- The Commission fines Google for abusing its dominant position in online search advertising intermediation.
- The abuse lay in contract clauses that stopped its rivals from placing ads on third-party websites.
- Companies with exclusivity or preference clauses in their contracts need to know when they become a problem.
On 20 March 2019, the European Commission imposed on Google a fine of 1.49 billion euros for illegally using its dominant position in the market for online search advertising intermediation. According to the Commission, the company included in its contracts with third-party websites restrictive clauses that stopped its competitors from placing search ads on those pages, and it did so for more than ten years.
It is the third European fine on Google in under two years, after those imposed over the shopping comparison service in 2017 and the Android operating system in 2018. Competition Commissioner Margrethe Vestager held that the conduct deprived consumers of choice, innovative products and fair prices. The company can appeal the decision before the Union courts.
What is an abuse of dominance
Holding a dominant position is not illegal; abusing it is. Article 102 of the Treaty on the Functioning of the European Union prohibits a dominant company from exploiting its situation in a way that harms competitors or consumers, for example by imposing conditions that close the market to rivals. Spanish law, in the Competition Act, contains an equivalent prohibition.
In Google’s case, the objection is not that it offers a service but the way it contracted with third parties: clauses that, according to the Commission, limited rivals’ ability to compete for the ads on those websites. Fines can reach 10% of the company’s annual worldwide turnover, and the Commission can also order the conduct to stop.
Lessons for contracts
Commercial contracts with exclusivity, purchase targets, preference clauses or limits on what the other party may do with third parties are not unlawful in themselves. What changes their assessment is the market power of whoever imposes them: what is usual between two small companies can be abusive if demanded by a company with a dominant position.
This matters in two ways. A company with a high share of its market must carefully review its general terms of sale and its agreements with distributors. And a company that depends on a dominant supplier or platform should know that the clauses imposed on it may be open to challenge, and that competition authorities also exist to protect the small.
What to review
A good starting point is to go through contracts with distributors, agents and key suppliers to identify exclusivities, targets or penalties for working with third parties, and check whether they apply in a market where the company has a significant share. If so, it is wise to assess with an adviser whether those clauses are justified and proportionate.
It is also useful to document the analysis: a clause may be lawful if it serves a legitimate purpose, such as protecting a specific investment, and goes no further than necessary. When in doubt, it is worth consulting before signing, because fixing a contract after an authority has opened a case is far more expensive. If a doubtful clause is found, the simplest course is usually to renegotiate it amicably and document the commercial reason that justifies it, before a competitor, a customer or an authority challenges it and forces the matter on worse terms.
Market power is not the problem; abusing it is.
This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.
