Google is doing fine. But why are they fined?

The Competition Commission of India (CCI) imposes a penalty of Rs.1337 Crores and yet another penalty for Rs.936 Crore on Google in a week’s time”. You would have read this in the media recently. This is a brief note on this issue which may be of interest to you.

The basic facts

CCI is a national fair trade regular, a statutory body under the Ministry of Corporate Affairs, enforcing the Competition Act, 2002

The Competition Act is enacted to promote competition and prevent activities which has an adverse effect on competition. This Act prohibits anti-competitive agreements and abuse of dominant positions by enterprises which cause negative effects on the competition within India.

Google LLC is the wholly-owned subsidiary (WOS) of Alphabet Inc, an American multinational Tech company. Google owns the Android Operating system (AOS) and Google play store.

There are three parts – CCI imposes a penalty under Competition Act on Google!

What has happened in Google’s case?

Smart mobile devices need an operating system (OS) to run applications (apps) and programs. Android is one such OS that has a dominant position. For our easy understanding, let’s take an example. Oppo, an Original Equipment Manufacturer (OEM) signs up an agreement named the Mobile Application Distribution Agreement (MADA) with Google for Android OS. As per this agreement, OEMs have to mandatorily pre-install the entire Google Mobile Suite (GMS includes Google search, YouTube, Chrome, Play Store, Google Maps etc.) and there is no option to uninstall the same.

So what? Is this an issue?

According to CCI it is a case of curbing the competition using its dominant position as per Section 4 of the Competition Act. The said section reads as under

Abuse of dominant position 

  • No enterprise or group shall abuse its dominant position
  • There shall be an abuse of dominant position, if an enterprise, directly or indirectly, imposes unfair or discriminatory conditions in the purchase or sale of goods or services.
  • limits or restricts the production of goods or provision of services or market therefor
  • indulges in practice or practices resulting in a denial of market access…….” [It is an extract and not the full text of the section]

Based on this, CCI concluded that (primarily, along with other violations)

  • mandatory pre-installation of Google Mobile Suite (GMS) with no option to uninstall amounts to unfair trade practice.
  • Google has leveraged its dominant position in the online search market resulting in the denial of market access for competing search apps

Another issue is about Google Play Store

For instance, Mr.Appanna has developed an Application (App). Where should he place it so that the end users can download it? As you all know, it has to be placed in App Stores, a medium of distribution of Apps. What else can one think of, other than the Google Play store? They have the dominant position in the market.

Google’s Play Store policies require the App developers to exclusively and mandatorily use Google Play’s Billing System (GPBS) not only for receiving payments for Apps (and other digital products like audio, video, and games) distributed/sold through the Google Play Store but also for certain in-app purchases.

To sum up, CCI found many policies and agreements (as mentioned above) of Google which are anti-competitive practices that have been in contravention of the provisions of Section 4 of the Competition Act.

But why such a huge penalty of Rs. 2273 Crores?

It’s quite a lot of money. As per Section 27(b) impose a such penalty, as it may deem fit which shall be not more than ten percent. of the average of turnover for the last three preceding financial years.

Based on this, the CCI has imposed a penalty of 7% of the average turnover say, on a turnover of Rs.32,400 Crores.

What can Google do now? They can go for an appeal with the National Company Law Appellate Tribunal (NCALT).

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About B E Kumar Prasad

B E Kumar Prasad
He is a Practicing Chartered Accountant in Bengaluru, India. He has 25+ years of experience in income tax, business setup, and NRI matters. He is also an Insolvency Professional and Registered Valuer (F&SA).Prasad welcomes your comments and questions. Please email him at simplifiedlaws20@gmail.com

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