Google Play Violates S. 4(2)(e) of Competition Act through Restrictive App Store Billing Policy: NCLAT Reduces Penalty to ₹216 Cr [Read Order]

The New Delhi bench of the  National Company Law Appellate Tribunal (NCLAT), affirmed the Competition Commission of India's (CCI) ruling that Google violated section 4(2)(e) of the Competition Act, 2002 by using its dominance in the Play Store ecosystem to promote Google Play and reduced the penalty from Rs.936.44 crores to Rs. 216.69 crore based on 'relevant turnover' of Google's Play Store, rather than the turnover of the entire company.

Google LLC introduced Google Play, also known as the Play Store, an app store  for Android smartphones.  Google India Digital Private Limited released "Tez," a payment app built on the Unified Payment Interface (UPI), on August 17, 2017.  The Tez App was rebranded 'Google Pay' in August 2018.  Based on information provided to CCI under section 19, the Commission instructed the Director General (DG) to look into the Appellant on November 9, 2020.  The DG turned in its report on March 16, 2022.

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Google launched a user-choice billing test for Indian non-game developers on September 1, 2022.  The CCI asked for financial information about Google Play's earnings in India on September 14, 2022.  This data was submitted by Google on 06.10.2022.  On October 25, 2022, the CCI issued its final order (impugned order).  In the contested ruling, the Commission levied a penalty of Rs. 936.44 crore under Section 27(b) of the Act and issued a number of directives against the appellant.

Under Section 27 of the Competition Act of 2002, Alphabet Inc. and three other Google companies (Appellants) contested the CCI's contested order.  The appellant's counsel argued that the Commission erred in classifying the market as "apps facilitating payment through UPI in India," as, from the standpoint of the user, all digital payment methods are interchangeable.

It was argued that Google did not abuse its power by integrating UPI apps in a unique way on Google Play.  The Commission misapplied the dominance legal tests.  Despite determining that Google was not dominant, it discovered that the company had breached Sections 4(2)(a)(ii), 4(2)(c), and 4(2)(e).  It is impossible to prove abuse without power.  Additionally, the Commission made a mistake by claiming leverage under Section 4(2)(e).  It was unable to (i) identify pertinent markets, (ii) describe anti-competitive behavior, and (iii) prove a causal relationship between market dominance and influence in another.

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It was argued that, without using the "fairness or reasonability test" established by the CCI in Indian National Shipowners' Assn. vs. ONGC, the Commission had wrongly concluded that Google Play's Billing System (GPBS) had breached Section 4(2)(a)(i).  There was no foundation for the claim that GPBS was "one-sided and arbitrary" and had no valid commercial interests.

 In the unspecified downstream markets, the Commission was unable to prove that Google's actions had anticompetitive effects.  According to the ruling in Google LLC & Anr. vs. CCI (1st Google Case), it was argued that the Commission needed to conduct a "effect analysis" in order to demonstrate an abuse of power.

Also, it was argued that Google unfairly and discriminatorily imposes a service fee of up to 30%.  Google has a competitive disadvantage because it only pays payment processors 2.35% for YouTube while charging 15–30% for other apps.  App developers are unjustly prevented from utilizing their own payment methods by the forced implementation of GPBS.  Section 4(2)(a)(i) is violated by anti-steering clauses that restrict in-app communication, and Sections 4(2)(a)(i), 4(2)(a)(ii), and 4(2)(e) are violated by discriminatory service costs.

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 Regarding penalties, it was argued that the Commission appropriately used Excel Crop Care Ltd.'s two-stage methodology, which consists of (i) determining pertinent turnover and (ii) taking aggravating/mitigating variables into account.  Google's ad revenue and service charge revenue were taken into account.  For digital market platforms, the penalty computation based on Google's total turnover is suitable.

Nonetheless, the tribunal concluded that there was no breach of section 4(2)(c) because Google's actions did not prevent payment processors and aggregators from accessing the market.  It was noted that market access cannot be denied if market share is reduced by less than 1%. According to Section 4(2)(a)(ii), it additionally found that Google did not impede innovation because the larger UPI payment industry was still available.

The Tribunal maintained the conclusions reached by the CCI in identifying and retaining the pertinent markets, specifically the Indian market for applications that enable UPI payments.  It concluded that the user cannot use other payment methods, such as credit or debit cards, wallets, or online banking, to replace the aforementioned product market.

The Tribunal came to the conclusion that both existing and potential forms of competition restriction are covered by effect-based analysis under Section 4.  According to the Tribunal, an effect analysis was carried out by the Commission in its order.  The ruling stated that Google failed to meet the competition by adopting the mandatory requirement of using GPBS.  The Tribunal maintained the CCI's ruling that Google had breached Section 4(2)(a)(i) by requiring app developers to use GPBS, which was an unfair and discriminatory requirement.

Since Google did not impede third-party payment processors' ability to innovate, the Tribunal determined that it did not violate Section 4(2)(a)(ii). "The argument that Google has limited or restricted technical or scientific progress is not relevant when the market for UPI payments is open and accessible at 99%.

The bench of Justice Ashok Bhushan (Chairperson) and Mr. Barun Mitra (Technical Member) held that CCI erred in imposing a penalty on Google's entire turnover rather than restricting it to the relevant turnover, i.e. revenue generated from the Google Play Store. The Tribunal referred to the judgment of the Supreme Court in Excel Crop Care Ltd. vs. Competition Commission of India & Anr., where the Supreme Court laid down that adopting the criteria of 'relevant turnover' for imposition of penalty will be more in tune with the ethos of the Act.

By considering relevant Play Store revenue from the last three fiscal years—2018–19, 2019–20, and 2020–21—such as service fees, developer fees, and advertising revenue, the Tribunal adjusted the penalty.  The previous penalty of Rs. 936.44 crore was revised to Rs. 216.69 crore, or 7% of the relevant turnover.

 The appeal was granted by the Tribunal.  It maintained the CCI's ruling that Section 4(2)(a)(i) and 4(2)(e) had been violated.  It did not, however, support the CCI's conclusion that Sections 4(2)(a)(ii), 4(2)(b(ii), and 4(2)(c) were violated.  Additionally, the Tribunal lowered the Rs. 936.44 crore fine Google had been hit with to Rs. 216.69 crore.

To Read the full text of the Order CLICK HERE

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