Google/Fitbit: The EU Commission misses a step

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The European Commission’s 254-page decision approving Google’s acquisition of Fitbit (the “Decision”) offered the Commission a so-far unique opportunity to apply the 2019 report on “Competition policy for the digital era’s” (the “Digital Era Report’s”) recommendation to assess acquisitions by “gatekeeper platforms” of much smaller companies active in complementary markets using an “ecosystem” approach. Google/Fitbit would seem to be an ideal test case for such an approach, involving a large number of complementary markets for smartphones, smart wrist-worn wearable devices, operating systems (OS) for both types of device, apps, app stores, online advertising and the nascent digital healthcare sector. Unfortunately, the Commission passed up the opportunity.

Indeed, the Digital Era Report argued that traditional theories of harm should be “rethought” where the “acquirer operates a multiproduct platform and/or an ecosystem that benefits from strong positive network effects, which act as a significant barrier to entry” and where “the risk to competition resulting from an acquisition is not limited to the foreclosure of rivals’ access to inputs, but extends to the strengthening of dominance as it fortifies the dominance of the ecosystem.” The report noted that “Even though the incumbent may not be dominant in a complimentary service market when that market is analysed as a separate market, a broader view of the position of the incumbent in a ‘market for the digital ecosystem’ may justify a finding of a significant impediment to effective competition” (pp 121-122).

The Commission did take such an approach in its preliminary report on its sector inquiry into the Consumer Internet-of-Things (the “Preliminary Report”) which noted that “a large number of respondents consider the main obstacle to developing new products and services to be the inability to compete with Google, Amazon and Apple . . .because these vertically integrated companies have built their own ecosystems within and beyond the consumer IoT sector by combining their own and integrating third-party products and services into an offering with a large number of users” (p 7). “Through their ecosystems combining voice assistants with search and/or marketplaces, and/or operating systems and/or app stores,” the Preliminary Report notes, “Google, Amazon and Apple have a unique position in the consumer IoT sector. As respondents point out, with every new smart device or consumer IoT service added these three consumer IoT ecosystems can realise growth through network effects and obtain unprecedented access to user (and sometimes competitor) data” (para 125).

Far from rethinking its approach to online platform acquisitions of complementary businesses in Google/Fitbit, however, the Commission followed its traditional narrow, market-by-market basis. Indeed, the Commission was arguably less exacting than in past cases and accepted remedies in some respects unprecedented and unsupported by its own Remedy Notice. The same remedies were rejected by the Australian ACCC and criticized by the UK’s CMA Chief Executive, Andrea Coscelli.