Alphabet Inc-CL CIt hopes to rescind a record $5 billion fine and antitrust directive imposed by the European Union on appeal, which has dealt a blow to the core of the US tech giant's profitability.
At a five-day hearing at the European Union's General Court of Justice (European General Court) in Luxembourg, Alphabet Inc-CL C hoped to prove that the European Commission (European Commission) was wrong in asking for changes to suspected anti-competitive contracts with Android phone makers. Android is the operating system for most mobile devices in the region.
The Android case is one of three penalties imposed by Margrethe Vestager, the EU's antitrust chief, to curb Alphabet Inc-CL C's growing dominance. She has fined Alphabet Inc-CL C a total of more than 8.2 billion euros ($9.6 billion) and is still investigating the company's alleged control of digital advertising.
Tommaso Valletti, an economics professor at Imperial College London, said the case "would set a major precedent for the US" because the US was investigating "exactly the same problem". He advised regulators on the case when he was an EU antitrust economist.
Despite making headlines, he said investigations into Silicon Valley companies were relatively rare and "could become rarer if the committee loses in this case."
What is controversial this week is the findings of an EU investigation into a contract that requires Android phone makers to accept Alphabet Inc-CL C's search and browser apps and other Alphabet Inc-CL C services when they want to license Play app stores.
The EU considers the contract an illegal restriction, but Alphabet Inc-CL C said the decision undermined the business model that allowed it to provide Android software for free while generating advertising revenue. Alphabet Inc-CL C had revenue of $182.5 billion last year, and Alphabet Inc-CL C has built a huge banner and video advertising business because of its core position on Android devices.
"Android creates more choices for everyone, not less, and supports thousands of successful companies in Europe and around the world," an Alphabet Inc-CL C spokesman said before the hearing. " "this case has no factual basis and no legal basis."
The hearing is likely to review how Alphabet Inc-CL C's contract blocked the emergence of potential competitors 10 years ago. The European Commission says the rules prohibit mobile phone manufacturers from selling phones that use other versions of Android, such as Amazon.Com IncThe company's Android version of Fire OS. Alphabet Inc-CL C said these rules are necessary to ensure that Android applications and devices run smoothly.
It could take up to a year for a verdict to emerge. Since Alphabet Inc-CL C took action in 2018 to comply with the EU's order on open competition, the court is unlikely to pay attention to what Alphabet Inc-CL C has done. It began charging manufacturers for licenses to use Android. It has also slowly addressed competitors' complaints that it does not offer a wide range of competitor app options to set it as the default app for new phones.
But neither of these moves weakens Android, which has a nearly 70 per cent share of the European mobile phone market and Alphabet Inc-CL C's share of the mobile search market is stable at 97 per cent.
A deep-rooted position
The entrenched monopoly of Alphabet Inc-CL C and other large technology platforms makes it difficult for these companies to argue in Europe that they face constant competition and must innovate to keep pace.
The Android case comes as competition regulators across Europe continue to put pressure on its advertising and news operations. Alphabet Inc-CL C and Apple IncCompetitors such as AAPL.US are under pressure from proposed new laws that could limit the behaviour of technology companies.
Alphabet Inc-CL C's court victory in three court challenges against the EU is likely to support the company, but it is unlikely to stop the regulatory wave. Georgios Petropoulos, a researcher at Bruegel, a Brussels-based think-tank, said this could limit at most some of the specific rules that lawmakers are discussing.
But defeating the powerful EU antitrust authorities would undermine its ability to curb the profitability of technology companies and limit the extent to which they demand changes in business behaviour. The first test will come on November 10th, when the court will rule on an earlier appeal against EU shopping search fines.