Google Goes to Court in Europe

Google Executive Chairman Eric Schmidt smiles during a meeting about the "right to be forgotten" in Madrid.

Google Executive Chairman Eric Schmidt smiles during a meeting about the "right to be forgotten" in Madrid. Daniel Ochoa de Olza/AP File Photo

Google’s bellicose response to Europe’s antitrust charges belie the uphill battle the search giant faces.

BERLIN—With its defiant response Thursday to Europe's long-running antitrust investigation into its search practices, Google is betting potentially billions of dollars that it can convince the continent that, true to its mantra, it is not evil.

The European Commission's "preliminary conclusions are wrong as a matter of fact, law, and economics," Kent Walker, Google's general counsel, wrote in a blog post published Thursday. "Economic data spanning more than a decade, an array of documents, and statements from complainants all confirm that product search is robustly competitive."

The dispute centers on how Google handles listings of its own services versus those of its competitors for services Google also provides. Currently, Google commands roughly 90 percent of all Internet searches, and other companies say that, when users search for services like shopping and hotel bookings, Google privileges its own offerings, even if they're not the best deals.

Google's Walker said rivals like Amazon and eBay are proof that there is ample competition in the European market.

Many concede that the animus toward Google and U.S. firms, while not the reason for the antitrust charges, help give regulators more cover to persevere.

Google's rejection of the charges was largely expected by those involved in the case and by analysts closely watching the brawl from the sidelines.

The search giant, which declined to comment for this story, has been locked in a battle with European regulators for nearly five years. And it faces an uphill battle against a determined cohort of 20 trans-Atlantic adversaries, who remain confident that an emboldened pack of European regulators are ready and willing to strike against the Silicon Valley behemoth, perhaps as soon as later this year, with fines that could easily tally in the billions of dollars—and open the door to more antitrust losses down the road.

Ricardo Cardoso, a spokesman for the European Commission, said that it would "carefully consider Google's response before taking any decision on how to proceed" and not "prejudge the final outcome of the investigation."

But already the efforts to discredit the response are underway.

"The truth, as in previous cases, is that the Commission has properly defined the market into which Google has leveraged its overwhelming dominance in search, namely the shopping (price) comparison market," FairSearch Europe, which represents a collection of Google's opponents, said in a statement after Google submitted its response, which officially remains sealed.

"Google has decimated competition in that market by preferencing its own product-comparison service in its search results, and consumers have been harmed—and paid higher prices—because Google has cornered the shopping-comparison market."

Although Google's public response verged on the edge of bellicose, this is a path the California-based company had long hoped to avoid.

In early 2014, the company and European regulators announced they had reached a tentative agreement that would allow Google to avoid a finding of wrongdoing and a fine in exchange for tweaks to its search and advertising functions.

Joaquín Almunia, then the European Commission's competition czar, lauded the deal at a press conference in Brussels as better than the alternative option of "adversarial proceedings."

But there were loud objections from Google's foes—a patchwork of European companies and media enterprises in addition to U.S.-based rivals like Microsoft and Yelp—and Almunia fell far short of convincing all 28 members of the commission to accept the deal. It soon crumbled.

The heat intensified late last year with the appointment of Denmark's Margrethe Vestager as Europe's antitrust chief. She is generally regarded as tougher than her predecessor, Almunia.

Wasting little time, the Danish regulator presented formal charges in April that accused Google of abusing its stranglehold on the European market.

In her short tenure so far, Vestager has launched a new investigation into Qualcomm announced in July, demonstrating her intent to act quickly and decisively, experts say.

Many believe a billion-dollar fine could be handed down to Google as soon as this fall, though there is much potential for delays. The maximum charge possible would be about $6.7 billion, or 10 percent of Google's most recent annual revenue. Precedent in cases against Microsoft and IBM, however, suggests the fine would likely be much smaller—but still possibly in the billions.

Also not helping Google's chances is the recent swelling of anti-American sentiment in some parts of Europe, particularly privacy-conscious Germany, caused in part by the intelligence leaks of former National Security Agency contractor Edward Snowden and an overall wariness of U.S. tech firms that are in the business of collecting troves of personal data.

Among Europeans, Germans are also particularly sensitive about data privacy given the country's history; many recall the oppressive surveillance tactics used by the secret police in communist East Germany and the atrocities committed by Nazis with the aid of data registries.

Reflecting that tension, Google last year was forced to implement the so-called "right to be forgotten" in Europe, allowing users to request delisting on any search indexes that content users found embarrassing, outdated, or unsavory.

Google's multipronged troubles on the continent have prompted some American lawmakers and even President Obama to suggest that regulators across the pond are waging a concerted war on U.S. Web companies to prop up their own businesses.

"In defense of Google and Facebook, sometimes the European response here is more commercially driven than anything else," Obama told the tech site Re/code in February. "We have owned the Internet. Our companies have created it, expanded it, perfected it in ways that they can't compete. And oftentimes what is portrayed as high-minded positions on issues, sometimes is just designed to carve out some of their commercial interests."

Google's European rivals bristle at that suggestion, noting that the cohort of complainants against Google includes U.S. companies.

The search giant's defenders "have become a great victim of Google-lobbying," said Thomas Höppner, a lawyer representing a group of German media companies, one of the complainants in the case. "Either they say it's Europe against America, or they say it's Microsoft against Google, depending on who they are talking to."

Still, many concede that the animus toward Google and U.S. firms, while not the reason for the antitrust charges, help gives regulators more cover to persevere.

"These two discussions, with respect to Google, were sometimes fused together … probably to Google's detriment," conceded Viktor Mayer-Schönberger, a professor of Internet governance and regulation at Oxford and a proponent of the "right to be forgotten."

Perhaps most troubling for Google, however, is that the current proceedings represent just the first in a series of regulatory headaches in Europe expected in the years to come.

Chief among them is a separate investigation into the dominance of Google's mobile Android platform, which is used by about three of every four smartphone users on the continent. Analysts say that the Android investigation is likely more of a slam dunk against Google, one that can more easily be coupled with a large fine, because it involves the selling of a product. Search, meanwhile, is a service provided to consumers for free.

"The Android case is much more standard antitrust theory," said Susanne Zuehlke, a partner at E&Z Lawyers in Brussels who follows antitrust cases but is not involved in the Google probe. "The other allegations have other facts that need to be proven. In some ways, they are easier to prove."

And experts say Google is unlikely to be helped by its restructuring, announced two weeks ago with the formation of a new parent company known as Alphabet. Analysts say that the change will not affect the antitrust case and was likely not motivated by the deadline for Google to respond to the charges.

"I can't see how they could use this in their defense," Zuehlke said. "The breakup talk [in Europe] is about separating their search unit from their advertising." The change in company structure, she added, cleaved Google along the wrong fault lines if that was the goal.