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Google faces European charge it abused search dominance

The European Commission opens a legal case that could change how Google search works -- and impose a massive fine. It also begins an inquiry about Android.

Margrethe Vestager, European commissioner in charge of the EC's antitrust enforcement
Margrethe Vestager, European commissioner in charge of the EC's antitrust enforcement EU/Shimera/Chara Kaminara

Europe's antitrust regulator dramatically escalated its case against Google on Wednesday, accusing the US tech titan of abusing its search-engine dominance by favoring its own shopping services and also opening in-depth scrutiny of the company's Android operating system.

Google's actions show its own comparison-shopping results even when they're less relevant than results from competitors, curtailing innovation at those rivals and hurting consumers, said European Competition Commissioner Margrethe Vestager in a press conference.

"Dominance as such is not a problem," Vestager said. "However, dominant companies have a responsibility not to abuse their powerful market position by restricting competition either in markets where they're dominant or in neighboring markets."

The EC's action, called a statement of objections, opens the door for potentially massive fines such as those the European Commission levied against Microsoft and Intel after findings of antitrust abuses by those companies. Enforcement actions could include changes to Google's way of doing business and a penalty as high as 10 percent of its global revenue. Given Google's $66 billion ($62 billion euros) in revenue in 2014, that could mean a fine of up to $6.6 billion.

What's at stake is not just a very big fine for a very wealthy tech company, though. Closer to home for consumers is the question of whether Google search will lead us to products and services from other companies or instead keep us hemmed in within Google's ever-expanding universe of commercial activities.

At the heart of the case is the extent to which Google search results promote the company's own services like shopping results, local businesses and maps. Throughout the investigation, which has been running for five years in Europe, Google has argued that it's just getting people the information they need as quickly as possible. But other technology companies say Google often presents worse search results even as it cuts off the flow of traffic to their sites for those kinds of services. Although the case so far covers only comparison shopping, Vestager said it could serve as a precedent for other search services including those dishing up hotels, flights and mapping.

Since Google was founded in 1997, its search tool has transformed the Internet into something useful for commerce, education and communications. Over the last decade, the company has shifted beyond search results that present a mere "ten blue links" toward a richer blend including news, maps, video and business addresses. If Vestager gets her way, Google search will serve more as a referrer to other websites -- at least when those services are better than Google's own.

In Europe, Google accounts for 92 percent of searches, according to analytics firm StatCounter. In comparison, Microsoft's Bing is at 3 percent, Yahoo at 2 percent and Yandex at 1 percent.

Google disagrees

In a response titled "The Search for Harm" posted to its blog, Google pointed to its also-ran European performance in shopping and travel services as evidence that competition is alive and well.

"If you look at shopping...it's clear that (a) there's a ton of competition (including from Amazon and eBay, two of the biggest shopping sites in the world) and (b) Google's shopping results have not ... harmed the competition," said Amit Singhal, senior vice president of Google search.

Singhal also pointed to business growth at Axel Springer, Expedia, TripAdvisor and Yelp -- calling them "vociferous complainants in this process" -- to show that specialized search sites are viable. And he said there are important new ways of finding information including mobile apps and Facebook recommendations that bypass Google search altogether.

Since 2006 in Germany, Amazon and eBay have dominated online shopping in Germany in terms of website visitors, Google argues. Its own performance, shown with the heavy blue line, is down with lesser rivals.
Since 2006 in Germany, Amazon and eBay have dominated online shopping in Germany in terms of website visitors, Google argues. Its own performance, shown with the heavy blue line, is down with lesser rivals. Google

Vestager didn't argue that other companies were put out of business, though -- just that Google's actions harmed consumers.

"Our preliminary view in the statement of objections is that in its general Internet search results, Google artificially favors its own comparison-shopping service, and that this constitutes an abuse," Vestager said. "When a consumer enters a shopping-related query in Google's search engine, Google's comparison-shopping product is systematically displayed prominently at the top of search results. This display is irrespective of whether it is the most relevant response to the query."

Fixing what it views as Google's transgressions will require regulators to walk a fine line. "We do not wish to interfere with design choices, how things are presented, or how the algorithm works," Vestager said. But requiring Google to show what the EC deems the best-quality search results necessarily involves passing some judgment on how Google's algorithm generates search results and how the company chooses to display those results.

Organizations that have led the charge against Google hailed the EC's action.

"The European Commission must rigorously enforce a 'non-discrimination principle' to ensure European consumers get fair and neutral search results," said Monique Goyens, head of the European Consumer Organisation (BEUC), which represents 40 consumer groups in 31 European countries. "Google must hold all services -- including its own -- to the same standards, applying exactly the same ranking, indexing, crawling, display and penalty principles in its algorithms."

Android attack

The formal inquiry involving Android is at a less serious stage than the search case, but it could be just as big a problem for Google as it transforms its business. Google lets anyone use and modify the Android software for free, but at root of the investigation will be what strings Google tries to attach when it comes to higher-level app and services.

Android is the most widely used operating system in the world. It's found in many tablets and in smartphones including Samsung's Galaxy S6, the HTC One M9 and Motorola's Moto X.

On Wednesday, the EC detailed three areas of concern it will investigate:

  • Whether Google has illegally hindered the development and market access of rival mobile applications or services by requiring or incentivizing smartphone and tablet manufacturers to exclusively preinstall Google's own applications or services;
  • Whether Google has prevented smartphone and tablet manufacturers who wish to install Google's applications and services on some of their Android devices from developing and marketing modified and potentially competing versions of Android (so-called "Android forks") on other devices, thereby illegally hindering the development and market access of rival mobile operating systems and mobile applications or services;
  • Whether Google has illegally hindered the development and market access of rival applications and services by tying or bundling certain Google applications and services distributed on Android devices with other Google applications, services and/or application programming interfaces of Google.

Here, too, Google defended itself. "The pace of mobile innovation has never been greater," with hundreds of millions of phones shipping every quarter, prices dropping, and innumerable apps available, said Android engineering Vice President Hiroshi Lockheimer in a blog post Wednesday. "Android has been a key player in spurring this competition and choice, lowering prices and increasing choice for everyone (there are over 18,000 different devices available today."

Businesses' agreements to use Google's apps are voluntary, Lockheimer added, and "provide real benefits to Android users, developers and the broader ecosystem."

But Thomas Vinje, a Clifford Chance attorney who represents a high-profile consortium called FairSearch.org that's pushed hard against Google in Europe, likes what he sees in the EC investigation. "Google has stifled competition to the detriment of consumers and innovation in the mobile space, and the European Commission has an obligation to ‎address this," Vinje said.

Times change

Google has 10 weeks to respond to the statement of objections, but the case likely will run for months longer. Over that time, it's likely the competitive landscape will change -- something that's been an awkward point for antitrust regulators in Europe and the US in the past.

For example, the US case involving Microsoft Windows operating system and Internet Explorer browser lasted until well after IE's top rival, Netscape, was all but exterminated. Another case, promoting browser choice in Europe, arguably had less effect on browser competition than Google choosing to enter the market with its own Chrome software.

Google has become a very different company in recent years, doing much more than offering search results and selling search-related advertisements alongside.

For one thing, millions of people see it not just as a search engine but also as the provider of services like Gmail, YouTube and Google Maps they use on smartphones powered by Google's Android operating system. For another, Google is expanding far and wide into new domains like self-driving cars, computer-infused contact lenses, and Internet access from balloons, fiber optics or airborne drones.

Over that same time frame, the nature of competition has changed, too, now sweeping across large areas of the tech landscape. Facebook has claimed the dominant position at the heart of our online social lives and is expanding into video and communications. Amazon, Microsoft and Apple are competing fiercely with Google to build the strongest "ecosystem" -- a collection of technology including computing hardware, operating system, programming tools, software distribution through app stores, and online services.

Perhaps most significantly, the rise of mobile means people often reach services through apps and app stores, not through an all-purpose search engine. There's a reason Amazon offers an app for shopping, Yelp offers an app for finding businesses and Expedia has an app for booking travel.

"The rise of social networks, mobile apps and voice search tools -- like Apple's Siri and Amazon's Echo -- that help users explore the web illustrates that competition is driving innovation," said James Waterworth, head of the European branch of the Computer & Communications Industry Association, a trade group. "Consumers are the primary beneficiary of this dynamic. This is not a characteristic of a stagnant market dominated by any single entity."

Antitrust actions

European antitrust rulings have been tough on US tech companies. Microsoft took a drubbing in Europe, starting with a $613 million fine in 2004 but eventually paying more than $2 billion by 2012 for cases involving server software interfaces, browsers and document file formats. And Intel had to cough up more than $1 billion in Europe when it lost its case involving rebates it paid to PC makers.

The EC case is an unfavorable turn of events for Google, which last year seemed to be moving beyond its antitrust woes. It dodged an antitrust investigation from the US Federal Trade Commission and seemed to have worked out a settlement resolving European Commission concerns voiced by Vestager's predecessor, Joaquin Almunia.

But last year, European antitrust regulators dug back in, and in September, Almunia raised concerns involving . The regulators showed interest in expanding the case from search to include Google's Android operating system, too.

The case moved to new hands as Vestager took over from Almunia. And the European Parliament voted in November for a nonbinding measure seeking to consider breaking Google up into different companies. It was a symbolic move, but one that still carried a political message.

Updated throughout the day to add further detail from the EC and comment from Google and critics.