CMA’S REPORT ON GOOGLE’S DOMINANCE WITHIN THE DIGITAL ECONOMY AND APPLICABLE LEGAL STANDARDS UNDER NIGERIAN LAW
By : Chukwuyere Ebere Izuogu
On 3 July 2019, the UK Competition & Markets Authority (CMA) commenced a market study into the online platforms and digital advertising markets in the UK, as to whether there exist adverse effects on consumers, and the extent to which steps can be taken to remedy or mitigate such effects. The CMA released the final report (the Report) of this study on 1 July 2020, wherein it inter alia, found Google to have market power in the general search engine market, and proposed a range of regulatory options to promote competition and reverse the effects of market failure within these markets.
Using the factual conclusions presented in the Report with some minor amendments made to fit the prevailing market condition, this article examines how Google’s conduct as described in the Report may be challenged under Nigeria law.
Highlights of the Report
The Relevant Market: In carrying out the study, the CMA identified the relevant market by observing direct indicators of market power such as market share, revenue and barriers to entry prevailing in the candidate market. This is unlike a traditional competition inquiry where the relevant market is comprised of a product and geographic component. In assessing Google’s conduct, the CMA identified the general search engine as the relevant market, which was described as web tools which consumers use to find various information online in response to search queries. Search engines generate revenue mostly from search adverts which appear next to consumer search queries. In the UK, Google generated over 90% of the search advertising revenues in 2019. Search engines compete for consumers by seeking to provide high quality and relevant search results. Consumers use search engines in a variety of ways including, web browsers, web navigation, search apps on mobile devices and voice assistants. Based primarily on the number of individual search queries made in each search engine, the CMA determined Google to have approximately 90% of market share in the UK, from January 2018 to December 2019 (the relevant period).
Google’s conduct: To maintain its market power in the general search engine market, the CMA found that Google entered into default agreements with several device manufacturers, whereby it paid them, on the condition that Google Search is set as the primary default search engine. The CMA also observed that the condition to set Google Search as the primary default search engine was applicable across the entire range of devices manufactured by a device manufacturer. In terms of territorial scope, most of these default agreements applied worldwide or EEA wide with some cases of country-level exceptions.
Adverse effects: According to the CMA, Google’s default position as the primary search engine across the majority of devices creates a barrier to entry and expansion for competing search engines by making it difficult for them to access consumers and generate revenue from search related advertisements. In competition law this effect is known as market foreclosure. The CMA also found that Google’s position is further reinforced by its ability to pay device manufacturers to secure its position as the primary default search engine. The result is that Google has continued to entrench its dominant position being the default search engine on several devices including Apple and android devices. The CMA believed that Google’s conduct can also harm consumers in several ways, firstly because of its market position, Google has no incentive to improve its search quality, thus innovation is retarded in the general search engine market. Secondly, consumers are likely to suffer privacy harms as a result of the use and exploitation of their personal data across multiple Google services and partners, and thirdly, there is the likelihood of an increase in the price of goods and services relying on search advertisements.
Applicable legal standards under Nigerian Law
Under Nigerian Law, several legal standards may apply when assessing Google’s conduct but this article will focus on only;
The Federal Competition and Consumer Protection Commission Act 2018 (the FCCPA): Under this standard, Google’s conduct of entering default agreements with several device manufacturers is likely to constitute an abuse of its dominant position in the general search engine market in Nigeria, in which according to StatCounter, Google’s market share was approximately 97.19% across all platforms (comprised of desktop, tablet and mobile devices) during the relevant period. Section 72 (1) of the FCCPA prohibits one or more undertaking from abusing its position of dominance. If the default agreements are designed as and/or has the effect of an exclusive dealing agreement, defined in Section 167 (1) of the FCCPA as a practice whereby an undertaking as a condition for supplying goods and services “induces a customer to meet such condition by offering to supply goods or supply goods or services to the customer on more favourable terms or conditions if the customer agrees to meet that condition”, then Google may be challenged for violating Section 72 (1) of the FCCPA. In other words, Google may have abused its dominant position by inducing device manufacturers through monetary compensation, as a condition for supplying its Google Search engine to them, if they agree to set it as the primary default search engine on their device(s). However, it bears emphasis to note that while exclusive dealing is not stated as an example of an abusive conduct in the FCCPA, it may nevertheless constitute an abuse of a dominant position if it has the same effect similar to another prohibited abusive practice, and/or is exclusionary and has an anti-competitive effect that outweighs its technological efficiency and other pro-competitive gains.
Where an exclusive dealing agreement has the same effect as a tying agreement, it may be challenged by relying on Section 72(2)(d)(iii) of the FCCPA. This holds true, particularly where Google in supplying its android operating (OS) system to device manufacturers require that Google Search be the primary default (or only) search engine. In which case, Google would be abusing its dominant position in the market for OS for smart mobile devices, with the relevant markets as the market for the distribution of OS for smart mobile devices and market for general search engine on mobile devices.
As indicated in the Report, the effect of this conduct is market foreclosure which in the case of Nigeria is presumed to be very high because, at least 88.88% of competing search engines are unable to directly access consumers without matching Google’s payment to device manufacturers. Innovation may also be retarded in the general search engine market because Google as the dominant search engine provider may have no incentive to improve its search quality.
The Nigerian Communications Act (the NCA): Although arguable, Google’s conduct can be challenged under Regulation 14 of the Competition Practices Regulations 2007 made under the NCA. This provision authorises the Nigerian Communications Commission (the Commission) to review any agreement or practices between a licensee and a third-party to determine whether it has the purpose or effect of substantially lessening competition. In this case, the licensees are mobile device manufacturers (or distributors) who are licensed in the class license category, and have entered into the default agreement with Google.
Depending on whether Google’s conduct constitute an exclusive dealing or a tying agreement, the relevant market could be the market for the distribution of OS for smart mobile devices and/or the market for general search engine on mobile devices on the basis of Section 167 of the NCA which defines communications to include the communication between a person and a thing. Thus, the interaction between a person using a (smart) mobile device and Google search engine is a form of communications that clearly falls within the Commission’s subject matter jurisdiction. In addition, the Commission has historically regulated content on the internet by imposing various regulatory obligations on licensees with regard to the dissemination and/or transmission of certain types of content online.
The market share of Google search on mobile devices including tablets during the relevant period is approximately 96.99%. Evidence of a substantial lessening of competition would be market foreclosure of competing search engine on mobile devices which is at least 85.71% during the relevant period. In addition, consumers experience harm in terms of retarded innovation in the general mobile search engine space.
The CMA in undertaking the market study should be commended for providing competition perspective on aspects of the digital economy, and stakeholders irrespective of jurisdiction are encouraged to refer to the Report as a formidable source material in this regard. The digital economy which has an estimated value of $11.5 trillion globally with the total amount spent on search advertisement globally in 2019 at about $106.5 billion thus underscoring its importance in our activities online and to the global GDP. However, as I have noted in my article of 14 February 2020 in this column, competition authorities in multiple jurisdictions have raised concerns as to whether the exercise of market power in the digital economy would deter entry for new entrants and ultimately harm consumers, as a result of which many of them are considering (or have considered) the appropriate regulatory intervention required to mitigate this exercise of market power including using ex ante rules to regulate large online platforms.
Whether or not this is appropriate for Nigeria would depend on lessons learned from applying the FCCPA and other existing rules and their (in)adequacy in responding to this concern. In addition, if this concern becomes real and is supported by sound evidence, the monopoly provisions of the FCCPA provides some flexibility for an “action to be taken” on the recommendation of the Federal Competition & Consumer Protection Commission to remedy or prevent any adverse effects resulting from an existing monopoly situation occurring within Nigeria, only after the conclusion of a monopoly investigation.
Be that as it may, competition regulation and enforcement are still nascent in Nigeria, and bound to have lots of learning curve for regulators and other stakeholders which will undoubtedly shape our competition jurisprudence. Only time will tell when this will become and how far existing rules would go to promote competition and protect consumers in Nigeria’s digital economy.
This is a revised version of my article first published in the Businessday of 16 July 2020.