The European Commission has delivered a damning antitrust verdict against Google’s comparison shopping service today and imposed a fine of €2.42 billion.

The decision, delivered by Commissioner Margrethe Vestager, relates to a breach of Article 102 of the Treaty on the Functioning of the European Union and can be more commonly referred to as ‘abuse of a dominant market position’.

When approaching this topic there are four specific elements that need to be considered. All of them must be present for a case to be proved:

1. The relevant market

What is the relevant market for Google in this context?

In cases concerning Article 102 the stance that is generally taken by the parties is that the Commission will narrow the relevant market as much as possible in a bid to emphasise dominance (see below) within a limited pool. On the other hand the company themselves will attempt to broaden the relevant market in their arguments to demonstrate that they are but one fish in a much larger sea.

With this in mind it may have been tempting for the Commission to compare Google with other comparison shopping services such as Nextag, shopping.com and Bing’s own shopping service under Microsoft. In this limited field it would have been very straightforward to show that Google occupies a huge and almost overwhelming chunk of the market.

This argument may well have held water and could have proved successful given that this is the precise service being scrutinised by the Commission. Nevertheless it appears that this may have been too risky a strategy for the EU and so they made the conscious decision to expand the relevant market to encompass ‘search engines’ as it is within the search results themselves that the abuse is taking place.

Let’s run an example to show what I mean.

I am in the market for a new pair of headphones and so decide to run a simple search for headphones on Google:

At the top of the first page in the most prominent position is Google’s comparison shopping service. Meanwhile it is only on page five that I eventually get to another such service that is not run by Google:

At the risk of making a rather obvious point, the higher search ranking that a site achieves on Google, the more likely a user is to click through to that page. In fact, according to the European Commission’s findings, 95% of all clicks are awarded to the results on the first page. Our price comparison service for headphones that lurks around on page 5 would be lucky to get even 1% of click-throughs.

Google, however, argues that this is not a fair comparison. In a blogpost from Kent Walker, Google’s General Counsel, it is suggested that a more appropriate comparison can be made with actual online merchants such as Amazon or eBay.

This argument has some credence. Walker himself does not provide evidence in this regard but from a purely anecdotal standpoint I, myself, am thinking about buying a new laptop. When I was considering my options last night I did use Amazon as a comparison tool. Indeed their website allowed me to filter along a range of lines including graphics cards, price, average rating etc.

There are, however, important distinctions to consider here.

Firstly if I had elected to buy a laptop last night as a result of my search then I would have been able to do it there and then from Amazon and had it delivered within a few days, again, using their service. This is not true of Google. Their links would have put me through to a specific vendor’s website and it is from them that I would have ordered the product.

Secondly the Google shopping comparison service is sponsored. Companies pay to have their products advertised there at the top of the Google search results. On Amazon this is not the case as any order is either fulfilled by Amazon themselves or by a third party who pay a referral fee to Amazon.

It is true that in terms of popularity Google’s shopping comparison service is perhaps comparable with eBay (see the image from an earlier Google blog) but there is a question of cause and effect here. In other words is the reason for Google’s comparable popularity because Amazon and eBay offer similar services or because all of the above appear on the first page of Google’s search results. I would suggest that Kent Walker and his legal team at Google may have a difficult time arguing for the former if this case goes to an appeal.

2. Dominance of that market

Dominance of a market does not mean more than a 50% share of any relevant market but instead refers to a dominant position compared to competitors.

Taking the EU’s definition of the relevant market (“search engines”) it is unsurprising to hear that Google is dominant. In fact according to the EU’s own work on this subject it was found that Google, as a search engine, has a more than 90% market share in almost all of the countries that constitute the EEA.

With this in mid it is not difficult to understand why Google want to shift the emphasis as to where the relevant market lies. When compared to other general shopping services such as Amazon and eBay their market share is much reduced and sits nicely in the middle of the pack.

3. Abuse of that dominance

The decision by the European Commission was that Google abused its dominant position by giving prevalence to its own shopping comparison service at the top of its search results.

Interestingly the Commission also made reference to the other side of the coin in this context and noted that the algorithm used by Google to rank search results discriminated against other shopping comparison services. This isn’t a necessary legal requirement under Article 102 but does serve to underline the abuse that the EU has perceived in Google’s behaviour.

Article 102 does list a number of abuses but this is deliberately a non-exhaustive list and so the fact that the current case does not really sit comfortably within any of those headings is not especially relevant.

4. Effect on trade between member states

This final requirement is given a broad definition and can normally be easily satisfied even where abuse only takes place within one member state as the Commission will consider secondary effects and will account for the fact that the main aim here is to protect competition in the markets.

Nevertheless the effects of Google’s practises have been felt across the European Economic Area and the Commission was at pains to point this out. There have been huge increases in online traffic to Google’s own shopping comparison service during the relevant period while, at the same time, the drop-off in traffic to rival comparison sites has been sudden and dramatic.

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Google has said that it is reviewing the decision by the Commission and may decide to appeal against it. As mentioned above there are arguments for doing so; especially in relation to defining the relevant market. If the case is appealed to the European Court of Justice it will be interesting to see how the justices interpret and respond to Google’s arguments. Overall though I do not think that they stand much of a chance given the reasoning set out by Margrethe Vestager and the way that the service offered by Google works and operates compared to other rivals in the market.

If they are unsuccessful or decide not to appeal then it could spell the end for the shopping options set out at the top of searches such as the one for earphones above. Google is most likely going to have to face up to that stinging fine of €2.42 billion as well as future cases from competitors who will be clinging to the Commission’s coattails in a bid for their own compensation.

Learn more about EU competition law by watching the following video lecture.