Regardless of which standard you want to apply to competition law – consumer welfare, total welfare, hipster or redneck antitrust – it’s never good when competition/antitrust agencies are undermining innovation. Yet, this is precisely what the European Commission is doing.
Today, the agency announced a €4.34 billion fine against Alphabet (Google). It represents more than 30% of what the company invests annually in R&D (based on the 2017 figures). This is more than likely to force Google to cut its R&D investments, or at least, to slow them down. In fact, the company says to be uncertain as to the impact of these sanctions on its financial stability. It follows that the European Commission necessarily ignores it as well, which is clearly not reflected in the calculation of its fine. One thing is for sure, in the end, consumers will suffer from it because this will lead to less innovation from Google.
And Google is not alone in this situation. This paper introduces, for the first time, an empirical study conducted over the period 2004 to 2018 (Android included) comparing all the fines imposed by the European Commission on the basis of Article 102 TFEU with the annual R&D investments by the targeted companies.
The results are indisputable: the European Commission’s fines are disproportionate in this regard and have the probable effect of drastically slowing down the innovation of numerous sanctioned companies. A protection mechanism of innovation must therefore be introduced when calculating fines. We propose doing so by introducing a new limit that caps the fines at a certain percentage of companies’ investment in R&D.