MC Explains: How NCLAT upheld the Rs 1,338 crore penalty on Google

Google

The National Company Law Appellate Tribunal (NCLAT) on March 29 partially upheld Competition Commission of India’s (CCI) order holding that Google abused its dominant position in the Android ecosystem. The tribunal however, upheld the Rs 1,338-crore penalty that CCI levied on Google.

The tribunal heard the appeal for over a month before reserving the judgment on March 20, 2023. In its order, the tribunal has grouped the contentions of both CCI and Google into various issues before deciding the same.

Moneycontrol lists out the issues, along with how the tribunal has answered them.

Google makes an original equipment manufacturer (OEM) sign three agreements. These are:

Under MADA, an OEM cannot choose to pre-install a Google app of its choice, but will have to install the entire Google Mobile Services (GMS), which consists of 11 apps, including Chrome, Search, Gmail, and YouTube, among others.

AFA is an agreement under which the OEM has to maintain a certain baseline standard to be called a ‘Google-certified device’. OEMs are also barred from developing Android Forks or distributing devices with Android Forks if they sign the AFA.

Google and OEMs sign an RSA to share revenue from the search services of the apps pre-installed on the Android devices.

Google argued that MADA is an optional and voluntary agreement which is not unfair and the terms of MADA are not imposed on OEMs. The expression ‘imposes’ contains an element of compulsion which is not present in any of the clauses of MADA. According to Google, MADA is not unfair and does not restrict competition. Google further argued that no complaint was made by any OEM regarding abuse of dominant position by Google.

The tribunal, in its order, noted that MADA obligates OEMs to distribute ‘Core Applications’ upon granting them a license to do so. Furthermore, according to the tribunal, the clauses in MADA make it evident that Google puts an obligation on the OEM to first accept aspects such as bundling of apps, known as Core Applications (such as Gmail, Google Chrome, Google Search) and to distribute these applications.

The tribunal noted that the clauses of MADA obligates OEMs to

(i)   distribute all Core Applications,

(ii)  distribute on the Default Home Screen a Google-provided widget, Google Play Store icon;

(iii)Provide an icon that gives direct access to Core Applications, which is labelled ‘Google’,

(iv) MADA stipulates that any Google Application that is not a Core Application be placed one level below the Default Home Screen.

According to NCLAT, these conditions applied on OEMs through MADA are to essentially highlight Google Applications (Google apps). Thus, the tribunal concluded that these are unfair conditions and the act of Google imposing them on OEMs is an abuse of dominant position.

A Fork is an operating system that is a modified, competing version of the Android OS based on the Android source code. OEMs have to compulsorily sign an AFA to become a MADA signatory. Once an OEM signs the AFA, it is prohibited from developing, manufacturing and selling Android Fork devices and software.

NCLAT held that the restriction imposed vide various clauses in AFA are unreasonable and disproportionate and have resulted in foreclosure of its competitors in the Operating System (OS) market.

The Commission thus concluded that, AFA has indeed reduced the ability and incentive of device manufacturers to develop and sell self-device operating system has thus, limited the scientific development in breach of the provisions of Competition Act.

NCLAT analysed various clauses of RSA, which the tech-giant signs with OEMs. RSA puts various conditions on OEMs, including of not installing a competing search app on the device.

NCLAT noted that an OEM can sign an RSA, only when it is a MADA signatory. A MADA signatory necessarily has to sign an AFA. When an OEM signs all the three agreements its consequence has to be conjointly looked into. According to NCLAT, the consequence of high payment by Google to OEMs who have signed RSA acts as an entry barrier for pre-installing any competing general search apps.

Thus, the tribunal concluded that Google has perpetuated its dominant position in the Online Search Market resulting in denial of market access for competing Search Apps, an offence under competition law.

Google had argued that the present case was initiated within a month of the European Commission’s judgment being issued. The tech giant argued that the report of the Director General (DG), the investigation arm of CCI, indicates that the DG proceeded to collect materials to substantiate the finding of abuse of dominant position by Google and was not neutral.

The tribunal has held that CCI proceeded to consider the materials on record and submissions of the parties and recorded findings and conclusions after considering the evidence on record, thus dismissing the submission that the order suffers from confirmation bias.

It was Google’s argument that the CCI should have conducted an analysis on the effects of the alleged anti-competitive practices before coming to a conclusion on abuse of dominance as per the law. However, the anti-trust watchdog failed to do so. The CCI however, countered this by saying that even if in some cases the Commission has conducted effect analysis, there was no requirement of law to do so. The tribunal has held that effect analysis of the effects of a discriminatory condition in an agreement or anti-competitive practices are to be done to meet the objective of the Competition Act. The object of the Competition Act is to prevent practices which have adverse effects on competition.

The tribunal has thus, concluded that effect analysis is required to be done, and the test to be employed in the effect analysis is whether the abusive conduct is anti-competitive or not. The NCLAT also concluded that the test to be employed in the effect analysis is whether the abusive conduct is anti-competitive or not.

The NCLAT has held that the DG was not taking any decision on any of the rights of the parties on his own. The OEMs that responded to the questions of the DG did not feel inhibited by the manner in which the questions were framed. The OEMs have also given negative answers, denying the allegations against Google.

According to the NCLAT, the notices issued by the DG were with the object of eliciting information and his function was only inquisitive in nature.

The NCLAT thus, concluded that the DG did not suffer from any bias,  and neither was the principle of natural justice violated.

The tribunal has also held that

1)  Google has leveraged its dominant position in Play Store to protect its dominant position in Online General Search in breach of the Competition Act

2) Google has abused its dominant position by tying up of Google Chrome App with Play Store, and thereby, violated the Competition Act

3)  Google has abused its dominant position by tying up YouTube App with Play Store, and thereby, violated provisions of the Competition Act.

The CCI had directed Google to share its proprietary Play Store API with third parties to enable them to develop applications.

The NCLAT held that APIs developed by Google are developed and maintained by Google and continually updated through scientific and technical developments by the teams of Google. According to the tribunal, APIs are necessary for functionality of the apps in Google Play Store.

The tribunal thus concluded that APIs and Google Play Services, which are proprietary items of Google, cannot be given unhindered access to app developers, OEMs and Google’s existing and potential competitors.

The tribunal held that proprietary software such as APIs, which are developed through scientific and technical innovation should fetch value to Google, and therefore, remain an incentive for a technology company / Google to further carry out such developments and monetise it through its commercial use.

Android phones do not permit uninstallation of pre-installed apps that come with the phone. CCI had asked Google to permit users to uninstall such pre-installed apps.

NCLAT has held that by virtue of CCI’s order, OEMs are not obliged to install all 11 suite of apps of Google. Thus, OEMs are free to not preinstall any of the apps.

According to NCLAT, the preinstalled apps can be disabled by the users in no time. Disabling all the apps by users thus serves the purpose of making the apps disappear from the screen and not performing any functions. The apps can be enabled at the choice of the users and uninstallation will preclude the option of the user to disable and enable the apps as per their choice.

Google sends continuous alerts to users who download apps directly from the website of the app developer and not from the Play Store. This process is called sideloading. Google argued that this was done to avoid users from downloading malware.

CCI had asked Google not to sideload as it disincentivices users from downloading apps not on the Play Store, and thus, making it compulsory for all app developers to make their apps available for installation through its Play Store.

NCLAT held that a user is allowed to download any app, outside the Play Store, through the general internet. Google only displays appropriate statutory warnings to users about the risks; these risks have been acknowledged by the Commission too. Mere warnings can in no way be equated to a restriction, thus permitting Google to allow sideloading.

NCLAT set aside CCI’s direction asking Google to permit third-party app stores on Google’s Play Store. According to NCLAT, Google does not prohibit distribution of apps developed by any app developer through its Play Store. The judgment notes, “If there is requirement to enter into an agreement for distribution of apps and App Stores by App developers through Play Store, that is a normal business practice, which can be achieved as per agreement between the parties.”

The tribunal has thus, concluded that Google has its own terms and conditions for distributing apps prepared by app developers through its Play Store. It states, “It is neither argued, nor found by the Commission that there is any abuse of dominance by Google in distribution of apps by developers through its Play Store. Since CCI itself found that Google has not abused its dominant position in Play Store market by imposing unfair and discriminatory terms and conditions on app developers, there was no occasion to direct the Appellant to distribute the App Store of third-party App developers, without accepting the terms and conditions of Google.”

NCLAT thus asked Google to deposit the amount of penalty within a period of 30 days from March 29. The tribunal allowed Google 30 days’ time to implement the measures directed by CCI, except the ones which have been set aside.