Google Appeals To Supreme Court Against NCLAT Order Upholding Rs. 1337.76 Crores Penalty Imposed By CCI

The tech giant Google has filed an appeal before the Supreme Court, challenging the order dated 29.03.2023 passed by the National Company Law appellate Tribunal (“NCLAT”), New Delhi, whereby the imposition of Rs. 1337.76 Crores penalty on Google by the Competition Commission of India (“CCI”) was upheld. Google has been penalized for abusing its dominant position in the Android OS app store market, which resulted in denial of market access for competing search apps.

BACKGROUND FACTS

Google LLC (formerly Google Inc.) is a Delaware limited liability company and wholly owned subsidiary of Alphabet Inc. Google provides a variety of information technology related services and an internet search service. Google’s core business activities are Chrome, Gmail, Google Drive, Google Maps, Android, Google Play, Search, and YouTube. Google India Private Limited (“Google India”) is an indirect subsidiary of Google LLC.

Smart phones require an operating system to run the applications and programs. Android being one such mobile operating systems, was acquired by Google in 2005. The consumers of Android based smart phones filed a complaint against Google LLC and Google India under Section 19(1)(a) of the Competition Act, 2002, alleging abuse of dominant position by Google in the mobile Operating System markets.

CCI VERDICT

The Competition Commission of India (“CCI”) while adjudicating the complaint in Mr. Umar Javeed & Ors. v Google LLC & Anr., Case No. 39 of 2018, examined Google’s Android mobile operating system and proprietary mobile applications such as Play Store, Google Search, Google Chrome, YouTube, etc.

Google submitted that it was facing competitive constraints from Apple. The CCI noted the differences in the business model of Google’s Android and Apple’s iOS ecosystem. While Apple’s business focuses on sale of high-end smart devices with state-of-the-art software components, Google’s business focuses on increasing users on its platforms so that they interact with its revenue earning service. The Bench opined that there is no substitutability between Google’s Play Store and Apple’s App Store.

It was observed that Google manages the Android OS and licences its other proprietary applications. The Original Equipment Manufacturers (“OEMs”) use this OS & Google’s apps in their smart mobile devices. Google enters into multiple agreements to govern their rights and obligations viz. Mobile Application Distribution Agreement (MADA), Anti-fragmentation Agreement (AFA), Android Compatibility Commitment Agreement (ACC), Revenue Sharing Agreement (RSA), etc.

“MADA assured that the most prominent search entry points i.e., search app, widget and chrome browser are pre-installed on Android devices, which accorded significant competitive edge to Google’s search services over its competitors. Further, Google also secured significant competitive edge over its competitors, in relation to its another revenue earning app i.e. YouTube in the Android devices. The competitors of these services could never avail the same level of market access which Google secured and embedded for itself through MADA. Network effects, coupled with status quo bias, create significant entry barriers for competitors of Google to enter or operate in the concerned markets.”

The CCI held that mandatory pre-installation of entire Google Mobile Suite (GMS) under MADA, with no option to un-install the same, and their prominent placement amounts to imposition of unfair condition on the device manufacturers. Thus, Google violated Section 4(2)(a)(i) of the Competition Act.

The CCI concluded that Google perpetuated its dominant position in the online search market, resulting in denial of market access for competing search apps. Further, Google abused its dominant position in the Android OS app store market, to protect its position in online general search.

On 20.10.2022, the CCI by invoking its powers under Section 27 of the Competition Act, had imposed monetary penalty of Rs. 1337.76 Crore on Google for abusing its dominant position in multiple markets. The Bench further issued a cease-and-desist order against Google from indulging in anti-competitive practices that have been found to be in contravention of Section 4 of the Competition Act. Google was also directed to modify its conduct within a defined timeline.

In January 2023, Google filed an appeal before the NCLAT, challenging the Order dated 20.10.2022 passed by CCI imposing a penalty of Rs. 1337.76 Crore on Google.

PROCEEDINGS BEFORE NCLAT

During the course of arguments, Google LLC submitted that the CCI’s order was based on a similar order passed by the European Union in 2018 and thus suffered from confirmation bias. On the other hand, CCI regarded Google’s policies in India as digital feudalism, digital slavery, consumer exploitation, technological captivity and chokepoint capitalism. CCI further argued that Google captures 98% of the smart phone market and hence any violation of Competition Law on its part would attract action by the CCI.

On 29.03.2023 the NCLAT Bench dismissed the Google’s appeal and upheld the penalty of Rs. 1337.76 Crores imposed on Google. The Bench observed that the CCI’s investigation into Google's conduct was not violative of principles of natural justice.

However, certain directions of the CCI were set aside by the NCLAT, which are as under:

• Google shall not deny access to its Play Services APIs to disadvantage OEMs, app developers and its existing or potential competitors. This would ensure interoperability of apps between Android OS which complies with compatibility requirements of Google and Android Forks. By virtue of this remedy, the app developers would be able to port their apps easily onto Android forks.
• 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.
• Google shall not restrict the ability of app developers, in any manner, to distribute their apps through side-loading.

As on date, Google has filed an appeal before the Supreme Court, challenging the NCLAT order dated 29.03.2023. The matter is yet to be listed.