Hearings begin in Google’s appeal of $1.6 billion EU antitrust fine

LUXEMBOURG (CN) — The European Union’s second-highest court opened three days of hearings Monday over a $1.6 billion fine levied against Google for abusing its near-monopoly in the internet search market to promote its targeted ad product.

Before the General Court of the European Court of Justice, lawyers for the Silicon Valley giant and the European Commission spent opening day arguing over whether ad buyers are free to take their online advertising elsewhere if they found Google’s in-house advertising service AdSense too restrictive.

“I expect [these] will be long proceedings,” Presiding Judge Alexander Kornezov said at the start of the hearing. 

In 2019, the commission - the European Union’s executive branch - accused Google of breaching EU antitrust regulations by demanding exclusivity contracts from websites that accepted its ads. It fined the tech giant 1.49 billion euros, or $1.6 billion.

“Google has cemented its dominance in online search adverts and shielded itself from competitive pressure by imposing anticompetitive contractual restrictions on third-party websites. This is illegal under EU antitrust rules,” Commissioner for Competition Margrethe Vestager said in a statement when announcing the fine.

The EU contends that since Google dominates the internet search market - 90% of web searches in the EU go through Google - websites had no choice but to agree to Google’s terms. 

Google's team spent Monday morning arguing that if websites found its advertising rules too burdensome, they could choose to work with other advertisers. “Advertisers can and do switch,” the company's lawyer Josh Holmes told the Luxembourg-based General Court.

According to Google, search ads and non-search ads, including banner ads which appear as large images embedded on webpages, can be substituted for one another. Companies spend billions every year to place ads at the top of search results and Google’s parent company, Alphabet, makes more than 80% of its annual revenue from advertising. 

The commission disagreed, citing an analysis it conducted as part of its investigation in which it surveyed both publishers and advertisers to see how they made their advertising choices.

“The survey showed advertisers did not see search and non-search ads as substitutes,” commission lawyer Thomas Franchoo said. Rather, according to the commission, search ads and non-search ads reached different audiences and used different metrics, which means they aren't interchangeable.

The afternoon was dominated by arguments over the conditions of Google’s advertising agreements. The company initially released AdSense in 2003, and by 2006 it was requiring websites to sign exclusivity contracts preventing them from publishing competitors' ads. Google scrapped the practice in 2009 in favor of a “premium placement” model, essentially giving AdSense the juiciest cuts of the ad locations on a website. The company also required websites to get written approval before making any changes to rival advertisers.

Google fought back Monday against the idea that these contracts were anticompetitive.

“The fact that some clients chose to place all of their ads with Google does not show a violation,” Holmes said. 

Google had claimed in its opening statements that its AdSense program was “revolutionary,” but the commission argued the company used its exclusivity clauses to fend off rivals. Commissioner lawyer Nicholas Khan argued the search giant "didn’t want to rely on the intrinsic merit of its services."

Khan, who was part of the team that prevailed against Google during another antitrust case at the EU court, argued the company would not have changed its contractual terms except to try to ward off a commission fine.

“If the exclusivity clause was not an infringement… it’s difficult to understand why Google retreated from it,” Khan said. 

The EU's investigation into AdSense was spun off from another investigation into Google over its alleged abuse of its internet search dominance to undercut competitors of its Comparison Shopping Service. The commission levied a then-record-breaking 2.4 billion euro ($2.5 billion) fine in 2017, which the General Court upheld last year. Google is appealing that decision to the EU's highest court, the European Court of Justice. 

In 2018, the commission fined Google twice as much, accusing Alphabet of favoring its own apps in the Android mobile phone platform app store and penalizing the company 4.3 billion euros ($4.5 billion). The General Court heard Google’s appeal against that sanction last year and a decision is expected in the fall. 

Google isn’t the only California tech company to face scrutiny from Brussels. While lawyers in Luxembourg were arguing the Google case Monday, Vestager announced her office is looking into whether Apple illegally distorted the market for mobile wallets on iPhones. 

Hearings continue on Tuesday.

Follow @mollyquell

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