EU’s Google ruling cranks up tension with big US firms

Wednesday's decision by the European Commission to charge Google with abusing the dominance of its Android operating system marks the latest attempt by EU regulators to clamp down on multinationals.

In a world in which the EU is often accused of being too wrapped up in empty bureaucracy, the commission’s competition arm is one area where the EU has real teeth.

As companies such as Ryanair know too well in the wake of three failed attempts to buy Aer Lingus, the competition division is immensely powerful. Its binding anti-trust decisions can make or break multimillion euro mergers if it perceives that the interests of companies or EU consumers are being undermined by unfair market practices.

It is the power of EU competition law that so worries authorities in Dublin as the Government awaits the outcome of the EU investigation into Apple's tax dealings with Ireland: by treating the US company's dealings with the Irish tax authorities as a state aid matter rather than a taxation issue per se, the EU is deploying one of its most powerful tools.

Adverse ruling

Corporate tax rates may remain the competency of member states, but an adverse competition ruling will have to be respected, even if Ireland and the company in question appeal the judgment to the European Court of Justice.

Wednesday's announcement by competition commissioner Margrethe Vestager follows a year-long investigation. In its statement of objections sent to Google, the commission accuses it of abusing its market dominance by preinstalling apps on the Android devices it sells in Europe, while also preloading Google Search as the default search engine in some cases. This prohibits other companies, particularly those designing apps, to access the market, the commission argues, while also giving less choice to consumers.

The Danish commissioner put it succinctly in a speech on Monday: “By requiring phone makers and operators to preload a set of Google apps, rather than letting them decide for themselves which apps to load, Google might have cut off one of the main ways that new apps can reach customers.”

Google hit back, saying its model helps to keep the costs low for phone manufacturers using the Android system, as it allows smartphone manufacturers to use its system for free. Google also points out that rival apps such as Facebook and Amazon can operate on the Android system.

This week’s charge is the second competition case launched by the commission against Google in recent years. Its investigation into whether the company is favouring its own shopping services through the dominance of its search engine is still continuing.

The EU's actions against Google are far from its only incursion into the realm of US tech multinationals. It's more than a decade since the commission took a landmark competition case against Microsoft, accusing it of abusing its dominance of PC operating systems by forcing consumers to use Window Media Player.

The case led to more than €2 billion in fines for Microsoft and was seen as an early indication the EU was ready to take on competition issues presented by the rapidly-changing technology sphere. Just as the EU was ready to protect consumers and small companies from the dominance of companies in other sectors, so too was it ready to stand up to digital monopolies.

Clampdown

But the Google case is being seen by many in the US as part of a deeper and worrying phenomenon – a clampdown on US multinationals by the EU. The various state aid cases taken against firms including Amazon,

Starbucks

and

Apple

by the European Commission prompted an unprecedented intervention by US treasury secretary

Jack Lew

in February, in which he accused the EU of bias against US companies in a letter to commission president Jean-Claude Juncker.

President Barack Obama has openly accused the EU of protectionism in its treatment of US tech companies.

Bound up with this are recent tensions between the EU and US on data protection. The striking-down by the European Court of Justice of the “Safe Harbour” agreement that governs transatlantic data transfers was a major victory for EU privacy campaigners.

For Ireland, none of this is good news, as the European headquarters for many US tech multinationals Ireland are treading a fine line between maintaining allegiance to US companies and acknowledging the data privacy and tax justice concerns of EU members.

As long as US companies continue to dominate the technology world, it is a balancing act that is likely to continue in the years to come.