The fallout from Google‘s record-breaking €1 billion fine by the European Union’s Digital Markets Act is quickly turning into a steep legal bill for the tech giant. The first shockwaves to rip across the corporate world were the initial penalty, but the real financial danger for the search and advertising giant may just be starting. Now, legal experts and industry watchers are raising the alarm that there may be a deluge of private damages lawsuits from enraged competitors, and that the loss could be massive, well into the tens of billions of dollars, in addition to the fine.
It is not the first time in the past that Silicon Valley and European lawmakers have seen tensions. The company has settled with the European Commission for antitrust violations, racking up more than €10.4 billion in fines since 2017, for everything from abusing its dominance in online shopping comparison to favouring its own ad tech services. But the recent landmark ruling in the light of the recently enacted Digital Markets Act, which determined the company guilty of using its Google Play app store to suppress competition, has brought about a complete change of the cards. This is not just another fine that can be paid and forgotten; it is a turning point in the law and regulation that has opened the doors for a flood of private litigation.
It’s all about the precedent set by the EU’s ruling. The discovery of “ongoing wrongdoing” gives a strong and enforceable basis for opponents to the conduct to claim damages for any losses they allege they suffered. Smaller players, price comparison websites and app developers have been complaining for years that the search giant’s practices have systematically denied them fair competition. Now, the regulator has handed down its verdict, these companies have a legal document that they can use to prove at least in the eyes of the EU that the tech giant was acting illegally. Attorneys are already anticipating a flood of similar lawsuits to be filed and prepared across the continent with cases in at least half a dozen countries already filed or in the works.
Thomas Hoppner, a partner at Geradin Partners and a leading representative of affected parties, pointed out the importance of the ruling. I believe this will be the beginning of a fresh round of litigation,” he said and many other firms would agree. He added that his company, which had been advising the German price comparison site Idealo on its market abuse case, thinks the potential for claims is much wider than the recent offences. Specialist search firms “may find themselves in a position to seek damages, not only for the duration of the DMA, but also for the years leading up to the DMA breaches,” he explained, referring to the older Article 102 of EU law, which bars companies from abusing a dominant market position. This gives the opportunity for claims to occur earlier than the Digital Markets Act, widening the scope of the time frame and financial liability for the company.
These claims have the potential to be massive. “A Berlin court recently awarded €465 million in damages to Idealo, which was a big win and a clear example of how the precedent is going to be set,” said Dieter. Although the case was filed under a different legal system, it shows how willing the ECJ is to hand down large judgments against the tech giant when anti-competitive practices are found. This achievement might have encouraged other firms to take a legal approach of their own, and boosted the confidence of those who believe they have been the ones losing out in the market.
The company is defiant, too. The tech giant’s spokesperson rejected the legal threats, saying the lawsuits are meritless. The spokesperson stated the company is strongly opposed to these lawsuits, which “are being filed by companies that want a payout rather than investing in their product. The defensive stance makes the current litigation appear like a nuisance by competitors who refuse to innovate, and not a legitimate reaction to anti-competitive business practices. But with so many pending and potential cases, it’s more than a distraction, it’s a systemic problem with the company’s European business model.
These legal challenges have taken place at a very opportune time. It’s been said the company has been investing billions of dollars in its AI capabilities in order to stay competitive with the fast-changing tech landscape. Analysts have called it a must-have for the company’s long-term survival, but it has put a strain on the company’s finances. Alphabet’s free cash flow number hit negative in the second quarter, a worrisome development for investors, as it’s the first quarter that the company’s FCF has turned negative since the offering. The ongoing legal risks and the financial toll of the AI arms race are a double whammy for the company’s finances and future plans.
