Last week the French Tribunal de Commerce ruled in favor of French mapping company Bottin in their complaint against Google for unfair competition, abuse of a dominant market position and abusive pricing. As most of the articles in the major French newspapers have noted, this judgement does not pertain to the Google Maps service as provided to individuals, but to the use of Google Maps API, which Google provided to businesses for free. Nevertheless, there seems to be a great deal of confusion about this ruling around the Internet, so I thought an explanation might be helpful.

Bottin Cartographes is a French company that offers services to businesses who want to integrate address/location maps into their websites. In 2009, they accused Google of unfair competition in offering the Google Maps API to businesses without charge. On the surface, offering free service may not seem unfair, but understanding this ruling requires a little knowledge of competition law. In France, as in many countries, such laws are designed to preserve competition by ensuring that businesses don’t resort to dishonest practices to eliminate their rivals. The underlying assumption is that competition is healthy and results in better products and services offered at lower prices to consumers.

One provision of French law prohibits companies from selling at a loss, vente à perte. Outside the dates of regular sale periods, which are regulated by the government, companies cannot sell products for less than it costs to make them. Of course, lower prices are good for consumers, but clearly offering a product at less than cost is not sustainable. Companies pursuing such a strategy may be lowering their prices to eliminate the competition, after which they may raise them again, perhaps to even higher levels. Therefore, although it could be beneficial in the short-term for consumers, the negative effects on the market would be damaging in the long-term. For these reasons, competition law seeks to prevent companies from destabilizing the market too much in their desire to get ahead.

Some economists don’t subscribe to this theory, arguing that the free market doesn’t need these artificial constraints and that unfair or predatory pricing is misunderstood and is not a strategy that makes sense for businesses. It’s not my intention to argue that this regulation is right or wrong, however the courts, in understanding that the spirit of the law is to promote the free market, place a high standard of proof on claims of abusive pricing or vente à perte. Indeed, such cases are usually very difficult to prove without access to a company’s balance sheet–unless of course the price is zero, in which case the exercise is trivial.

It is also important to understand that competition law exists not to protect individual businesses, but to improve market efficiency by ensuring that businesses have competition, which ultimately leads to a healthy market and choice for consumers. In practice, laws concerning vente à perte in France are part of the French antitrust legislation, and relate to unfair competition (concurrence déloyale). In France, selling at a loss can be considered abusive when the company selling is in a dominant position on the market, regardless of whether or not they have the intention of raising prices later.

How does all this apply to Bottin and Google? Well, according to Bottin, Google was selling its Google Maps API to businesses for use on company intranets. However, Google let businesses use the API on their Internet sites on the condition that they accepted ad placements beside the maps. The problem was that Google hadn’t placed any ads on the maps used through the API since the launch of the service, which meant that they were effectively offering the service for free.

According to Bottin, this situation was an abuse by Google of its dominant position to eliminate competition. Once competition had been eliminated, Google would hold a monopoly and be free to introduce ads or to begin charging without consequences. The court agreed.

Deputy COO of Bottin Cartographes Dorothée Mani told Le Monde that all of the other mapping services had already been eliminated from the B2B market. She said “We are the only ones to stay in [the market]. We are able to do it because we innovate and the solutions developed by our engineers are offered with strong implementation support and a lot of customization (Bottin Carto is part of the Systematic Competitive Cluster). We draw particular attention to the confidentiality of our clients’ databases with transparent pricing. Some of our clients, notably in the banking sector, are very sensitive to the management of their installed databases and to the confidentiality of their data.”

Note that this decision doesn’t make any judgement on the validity of certain business models, such as providing “free” services to consumers to attract and receive payment from advertisers. Indeed this is exactly the business model that has been the foundation of Free-To-Air Television for decades, and there has never to my knowledge been any judgement for unfair competition against such TV stations. Therefore, there is no precedent here that the ruling against Google intends to artificially sustain a market for businesses in the face of competing offers for “free.”

However I’ve seen a number of strong reactions to this ruling, and it seems to me they are based on a real misunderstanding of the reasons behind it. Many have read the verdict and assumed that the case has something to do with “Free” vs. “Paid” business models, with the court siding against “Free.”

One of the worst offenders I’ve seen so far is an article in Forbes, which leads off with this statement at the end of the first paragraph, “The lawsuit was brought by Bottin Cartographies in 2010, based on the allegation that Google was using its size to wipe out competitors by offering products – specifically Google Maps – to the public free of charge.” That’s just misleading; the lawsuit is over Google Maps API service to businesses, not consumers. French journalist/blogger Hugues Serraf made the same mistake and went on to suggest that in the same vein, the online news journal for which he was writing, Atlantico, might risk condemnation from the same court for prejudice toward publishers of paper journals being sold in kiosks. At least he had the sense to admit he didn’t know much about competition law (“Je ne connais pas grand chose au droit de la concurrence…”).

To be fair, I should also point out that I’m not a legal specialist either, but I have done a bit of reading about the case, as well as the basis for the legislation in question. While I’m in favor of encouraging the availability and spread of free information and services to everyone on the planet through the Internet, I’m also deeply concerned about the dominant position some of the Internet giants play in providing these services and the unintended consequences or side-effects that their monopolies may have. That’s why I think it’s important to understand this case, and why the judgement, in favor of competition, might not be as bad as it initially may seem.

That’s also why I think user-powered OpenStreetMap is an exciting project, and I hope it keeps growing.

References:

Maps : Google condamné pour sa “stratégie d’élimination” de ses rivaux
Google condamné à verser 500 000 euros à Bottin Carto
Google fined £400,000 in France for making its Maps service free
Free Google Maps API deemed anti-competitive in France
French court to Google: Pay up
Wikipedia