that Section 4, thus, specifically excludes discriminatory conditions or prices, which may be adopted to meet the competition. For giving effect to statutory scheme as delineated in Explanation, analysis has to be undertaken as to whether discriminatory condition or price have been adopted to meet the condition or is anti-competitive.

In this regard it stated, “for proving abuse of dominance under Section 4, effect analysis is required to be done and the test to be employed in the effect analysis is whether the abusive conduct is anti-competitive or not.”

Whether pre-installation of entire GMS Suite amounts to imposing of unfair condition on OEMs which is an abuse of dominant position by the Appellant resulting in breach of Section 4(2)(a)(i) and 4(2)(d)?

The NCLAT noted that there was a condition that the OEM shall implement the “Home button animation” as per Google’s guidelines if Google Assistant is enabling on the Android device and also implement Google Hotword, if it is supported by the device. Thus, the conditions which were applied on OEMs through MADA which is essentially to provide Google Applications, are in the form of “supplementary obligations” attracting Section 4(2)(d) of the Act whose contravention is evident.

In this regard, the bench held that pre-installation of entire GMS Suite amounts to imposing of unfair condition on OEMs which is an abuse of dominant position by the Appellants resulting in breach of Section 4(2)(a)(i) and 4(2)(d).

Whether the Appellants by making pre-installation of GMS Suite conditioned upon signing of AFA/ACC for all Android Device Manufacturers (OEMs) has reduced the ability and incentive of the OEMs to develop and sell devices operating on alternative versions of Android i.e., Android Fork and thereby limited technical and scientific development which is breach of the provisions of Section 4(2)(b)(ii) of the Act?

The NCLAT concurred with the Commission’s view that it has correctly returned a finding that AFA/ACC results in less choice of smart mobile OS and general services by consumers.

Hence, it affirmed the issue at hand.

The NCLAT further observed that the appellant had perpetuated its dominant position in the Online Search Market resulting in denial of market access for competing Search Apps in breach of Section 4(2)(c) of the Act.

Thus, the bench set aside the following directions issued by the CCI in its order:

1. Google shall not deny access to its play services Application Programming Interface (APIs) to disadvantage Original Equipment Manufacturers (OEMs), app developers and its existing or potential competitors.

2. Google shall not restrict uninstalling of its pre-installed apps by the users.

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

4. Google shall not restrict the ability of app developers in any manner to distribute their apps through side-loading.

“CCI has carried out the “best estimation” on the basis of a financial statements and information submitted by Google. Therefore, we agree with the CCI’s decision to quantify the monetary penalties on the basis of data presented by Google,” stated the NCLAT.