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Insight: Google goes softly-softlyon European antitrust


BRUSSELS (Reuters) - Google is
searching for the answer to a four-
billion-dollar question: can a new,
gentler approach from a U.S. tech
giant persuade the European Union to
be more lenient in competition cases? The world's dominant Internet search
provider has been in the EU
executive's crosshairs since
November 2010, when the European
Commission started an investigation
after complaints it had abused its position to crush smaller firms, an
accusation once reserved for rival
Microsoft Corp. The Commission could
fine Google up to 10 percent of global
revenues - nearly USD 40 billion last
year - and order changes to its operations. The alternative, a long
battle in EU courts, might harm its
image. Key decisions are likely within
months, and all participants in the
investigation hope they can do better
than previous cases. In the past,
companies campaigned aggressively
and faced stiff fines. For its part, the Commission was criticized for being
too slow in an industry that needed to
keep innovating. Competition chief Joaquin Almunia
said last month he was keen to get a
faster resolution than in the past.
Google says it has learned not to be
openly combative. Almunia has said he has "concerns
where Google business practices may
be considered as abuses of
dominance". These include the
possibility Google's general searches
direct users to its own specialist search services, away from smaller
rivals. He said on Friday Google had
until early July to come up with
remedies - that is, to decide how
much of its operational model it
would be prepared to give up. In particular, Google might need to give
away aspects of its search algorithms
- its Web search instructions, a secret
that some compare to the formula for
Coca-Cola. "WE GET IT" The case marks a coming-of-age for
the company which rose on the
mantra "Don't be evil." Since the EU investigation started,
Executive Chairman Eric Schmidt has
been on a campaign to show Google
in a conciliatory light, highlighting the
ways it benefits Europe. The company
has sponsored studies, one of which found that the Internet created 2.6
jobs for each one it destroyed. However, Google's European story-
line now has much in common with
those of other big American tech
firms: they achieve market dominance
and annoy competitors who complain
the big company is ruining their business, and attack in the EU. Microsoft was accused in 1998 of not
giving rivals enough information to
design products that could work with
its dominant Windows PC operating
system, a case broadened in 2000 to
include video players. In 2004, it was fined 497 million euros and went on
the attack, funding lobby groups to
push its case. Bill Gates told reporters
Microsoft's rivals were trying to use EU
regulators to "castrate" his new
operating system. In 2008, EU regulators slapped
Microsoft with the Commission's
biggest-ever fine of 899 million euros
for delaying changes it had
demanded. (The record was beaten in
2009 by a 1.06 billion euro fine on chipmaker Intel.) Schmidt told a U.S. Senate hearing in
September it would not seek to
antagonize regulators. "We get it," he
told lawmakers, alluding to Microsoft.
"By that I mean, we get the lessons of
our corporate predecessors." 80 PERCENT As well as being an important market
for tech firms, the EU for some years
has been a more promising arena for
antitrust business than the United
States. The Commission is obliged to
examine all complaints it receives,
though it only opens formal
proceedings on merit. According to
Lars Kjolbye, a partner in the Brussels
office of law firm Covington and Burling, U.S. courts and agencies have
become quite conservative, whereas
EU agencies have been much more
willing to expand the limits of the law
when they believe something harms
the economy. In Europe, the obstacles to saying,
?You've violated the law because you
didn't give competitors access to
information' have been gradually
watered down over the last 10 or 15
years, he says. "Companies tend to go to Europe as plaintiffs in abuse of
dominance cases because they're
more likely to get traction with the
agencies." Google's competition includes
Microsoft but is mostly small, specialist
Internet services which argue the
Silicon Valley giant is ensuring their
names come low or don't even figure
in searches. In Europe, 80 percent of Web
searches are run on Google,
according to the most recent figures
by comScore, compared with 67
percent in the United States. Its
opponents say that means Google, which makes its money by
advertising sales, can make or break
a business by its ranking. They say
Google is skewing the market to help
its ventures in specialized searches
such as travel. Three firms originally complained to
the Commission in early 2010. They
included 1PlusV, which runs French
legal search website Ejustice.fr, and
British search firm Foundem, which
helps users find low-cost household gadgets. Foundem in 2011 published a
narrative saying Google had become
a strangler of start-ups. "Google
crushed competition in price
comparison, video search and travel,"
says Foundem CEO Shivaun Raff. "Many firms have died when shut out
of Google results," she adds, citing a
British online map service,
streetmap.co.uk. Opponents - the number later grew to
16 - also point out that Google has
been launching new services such as
Google+, a social network which
encourages people to spend more
time on Google's own services. Almunia, who has had a team of
around a dozen competition lawyers
on the case, has alluded to this
complaint. He also said he was
concerned Google may be copying
original material such as user reviews from rival websites such as Yelp; that
it might be shutting out online
advertising consultants and agencies;
and that it might prevent users from
reaching rival ad systems from
AdWords, Google's auction-based advertising business. For Google's enemies, the fact
Almunia gave a public heads-up in
May could herald punishments to
come. "It tells us the commission
thinks there is substance to a number
of the complaints," said David Wood, a lawyer who represents I-comp, an
industry group that is highly critical of
Google. "Google needs to come up
with something pretty substantial." Google - which has boosted its
antitrust team in Europe to five
lawyers from three in the last two
years - said it disagreed with
Almunia's conclusions. Users are not
locked in, it says, but can easily switch to Microsoft's Bing or an alternative, a
crucial difference between cases
where users can run only one
computer operating system. It also
says the complaints are basically a
result of all companies wanting to turn up first in its search results. "Not every website can come out on
top, or even appear on the first page
of our results," Susan Wojcicki, a
senior executive for product
management, and Udi Manber, vice
president for Engineering, commented in a joint blog post on the
EU probe. "So there will almost always
be website owners who are unhappy
about their rankings." Moreover, Google says the small
companies claiming to be its victims
are linked to Microsoft. The third
original complainant, Ciao.de, is a
German travel search site owned by
Microsoft. Several are also members of I-comp, whose most prominent
member is Microsoft, and which
produces position papers on subjects
such as web market concentration. I-
comp lawyer Wood acknowledges
the organization is not independent, but says "our palette is much broader
than Microsoft's." SOCIAL MEDIA RIVALS Google also points out that it faces
increasing competition, online and on
mobiles, from companies such as
Facebook. "Competition on the web
has increased dramatically in the last
two years since the Commission started looking at this and the
competitive pressures Google faces
are tremendous," Google spokesman
Al Verney said in a statement.
"Innovation online has never been
greater." Meanwhile, it has been doing deals to
try to appease complainants in
separate cases and raise its image. It
has agreed with several royalty
collection societies to deliver
payments for material played on its YouTube site, signed an accord with
France's biggest book publisher
Hachette Livre on out-of-print books,
and blurred out photos of German
homes on Street View after
complaints over privacy. On one trip to France, Google boss Schmidt met
then-President Nicolas Sarkozy and
pledged to build a European cultural
institute and a Paris R&D centre.
Sarkozy in turn said he would launch
a channel on YouTube. It's not clear if all this can help. In the United States, says Eric
Goldman, Director of the High Tech
Law Institute at Santa Clara University,
the question is: "Is Google benefiting
consumers? So long as they are doing
a good job for consumers, we don't care that other companies are getting
squeezed." But to establish an abuse
in EU law it is not always necessary to
prove consumer harm, according to
an EU official. Any disciplinary action could lead to
more than a fine. An adverse EU
decision may spark damages claims in
other jurisdictions worldwide. Seven
months after the EU announced its
investigation, the U.S. Federal Trade Commission (FTC) launched its own
probe into Google's business
practices. "The greater risk is to Google's
business model," said Albert Foer,
president of U.S.-based think tank
American Antitrust Institute. "How will
it have to be modified in order to
satisfy a variety of regulators who reflect different laws, different
economic factors, and different
cultures?" (Editing by Sara Ledwith)