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E.U. Hits Google With $5 Billion Ginned-Up Protectionist Fines

5 of the 6 largest European antitrust decisions have been slapped on U.S. tech companies

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Viorel Dudau/Dreamstime.com

The European Union's antitrust bureaucracy today levied a $5 billion fine on Google, a new European record.

In a statement, the European Commission alleged that Google violated the law in three ways: unlawfully tying its search and browser apps to the Android operating system, paying manufacturers to pre-install Google Search on devices, and making it difficult for device manufacturers to sell "forked" versions of Android, such as versions running Amazon's Fire OS.

It's a restatement of the Commission's preliminary conclusions from 2016, meaning Google's arguments over the last two years have proven entirely unsuccessful.

Google has offered an impassioned defense and says it will appeal, which will take a few more years.

It's a remarkable decision in a few ways, including that the Commission's lengthy statement barely mentions Apple—except to insist that Cupertino's iOS operating system is somehow "not part of the same market." In this contrafactual view of the world, iOS never competes with Android, which may come as a surprise to the millions of Europeans cross-shopping the latest iPhone and Samsung phones. Also absent is any acknowledgement that Apple leads the worldwide tablet market, with Amazon.com's de-Googlefied version of Android coming in second.

This rhetorical sleight of hand allowed the E.U. to ignore competitive threats posed by Apple and Amazon and conclude that Android enjoys a "market share of more than 95 percent" of "licensable smart mobile operating systems." By this logic, Apple should fear becoming the E.U. bureaucracy's next target: It commands a market share of approximately 100 percent of non-licensable "smart mobile operating systems." And it's far more controlled than Android; good luck trying to delete Safari, replace Siri with Google's assistant, or even distribute your own app without Apple's explicit permission.

By comparison, the Federal Trade Commission (FTC) has been investigating the same allegations about Android since 2015, and has yet to take any action. The FTC closed a previous investigation in 2012 without bringing a case. In 2016, Canada's Competition Bureau formally abandoned its three-year probe into Android after, according to the Wall Street Journal, "finding little evidence that the technology giant engaged in anticompetitive behavior."

If this were the first time the E.U. engaged in this kind of outcome-based chicanery on antitrust, it might reasonably be dismissed as an expensive mistake. But it's not. Instead, today's announcement escalates a kind of transatlantic Cold War on trade, which has accumulated a price tag in the tens of billions of dollars.

It's true that some honest differences in philosophies exist between the E.U. and the United States. Since the 1970s, U.S. antitrust law has been more focused on protecting competition, which includes looking at whether consumers have actually been harmed. The E.U. approach has been more concerned more with protecting competitors, with officials likely to step in to help struggling smaller rivals.

But what may have began as a reasonable difference in emphasis now appears to have morphed into naked European protectionism. The economics are simple: European firms have fallen behind their American counterparts to the point that not one European firm appears in the list of top 20 Internet companies ranked by market capitalization. Any aggressive approach toward antitrust enforcement of mobile or online business practices will, not-so-coincidentally, handicap Silicon Valley companies to the advantage of smaller European rivals. (Finland-based Nokia, once the world's biggest phone maker, sold its shrinking handset business to Microsoft for $7 billion in 2014; two years later, Microsoft dumped it for the firesale price of $350 million.)

It should come as no surprise that five of the largest six antitrust fines in E.U. history, according to Reuters, have been slapped on U.S. tech companies. The unwilling recipients include Google (twice, including today's fine), Intel, Microsoft, and Qualcomm. The only European company to make the top six was Daimler LG, parent company of Mercedes, which was fined for the grave crime of "passing on the costs of compliance with stricter emission rules." Quelle horreur!

The E.U.'s antitrust officials demanded that Ireland seize $14.5 billion in taxes from Apple (the Irish government, which says all taxes owed had been paid, was not amused by this diktat). They levied a $110 million fine on Facebook for allegedly not disclosing enough information about its WhatsApp acquisition. They've already expressed interest in moving against home assistant devices such as Amazon Echo or Apple's HomePod, plus, separately, Qualcomm and Amazon. The General Data Protection Regulation (GDPR) may represent the pinnacle of this protectionist mentality.

Both President Obama and President Trump have recognized this problem. In a 2015 interview with Recode, Obama said: "Their service providers who, you know, can't compete with ours—are essentially trying to set up some roadblocks for our companies to operate effectively there." This week, Trump said: "I think the European Union is a foe, what they do to us in trade. Now you wouldn't think of the European Union but they're a foe."

A wiser approach for the European Union would be to reform its own laws on taxes, privacy, and employment flexibility to encourage the next wave of tech companies to open in Berlin, Madrid, Rome, Paris, Amsterdam, Vienna, or Prague. Unfortunately, that would require Europe to admit its mistakes first.