NCLAT upholds CCI’s decision to penalise Google for abusing its dominant position
The National Company Law Appellate Tribunal (“NCLAT”), which is the appellate authority under the Competition Act, 2002 (“Act”), has upheld the imposition of penalty amounting to INR 1,337.76 crore (approx USD 167 million) on Google by the Competition Commission of India (“CCI”), for abuse by Google of its dominant position in the markets for (i) licensable OS for smart mobile devices in India, (ii) app store for Android smart mobile OS in India, (iii) general web search services in India, (iv) non-OS specific mobile web browsers in India, (v) online video hosting platform in India.
The CCI’, in judgment dated 20th October, 2022 had concluded, after due consideration of the facts and law, that Google had abused its dominant position in the said markets and imposed the penalty to be paid within sixty days. Against the order of the CCI, Google filed an appeal in NCLAT, inter-alia, seeking an interim stay. However, NCLAT did not grant any interim relief to Google and instead ordered that ten percent of the penalty be deposited as an interim measure by Google. NCLAT also fixed the case for hearing in April 2023. Aggrieved by the decision of NCLAT, Google appealed to the Supreme Court of India. The Supreme Court refused to interfere with the order of NCLAT but requested NCLAT to hear and dispose off Google’s appeal by 31st March, 2023. In furtherance of the request by the Supreme Court, NCLAT completed hearing the matter on 20th March, 2023 and the judgment thereof had been reserved. The final judgment was issued by NCLAT on 29th March, 2023 whereby NCLAT upheld the imposition of the penalty.
While upholding the penalty amount, NCLAT held that the agreements in question viz. Mobile Application Distribution Agreement (“MADA”), Anti-fragmentation Agreement (“AFA”) which was later replaced by Android Compatibility Commitment Agreement (“ACC”) and Revenue Sharing Agreement (“RSA”) are inter-related, inter-woven agreements and therefore the entire ecosystem of Google sitting on Android OS in the mobile device becomes the source of revenue to Google. Thus, the total revenue from all the apps and services in the Android device becomes the ‘relevant turnover’ and CCI has correctly considered the sum total of revenue of various segments/heads in India arising out of the entire business of Google India’s operations of Android OS based mobiles as the ‘relevant turnover’ of Google. For the above reason, the contention of Google that ‘relevant turnover’ shall be limited to revenue from Google Search and You-Tube only was rejected. NCLAT however ordered that the penalty imposed shall be treated as final and not provisional. CCI, in its judgment, had stated that Google failed to furnish the necessary financial data and information and therefore the penalty amount was provisional and based on “best estimate”. NCLAT held that once CCI has imposed a penalty as per “best estimate” of the relevant turnover, further revision on the basis of financial information or data that may come to light in future will not be in keeping with law as there are no provisions for imposition of provisional penalty in the Act.
In its appeal before the NCLAT, Google had, inter-alia, challenged the CCI’s judgment on the ground that the judgment of the CCI was based replete with confirmation bias by relying on decision of European Commission dated 18th July, 2018 in Case No. 40099. NCLAT, while negating Google’s arguments, held that the Director General issued notice to mobile phone OEMs and other third parties and after collecting evidence submitted the report to the CCI. The CCI considered the findings in the report of the Director General, the materials on the record and submissions of the parties with respect to each of the relevant markets and recorded findings and conclusions after considering the evidence on record. Therefore, it cannot be said that CCI relied on the decision of the European Commission.
NCLAT also upheld CCI’s findings that on pre-installation of entire range of Google’s proprietary applications and services i.e., the Google Mobile Services Suite (“GMS”) involving wide range of Google apps such as Google Maps, Gmail, and YouTube which are available only through GMS and cannot be downloaded separately by device manufacturers, amounts to imposing of unfair condition on OEMs which is an abuse of dominant position by Google. NCLAT further recorded that by making pre-installation of GMS suite conditional to signing of AFA/ACC for all Android devices manufacturers, has reduced the ability and incentive of devices manufacturers to develop and sell self-device operating or alternative version of Android and Android Forks and thereby limited technical and scientific development, which is a breach of provisions of the Act. NCLAT further concluded that Google perpetuated its dominant position in the search market resulting in denial of market access for competing search apps and Google abused its dominant position by tying up YouTube App and Google Chrome App with Play Store. Further, Google leveraged its dominant position in Play Store to protect its dominant position in Online General Search.
With regard to absences of a judicial member in the CCI, NCLAT held that Section 15 of the Act) protects act or proceeding of the CCI, which suffers from any defect in constitution.
NCLAT has also held that carrying out of ‘appreciable adverse effect on competition’ analysis in matters relating to abuse of dominant position is necessary as per the scheme of the Act even though there is no specific mention of the same under Section 4 of the Act.
NCLAT also approved six out of ten remedies that CCI had issued to Google to rectify its conduct. It however set aside four remedies, viz:
- Google shall not deny access to its Play Services APIs –NCLAT held that Application Programming Interface (“API”) and Google Play Services are proprietary items of Google and cannot be given in through unhindered access to App developers, Original Equipment Manufacturers (“OEMs”) and Google’s existing and potential competitors especially as APIs have not been found as part of any abusive conduct by Google.
- Google shall not restrict un-installing of its pre-installed apps by the users –NCLAT held that as per directions of the CCI the preinstalled Apps are at the choice of the OEMs and they are not obliged to preinstall the entire bouquet of Apps which makes the direction of the CCI not to restrict un-installing of pre-installed apps by the users
- Google shall allow the developers of app stores to distribute their app stores through Play Store –While negating the direction of the CCI, NCLAT held that Google does not prohibit distribution of App developed by any App developer through its Play Store subject to developer entering into an Agreement for distribution of the app and revenue sharing.
- Google shall not restrict the ability of app developers, in any manner, to distribute their apps through side-loading – NCLAT held that Google will be prohibited to issue any warnings which it is under a legal obligation to do. Such a warning may be treated as restriction in side-loading especially when the case of Google is to display appropriate warning to the users about the risk.
The NCLAT has given Google thirty days time period from the date of NCLAT’s order to abide by the directions of the CCI (other than those specifically set aside as above) and to deposit the penalty after adjusting the 10% of the penalty amount which has already been deposited. Google can appeal against the NCLAT judgment to the Supreme Court.
By: Competition Team at Chitale & Chitale Partners
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