EU Tech Regulation Is the Real Trade War

By Alec Stapp & Ryan Hagemann

Wednesday, July 25, 2018 6:30 AM

Google did not play well with others. Or so says the European Commission, which issued a $5 billion fine against the tech giant for antitrust violations last Wednesday. Now, Google has 90 days to search for changes to Android contracts that allegedly stifle competition. But given the size and frequency of fines against American technology companies in recent years, they are starting to feel less like regulation and more like taxation without representation.

It is no coincidence that Europe, having produced very few technology superstars of its own, has chosen to fine American firms billions of dollars. Of the 25 most valuable technology companies in the world, according to market-research firm GlobalData, 15 are from North America and seven are from Asia Pacific. Only three are European. And that’s if you count Accenture, a professional-services firm headquartered in Ireland, as a technology company.

The most recent levy against Google is only the latest in a string of sanctions, including $1.2 billion against Qualcomm earlier this year, another $2.7 billion against Google last year, $15.4 billion against Apple in 2016, $1.45 billion against Intel in 2009 (which the European Court of Justice has ordered be reexamined), and $1.35 billion against Microsoft in 2008. So is the commission just unfairly picking on American tech firms, or do the facts of the Google case merit the punishment?

It’s important to be clear about what Google actually required from manufacturers in its contracts involving Android. Android is an “open source” operating system that is available to manufacturers at no charge. But Google maintains control over certain important apps it has created, most notably the Google Play app store. Android can run without the Google Play store — as it does on Fire tablets, which come with Amazon’s own app store installed — but the store provides users a convenient way to install whatever mix of other apps they want.

First, Google bundled the store with its Search and Chrome browser apps; any manufacturer that pre-installed the store had to pre-install the apps. Second, it had revenue-sharing agreements with some phonemakers and mobile carriers that exclusively pre-installed Google Search. Lastly, manufacturers were barred from pre-installing the app store on devices that failed to meet minimum technical specifications, or if they sold any devices running a “forked” or non-official version of Android.

But aside from the revenue-sharing agreements involving Google Search, the search giant did not prohibit phonemakers from pre-installing its competitors’ apps in addition to its own. And no matter what came pre-installed, users could add any apps they wanted from the app store. In fact, as Google mentioned in its announcement that it will appeal the fine, the typical Android user will install about 50 apps in addition to those pre-installed by the phone manufacturer. Third-party browsers such as Firefox, Opera Mini, and UC Browser have been downloaded more than 600 million times.

In other words, Google’s Android contracts boil down to a superficial design requirement for manufacturers and phone carriers to place a single folder icon on the home screen containing Google apps. And Google imposes penalties on manufacturers who don’t meet basic technical specifications for good reason: If phones deviate too greatly from Android standards, apps won’t run smoothly across all devices and it will become more expensive for developers to ensure that their apps are compatible with all their customers’ phones.

The European Commission also charged Google with obstructing the development of competing Android operating systems. If true, that makes Amazon’s Fire tablets — which run a forked version of Android and are second only to Apple’s iPad in worldwide tablet shipments — an inspirational tale of overcoming obstacles to success.

In reaching its decision, the European Commission claimed that Apple iOS and Android are not competitors. This is a surprising conclusion given that 89 percent of respondents to the commission’s own survey said they were. It’s also odd that vertically integrated firms such as Apple, which operates a closed platform, seem safe from antitrust liability so long as exclusivity occurs within the firm rather than with partners up and down the supply chain. As Geoffrey Manne, president of the International Center for Law and Economics, observed, “Apple earns more revenue in an average quarter from iPhone sales than Google is reported to have earned in total from Android since it began offering it in 2008.”

Donald Trump may have been on to something when he tweeted, “I told you so! The European Union just slapped a Five Billion Dollar fine on one of our great companies, Google. They truly have taken advantage of the U.S., but not for long!” Or as Saku Panditharatne, an augmented-reality entrepreneur, more elegantly put it: “EU tech regulation is the real trade war.”

Following the announcement of the fine against Google, Barry Lynn, the director of the Open Markets Institute, told the Washington Post, “American antitrust law enforcers should study this very closely and learn from it, and emulate it, and build on it.” But remember, the United States, not Europe, is the one with the booming technology industry. If the United States were to follow the European model of using antitrust enforcement as a transatlantic revenue grab, what exactly would there be to get?