Android Investigation

1. Android Investigation The Brussels Technology Days 15 October 2014 Trevor Soames and Sara Ashall

2. * Presentation name | Month DD Year Disclaimer: All views expressed in this presentation are the authors’ own, and are not attributable to any client of Shearman & Sterling LLP

3. Preliminary EC investigation * • Multiple complaints public, there may be others… • Two rounds of RFIs: • July 2013 –RFI by request • July 2014 – RFI by decision • Next steps: opening of proceedings? Android | The Brussels Technology Days | 15 October 2014

4. Ny kommissær….ew Commissioner… We are working on Android with some problems, not yet a formal investigation but quite an advance knowledge about the problems. We can work in all the areas of Google, where some people are sending us arguments, in some cases formal complaints, talking about possible abuses of dominance [...],” (CNBC - 9 Sep 2014) http://www.insidermonkey.com/blog/google-inc-googl-is-on-eu-competition-commissions-radar-again-327543 ? * Presentation name | Month DD Year

5. Let’s start at the beginning… • June 2007: Apple releases iPhone, first true smartphone • Easy internet access on your phone! Anywhere! Anytime! • Amazing wealth of personal data generated but Google left at home • Google and Apple had signed an exclusive agreement in 2007, prior to the iPhone launch for Google Search to be the default as well as YouTube and Google Maps to be preloaded, rumoured to be worth USD 1 billion p/a • Open Handset Alliance launched and Android released 5 November 2007 • Android proves popular and rapidly gains traction: • Open source! • Cool names! • Do no evil! * Android | The Brussels Technology Days | 15 October 2014

6. * Android | The Brussels Technology Days | 15 October 2014

7. Android vs Google Android “Open” Android (AOSP) • Plain vanilla operating system • Limited ecosystem • No Android trademark • No Google apps available • Amazon Fire… erm, some national Chinese players… Google Android • Operating system/platform with extensive functionality • Broad and deep ecosystem • Strong brand and trademark • Updates released with fanfare and constantly updated • Full line of Google apps preloaded • Samsung, LGE, Sony, HTC, ZTE, Huawei, NEC, Toshiba, we could go on… * Android | The Brussels Technology Days | 15 October 2014

8. GPS = Trojan Horse of Google Android Google Play Services (thanks to Chillin’ Competition for the graphic) • Beating heart of Google Android • Unavailable on AOSP • Since 2012 service APIs and platform features bundles together in ‘take-it-or-leave-it” client library • Critical APIs moved from AOSP and into Google Play Services • Google Play Services and Google Play Store are now technically (and perhaps contractually) tied together • If developers use Google APIs in Google Play Services their apps will only run on Google approved devices • “Apps may not work if you uninstall Google Play services” • Applies to Google Apps and third party apps “We don’t know whether the complainants have focused on that point or not. If not, they should.” [http://chillingcompetition.com/2013/09/09/some-thoughts-on-the-new-anti-google-android-complaint-post-33-bundling-allegations/?relatedposts_hit=1&relatedposts_origin=8524&relatedposts_position=2] * Android | The Brussels Technology Days | 15 October 2014

9. * Android | The Brussels Technology Days | 15 October 2014

10. Google Android “honey trap” MADA • Signed by all Google Android implementers • License Google Android trademark and Google apps and services • Mandatory Google Apps • Placement and default requirements You want a Google Android device, then you have to take this, this, that, this, oh, and that. And that. In this order. Do not build a competing Android fork – “my way or the highway”… Other agreements? Revenue sharing agreements? • Compatibility Test Suite, Compatibility Definition Document • and pre-approval process acts as check point * AFA Signed by all members of Open Handset Alliance? Why? Five year term: is it renewed and how often? What does “fragmentation” mean? Android | The Brussels Technology Days | 15 October 2014

11. Is [Google] Android dominant? • Most widely-used OS for smart mobile devices • These are Google Android, not “vanilla” AOSP Android • For an OEM, what are the licenseable alternatives? • OEM switching between OSs is limited • Lock-in effects: • Limited alternatives and commercially less attractive • Insufficient portability and interoperability of apps across OSs • Network externalities – strong positive feedback loop • App developers have limited capacity and attention span and focus their efforts on most successful OSs unless otherwise incentivised • Google fully controls both Google Android and vanilla Android * Android | The Brussels Technology Days | 15 October 2014

12. Article 101 or Article 102? Article 101 • Classic tying • Full-line forcing • De facto exclusivity TTBER • Classic tying • Full-line forcing • De facto exclusivity Dominance not actually required, market power (>30%) sufficient for a finding of an infringement for many of the offenses * Article 102 Classic tying Full-line forcing De facto exclusivity Predatory pricing Intel type rebates/incentives? Android | The Brussels Technology Days | 15 October 2014

13. Public debate of out of date and sometimes deceptive…See for example Geoffrey Manne – Chillin’ Competition) [http://chillingcompetition.com/2014/10/03/microsofts-android-anathema/] “Microsoft wants you to believe that Google’s business practices stifle competition and harm consumers. Again.” Google and its supporters seek to portray it as such to undermine the credibility of widely held concerns. “In fact, along with the Microsoft-funded trade organization FairSearch..” FairSearch is not just MSFT but many other companies all with concerns particular to their businesses • On Körber: “Exhaustive scholarly analysis“ but Körber says • “This paper is based upon an expert opinion funded by Google” • “MADA” in the following refers to the HTC‐MADA of 2011”: fn 34 “It is this claim that Microsoft and a network of proxies brought to the Commission when their efforts to manufacture a search-neutrality-based competition case against Google failed.” It has not failed: the EC considers there to be a sufficient prima facie case to demand remedies * Android | The Brussels Technology Days | 15 October 2014

14. Tying and/or Full Line Forcing • Through the MADA, OEMs forced to take each of the mandatory Google apps and services if they want Google Android • Reinforced by technical tie created by Google Play Services • Google Android is dominant • Moreover, many of the Google apps services are also dominant • OS and each of the apps are separate products, and all are tied/bundled together • Tying likely to lead to anti-competitive foreclosure • Efficiencies (if any) do not outweigh any negative foreclosure effect • Not having to pay for tied products irrelevant • Number of Google apps now preloaded on every Google Android device far exceeds the number listed as mandatory apps in the 2011 MADA documents (some reports suggest 9 20!): [The Information: https://www.theinformation.com/Google-s-Confidential-Android-Contracts-Show-Rising-Requirements] * Android | The Brussels Technology Days | 15 October 2014

15. De facto exclusivity? • No per se approach – assess the effect of the arrangements and in particular how much of the market is foreclosed • CTS/CDD/Device approval opacity creates uncertainty • Discourage use of non-Google Android components • Disciplining OEMs in case of “betrayal”? • Ever-greening of the AFA • Example of potential foreclosure: • German MNO OHA members: T-Mobile (~32%) + Telefonica (~37%) + Vodafone (~31%) = 100% • As an OEM, how do you, or could you, distribute an Android Fork device? * • Again, what is “fragmentation”? • Do AFA and MADA prevent OEM signatories from developing non-Google approved AOSP devices? • Does AFA prevent OHA members from commercialising non-Google approved AOSP devices? • Other than Google Android, what OS options do OEMs realistically have? • Exacerbated by stagnation of AOSP and creation of Google Play Services Android | The Brussels Technology Days | 15 October 2014

16. Examples of “fragmentation” infringers disciplined * Acer - Ali Baba – Acer blocked from launching competing device: “Our partner received notification from Google that if the new product with Aliyun went ahead, Google would terminate Android product cooperation and related technical authorisation with Acer” [http://uk.reuters.com/article/2012/09/13/us-acer-alibaba-google-idUKBRE88C0HW20120913] Skyhook – Launch of Motorola’s Droid X device blocked because it didn’t use Google’s network location services. Skyhook’s innovative Network Location Service met the compatibility requirements… “using compatibility as a club to make [OEMs] do things we want” [Dan Morrill – Google] Kikin – Innovative search function excluded: Google’s agreement with device manufacturers has made it overly challenging to customize the latest version of the Android operating system, KitKat 4.4 [...] Since Webview customization is a key requirement for kikin, Google’s move has effectively eliminated kikin on Android. [http://www.kikin.com/blog/2014/08/vodafone-device-update/] Android | The Brussels Technology Days | 15 October 2014

17. Predatory pricing? • Dominant company deliberately incurs losses / foregoes profits in the short term (‘sacrifice’) • Foreclosure or likelihood of foreclosure of one or more of actual or potential “as efficient competitors” with a view to strengthening or maintaining market power • Consumer harm • Significant academic debate about existence of predation in multi-sided markets or platforms (Evans) * Predation raised by some parties: “Google’s predatory distribution of Android at below-cost makes it difficult for other providers of operating systems to recoup investments in competing with Google’s dominant mobile platform” FairSearch Press Release Android | The Brussels Technology Days | 15 October 2014

18. Detrimental Effects There is the ever present threat hanging over industry players: unless they are subservient, and agree to everything that Google sees fit to impose, or does, they risk being excluded from the Android “family” and deprived of access to key features and services, as a result of which their smartphones would risk commercial failure * Input foreclosure and customer foreclosure Competition between operating systems effectively extinguished Innovative products not being included due to chilling effects of Google policies Dominance in SEARCH reinforced as Google has control over more personal data as an input for advertising than any other company could ever dream of… Android | The Brussels Technology Days | 15 October 2014