Court of Justice of the EUconfirmed the€2.4 billion fine imposed on Google for having abused its dominant position by favouring its own product comparison service and annulled the Court’s ruling concerning the Tax rulings adopted by Ireland in favor of Apple.
In the first case, the appeal filed by Google and its parent company Alphabet was rejected. In the second, the Luxembourg judges confirmed the European Commission’s 2016 decision: Ireland had granted the Cupertino giant illegal aid that the State is required to recover. According to the Commission’s estimates, Ireland would have granted Apple illegal tax benefits totalling 13 billion euros.
Ireland’s Illegal Aid to Dublin
In 1991 and 2007, Ireland issued two so-called ‘preemptive tax rulings’ to two Apple group companies, Apple Sales International (Asi) and Apple Operations Europe (Aoe), which were incorporated as Irish companies but were not tax residents in Ireland. These tax rulings approved the methods used by Apple to determine their taxable profits in Ireland, relating to the trading activities of their respective Irish branches.
In 2016, the European Commission considered that by excluding from the tax base the profits generated by the use of intellectual property licences held by Apple, essentially on the grounds that the headquarters of those companies were located outside Ireland and that the management of those licences depended on decisions taken at the level of the Apple group in the United States, the tax rulings had granted those companies, from 1991 to 2014, an illegal state aid incompatible with the internal market which had benefited the Apple group as a whole. It then ordered Ireland to proceed with its recovery. According to the Commission’s estimates, Ireland had granted Apple illegal tax advantages totalling €13 billion.
In 2020, faced with appeals brought by Ireland as well as by Apple, The Court annulled the Commission’s decision considering that the latter had failed to demonstrate the existence of a selective advantage resulting from the adoption of the tax rulings in question and resulting in a preferential reduction of the tax base in Ireland. By its judgment, the Court, hearing an appeal brought by the Commission, annuls the judgment of the General Court and gives final judgment on the dispute.
According to the Court, the General Court erred in holding that the Commission had not proved to the requisite legal standard that the intellectual property licences held by Apple and the related profits, generated by sales of Apple products outside the United States, should have been attributed, for tax purposes, to the Irish branches. In particular, the General Court erred, first, in holding that the Commission’s main reasoning was based on incorrect assessments as to the normal taxation under the Irish tax law applicable in the case at issue and, second, in upholding the complaints raised by Ireland and by Apple against the factual assessments made by the Commission as regards the activities of the Irish branches and the activities outside those branches.
Why Google was sanctioned
Having set aside the judgment under appeal, the Court considers that the state of the case allows it to rule on the actions and that it is appropriate to give final judgment on them within the limits of the dispute which remains pending before it. In that context, the Court confirms in particular the Commission’s approach according to which, under the relevant provision of Irish law relating to the calculation of the taxation of non-resident companies, the activities of Apple’s branches in Ireland had to be compared not with the activities of other companies in the Apple group, for example a parent company in the United States, but precisely with those of other entities of those companies, in particular those of their headquarters located outside Ireland.
By decision of 27 June 2017, the Commission found that, in thirteen countries of the European Economic Area (EEA), Google had given priority, on its general search results page, to the results of its own product comparator over those of competing product comparators. Google had in fact presented the search results of its product comparator in first position and had enhanced them within “boxes”, accompanying them with attractive visual and textual information. In contrast, the search results of competing product comparators appeared only as simple generic results (presented in the form of blue links) and were, for this reason, contrary to the results of Google’s product comparator, susceptible to being downgraded by adjustment algorithms in Google’s general search results pages.
The Commission concluded that Google had abused its dominant position on the market for general Internet search services as well as on that for specialised product search services and imposed a fine of €2.42 billion, for which Alphabet, as Google’s sole shareholder, was held jointly and severally liable for an amount of €523.5 million.
Google and Alphabet challenged the Commission’s decision before the General Court of the European Union. By judgment of 10 November 2021, the General Court essentially dismissed the action and, in particular, upheld the fine. However, the General Court held that it had not been shown that Google’s practice had had anti-competitive effects, even if only potential, on the general search market. Consequently, it annulled the Commission’s decision in so far as the Commission had found an infringement of the prohibition on abuse of a dominant position also with regard to the latter market. Google and Alphabet then brought an appeal before the Court, by which they seek the annulment of the General Court’s judgment in so far as it dismissed their action, as well as the annulment of the Commission’s decision.
With its judgment of today, the Court dismisses the appeal and thus confirms the judgment of the General Court. The Court recalls that Union law sanctions not the very existence of a dominant position but only the abusive exploitation of the latter. In particular, the conduct of undertakings in a dominant position that restricts competition based on merits and is therefore likely to cause harm to individual undertakings and consumers is prohibited. Such conduct includes those that, by means other than competition based on merits, hinder the maintenance or development of competition on a market in which the level of competition is already weakened, precisely because of the presence of one or more undertakings in a dominant position.
The Court states that it cannot be considered, in general, that a dominant undertaking which applies to its own products or services more favourable treatment than that which it grants to those of its competitors is, irrespective of the circumstances of the case, behaving in a manner which departs from competition on the merits. It notes, however, that in the present case, the General Court has indeed established that, in the light of the characteristics of the market and the specific circumstances of the case at issue, Google’s conduct was discriminatory and did not fall within the scope of competition on the merits.
“We are disappointed by the Court’s decision. This ruling relates to a very specific set of facts. We made changes in 2017 to comply with the European Commission’s decision and our approach has worked successfully for over seven years, generating billions of clicks for over 800 price comparison services,” a company spokesperson said.