The Competition Commission of India (“CCI”) vide its order dated November 09, 2020 directed the Director General to cause an investigation against Google for alleged violation of provisions of Section 4 of the Competition Act, 2002 (“Act”).

Facts:

An information under Section 19(1)(a) was filed by XYZ (“Informant”) against Alphabet Inc. (“OP-1”), Google LLC (“OP-2”), Google Ireland Limited (“Google Ireland/ OP-3”), Google India Private Limited (“Google India/ OP-4”) and Google India Digital Services Private Limited (“Google Digital Services/ OP-5”) alleging contravention of various provisions of Section 4 of the Act.

The Informant averred that other than Android and Google Search, Google’s core products include, a web browser (Google Chrome), an online video streaming service (YouTube), a web-based e-mail service (Gmail), an online mapping, navigation and geolocation service (Google Maps), an app store (Play Store), etc. These services are part of Google Mobile Services (GMS) i.e., the bundle of Google apps and services that Google licenses to smartphone manufacturers/ Original Equipment Manufacturers (OEMs. In addition to the core products of Google, on September 18, 2017, Google launched a Unified Payment Interface (“UPI”) based payment app called Tez in India, which was rebranded as Google Pay on August 28, 2018  in order to unify Google’s payment offerings globally under the ‘Google Pay’ brand.

The Informant alleged that Google, through its control over the Play Store and Android Operating System (“OS”), is favouring Google Pay over other competing apps, to the disadvantage of both i.e. apps facilitating payment through UPI, as well as users.

The Informant alleged that Google is abusing its dominant position in the markets for licensable mobile OS for smart mobile devices and app stores for Android OS by:

1. unfairly privileging Google Pay by prominent placement on the Play Store, Android OS and Android based smartphones by skewing the search results on the Play Store in favour of Google Pay; by rigging its featured app lists to include Google Pay in categories, such as “Editors’ Choice Apps”, “User Choice App of 2018” and “#Top Free app” demonstrating clear bias in favour of its own app; by manipulating the search advertisements algorithm on the Play Store in favour of Google Pay; and by pre-installing and prominently placing Google Pay on Android smartphones at the time of initial set-up resulting in a “status-quo bias” to the detriment of other apps facilitating payments through UPI as well as other methods of payment, such as mobile wallets, net banking, etc.
2. mandating apps to use Play Store’s payment system and Google Play In-App Billing for charging their users for purchase of apps on Play Store and In-App purchases (which privileges Google Pay over other apps facilitating payment through UPI and mobile wallets), if they want to be listed on the Play Store; and
3. imposing unfair terms on users by requiring them to use Google Pay which is not in compliance with the data localisation directive issued by Reserve Bank of India and the guidelines issued by NPCI.

Analysis by the CCI:

Relevant Market and Dominance of Google

The CCI while determining ‘relevant market’ referred to its order dated April 16, 2019 passed under Section 26(1) of the Act in case bearing no. 39 of 2018 where it had the occasion to consider the first two markets as delineated by the Informant and formed a prima facie view that “market for licensable smart mobile device operating systems in India” and the “market for app stores for android mobile operating systems” are appropriate and necessary markets for assessment of impugned conduct. The CCI observed that based on available data, it appears that Play Store is the dominant source of downloading apps on an Android smartphone. The Commission also formed a prima facie determination that Google is dominant in both of these markets. CCI was of the prima facie view that market for apps facilitating payment through UPI appears to be a distinct relevant market for the assessment of allegations in the present matter. The CCI noted that though the intended use of most of the digital payment methods might be the same, the features/ characteristics offered by UPI make it distinct from others which is sufficiently evidenced by the volume and/ or value of transactions completed through UPI based apps.

Allegations under Section 4:

1. Listing of an app on Play Store conditional on the app using Play Store’s payment system and Google Play In App Billing for charging their users amounts to abuse of dominance.
2. Play Store charges a 30% commission from app providers for allowing them to use the Play Store’s payment system and Google Play In-App Billing.
3. 30% commission is not being charged by Google for the purpose of listing these apps on Play Store, as the app providers separately pay a one-time fee of 25 USD for getting listed on the platform.
4. Google through the Play Store is differentiating between Google Pay and other apps facilitating payment through UPI, such as, BHIM, Paytm, PhonePe, etc. by only allowing its own payment offering i.e. Google Pay on its platform.
5. Conduct of Google results in denial of market access to competing mobile wallets and apps facilitating payment through UPI, tying Google has tied Google Pay with the Play Store by making listing on the Play Store conditional on app providers using Play Store’s payment system and Google Play In App Billing to charge the users for purchase of apps and IAPs as well as leveraging of its position in the markets for the licensing of mobile OS and app stores for Android mobile to protect its position in the market for apps facilitating payment through UPI, in contravention of the provisions of Section 4(2) of the Act.

Observations by CCI:

1. Mandatory use of application store’s payment system for paid apps and in-app purchases restricts the choice available to the app developers to select a payment processing system of their choice especially considering when Google charges a commission of 30% (15% in certain cases) for all app purchases and IAPs. Further, considering that Play Store is the dominant source of downloading apps in the Android OS (90% of the downloads) and its condition requiring use of application store’s payment system for paid apps and in-app purchases, it appears that Google controls the significant volume of payments processed in this market.
2. The fee charged by Google would increase the cost of Google’s competitors and thus, might affect their competitiveness vis-à-vis Google’s own verticals (the fee in respect of which, in any case would be internalized). Such a policy of the application store may disadvantage its competitors in the downstream markets, such as music streaming, e-books/ audiobooks etc.
3. Mandatory use of application store’s payment system for paid apps and in-app purchases along with the associated issue of alleged ‘high’ service fee/ commission have been a matter of concern in other parts of the world.
4. Pre-installation of Google Pay may create a sense of exclusivity and default as users may not opt for downloading competing apps. Based on the available data, it appears that Google already has a significant market presence in UPI based digital payment applications market and it may affect the evolving and transitory market in its favour. In such a stage of evolution, Google using its market position in applications relating to licensable mobile OS, search engine, app store, browser, etc. to enter into contractual arrangements with OEMs for pre-installation of Google Pay, may disturb the level playing field.

Conclusion:

After making the above observations, the CCI was of the prima facie view that the opposite parties have contravened the provisions of Section 4 of the Act and directed the DG to cause an investigation under Section 26 of the Act.

Please find attached a copy of the order.

This update has been contributed by R. Sudhinder (Senior Partner) and Prerana Amitabh (Managing Associate).