Unravelling CCI's Decision on Google Play Store: A Final Nail in The Coffin (?)

The authors are Amiya Krishna Upadhyay and Akshita Singh, fifth year students at National Law University Odisha.

Introduction

In an interesting turn of events, the Competition Commission of India (CCI) imposed a notable fine of INR 936.44 crores on Google. The allegations in the Information pertained to Google’s Play Store policies including inter alia mandating the usage of Google Play Store’s payment system (GPBS) by the apps and Google Play In-App Billing (GPIB) by consumers for making any in-app purchases. Allegations were also levelled against the pre-installment of Google Pay on Android smart phones at the time of setting up, all of which allegedly extended a favourable position to Google Pay over other applications which facilitated payments through UPI and mobile wallets. The order, intriguing in nature, has redefined the approach adopted by the competition watchdog against such antitrust infringements by the internet search giant. This article examines the key agreements between Google and App developers, its effects on the consumers and furnishes a holistic viewpoint by analyzing the primary factors taken into account by the competition watchdog while passing the order.

Relevant Market

The CCI identified the relevant markets as the “Market of licensable operating systems (OS) for smart mobile devices in India”, “Market of app stores for Android OS in India" and “Market for apps facilitating payments through UPI in India”, in order to assess whether Google had, in fact, abused its dominant position. With regards to the first relevant market, the CCI’s opinion was influenced by the fact that the relevant market for mobile operating systems that are licensable in India, has swung in favour of Google-Android OS due to the indirect network effects, switching costs, and other relevant characteristics that define the competitive environment.

With regard to the second relevant market, the CCI noted that the Google Play Store had become indispensable for app developers and users on the android ecosystem. Owing to its massive user base and the enormous number of app developers that rely on the Play Store to maximise their reach and income potential, Play Store has a significant advantage due to indirect network effects. This is also one of the reasons why it becomes difficult for a new entrant to compete against an incumbent platform in a multi-sided market.

Status quo bias – Fair or unfair?

In the present case, the Informant contended that the preferential placement of Google Pay on the Play Store drove the customers to exclusively rely on Google Pay on account of ‘status-quo’ bias. This act of pre-installation of Google Pay amounted to a violation of Section 4(2) of the Act, as it conferred a competitive advantage. To this end, however, the CCI concluded that there was no abuse of dominance. Placing reliance on the investigation by the DG, it was noted by the CCI that other competing UPI applications such as Paytm, PhonePe etc., had also entered into similar agreements with the original equipment manufacturers (OEMs) for pre-installation of their UPI applications. CCI observed that the practice of entering into agreements with OEMs was not only confined to Google but was also carried out by its competitors. Hence, the allegations pertaining to ‘status-quo’ bias were rejected.

On the contrary, the argument that pre-installation creates a ‘status-quo bias’, has been accepted by the European Commission (EC) as well as the European General Court (EUGC) while assessing the significant effects of pre-installing Google Search and certain Play store apps on Android mobile devices. It was noted that pre-installation created a tendency among the users to only use the pre-existing apps, which ultimately restricts competition as it generates an advantage that cannot be offset by the other competitors.

Exclusivity via Technology: Intent Flow v. Content Flow

Regarding the exclusion of other UPI apps from being viable payment alternatives on the Google Play Store, the CCI observed that Google was discriminatory in its actions in enabling only Google Pay to use the intent flow technology while the other UPI apps could only use the collect flow technology. This had led to the denial of market access to competing UPI apps. In collect flow technology, users must first enter their UPI ID. After the ID is verified, a collect notification is delivered to the user's app to finish the transaction. However, in intent flow technology, the user receives a list of pre-installed UPI apps on their device to choose from. Users only need to choose one UPI application and input their 4-digit UPI pin to finish the transaction. Collect flow technology necessitated the customer to actively engage with the inter-connected apps to manually complete a payment. Intent flow technology, on the other hand, did not require the end users to interchange among three app services (Merchant app, SMS, and UPI app) to complete payment. Hence, the CCI observed that intent flow technology was far superior and user friendly to collect flow technology, with the former offering significant advantages to both customers and merchants.

In turn, Google argued that its actions were in accordance with the norms laid down under the National Payment Corporation of India (NPCI) guidelines, which permitted for both the standards i.e., collect flow or intent flow. However, CCI observed that the NPCI guidelines were not restricting Google from providing intent flow technology to the other competing apps as well, thus gaining a competitive edge over them.

As far as NPCI guidelines were concerned, compliance with these could still result in a violation of competition law. Merely adhering to the NPCI guidelines did not give Google a clean chit to distort the market through exclusivity, unfair pricing and unilateral agreements. In AstraZeneca v Commission, it was held that if a dominating enterprise did not have any objective justifications for its actions, the antitrust laws might nonetheless be deemed to have been broken even if its actions adhered to some other laws.

Discriminatory Pricing – A Level Playing Field?

A significant emphasis was also laid on the discriminatory pricing imposed by Google vis-a-vis YouTube. While all the other video sharing platforms such as Moj are subjected to an exorbitant 15-30% service fee, the same costs were not applicable to YouTube. Thus, instead of using the mandatory GPBS, YouTube was given the liberty of directly engaging with third party payment processors at a reduced service fee. The imposition of such tie-in arrangements, as averred by the Informant, resulted in a breach of fair competition for other video sharing platforms thereby amounting to abuse of dominance by Google in the app-store market. It was thus pointed out that Google had created a mechanism for YouTube to circumvent its own conditions and fees to the detriment of other competitors. Also, this was not the first time that Google had favored its own service. Contentions have also been raised against Google’s preferential treatment of its own shopping service in the market for specialized search before the European Commission. Here, discrimination existed in terms of results which happened to be more appealing in case of Google’s own shopping service as against the generic results from its competitors. This discriminatory act constituted abuse of dominance as per both the EC and the EUGC.

Taking the above practice into account, the CCI took cognizance of the ill-effects that arose out of such discriminatory practices, both in the primary and the downstream market in terms of increased costs for the app developers. These costs were either borne by app developers themselves or were passed onto the end users, the outcome of which was either curtailed innovation or escalated costs for the consumers for the same service. High costs for the consumers could also cause them to give up on these applications in entirety which could further result in exit of market players and a dilution of the overall competition.

Unilateral Anti-steering Provisions

Anti-steering rules restrict the app developer’s ability to notify users of alternative purchasing options. In the present order, apart from mandating the implementation of GPBS, Google, via its anti-steering provisions, prohibited app developers from informing consumers within an app that they may purchase in-app content outside of Google’s ecosystem. This is because if enough consumers were given alternative payment options to steer away from Google Play by app developers, it would cause a substantial reduction in the in-app purchase fees paid to Google by consumers because then they can avail that service via external websites. As a consequence, Google will lose out on a significant amount of money on account of the prohibition on its anti-steering measures.

Besides harming app developers, Google’s anti steering provisions also harmed the consumers. Firstly, they curbed consumer’s choice. While some consumers would desire Google's advanced services (such as one-stop shopping, simple access to all purchases and enhanced security owing to central billing system), Google deliberately prohibits them the choice. A similar position was taken in Epic vs Apple wherein it was held that these anti-steering provisions stifle consumer choice. Secondly, they restrict the consumers from benefiting from the discounts and rebates offered by the other banks that could have been availed by the consumers using alternate payment systems. Thus, anti-steering provisions prevent app developers from directing users to a cheaper price.

Conclusion

As one examines the decision, it becomes clear that CCI has a vision of what the digital market should look like sans Google’s distortion, i.e., multiplicity of choices for consumers, better incentives for app developers, and increased usage of competing UPI apps. In addition, since there is stiff rivalry for both new and returning customers, platforms feel pressured to provide more products of ever-improving quality. For instance, in the face of increased competition, Google might improve Play Store’s services and discover unique means of reducing the costs dedicated to ensuring the Play Store's continued high service standard. Following the decision, Google has already paused its policy regarding mandatory use of GPBS.

Although this decision is likely to be challenged before higher forums, the amount of penalty levied clearly reflects that the CCI has warmed up to increased regulation of big tech. In what constitutes a second order in a span of two weeks, Google may also be hit by a third blow for an alleged abuse of dominance in the smart TV space. As such, CCI’s future approach in digital markets must be carefully thought out, consistent, and aimed at providing the digital sector with enough room to expand while ensuring competition and protecting consumers.