EU launches antitrust inquiry into Google 'dominance'

The European Commission has launched a preliminary antitrust inquiry into Google after three companies complained that the US giant's dominant search engine penalises potential competitors and keeps advertising prices artificially high.

The European Commission has written to Google to find out how its search functions work, following allegations from the UK price comparison site Foundem, an online French guide to legal services, ejustice.fr and the Germany-based shopping portal Ciao, owned by Microsoft.

A spokeswoman for Foundem told BBC Radio 4's Today programme that Google had a dominant 90 per cent share of the UK search market and acted as the gateway to the internet, allowing the company to control what users found when they searched.

She said that Google presented itself as a neutral and comprehensive search service, but added: "This is increasingly untrue, as in the last couple of years Google has started to use its search results as a marketing channel for its own services."

When a user typed in a query about a specific item they wished to buy or research, she said, "You would find near the top 'shopping results' and that is Google's own price comparison service inserted. And you will also see 'video results', and that is Google's own video service.

"As a user, you can go and you can put in any product query that you want and you will be able to see for yourself that they are inserting their own services.

"What I would also say is that Google's services are not clearly labelled as such. Google is not clearly flagging that they are inserting their own services, but they are there clear to see."

The maximum fine that can be imposed by the European Commission in an anti-trust case is 10 per cent of annual turnover – in Google’s case that would amount to $2.3 billion, based on its 2009 revenue of $23.65 billion.

In practice, the level has been lower, for example the record 1.06 billion euro fine for Intel last year amounted to 4.15 per cent of its turnover in 2008.

The money goes to the EU’s central budget and would ultimately reduce the sums that member states have to pay each year.

Google dismissed the complaints in a blog posting by Julia Holtz, senior competition counsel for the company. "While we will be providing feedback and additional information on these complaints, we are confident that our business operates in the interests of users and partners, as well as in line with European competition law," she said.

She noted that increased scrutiny came "with the territory when you are a large company".

Google is rapidly increasing how much it spends on lobbying in the United States as it increasingly becomes the focus of scrutiny.

In 2009 Google spent $4.03 million (£2.58 million), up from $2.84 million in 2008 and $1.52 million in 2007, making the company one of the five biggest internet and technology lobbyists in Washington, according to an analysis of US Senate figures by the Centre for Responsive Politics.

In the fourth quarter last year Google outspent every other company in Silicon Valley, including Oracle, and is on the way to catching up with the lobbying might of Microsoft, the analysis showed.

In the past year Google has lobbied on issues involving advertising, energy, trade, telecoms and antitrust.

Google similarly has been bolstering its public policy and lobbying efforts in Europe. It has small teams in most European capitals and Brussels.

Foundem has a long-running battle with Google, accusing the search giant of penalising the price comparison site by placing it low down in its search rankings because it was a directory service and represented a "nascent competitive threat" to Google. Google handles 80 per cent of European web searches, according to research firm ComScore.

Google has dismissed the claims, saying its search algorithms are aimed at producing lists of the best sites for users. Search engine analysts have pointed out that Foundem has little original content. Google has said web sites that that merely "scrape" content from other sources fare badly in its rankings.

Google pointed out that two of the plaintiffs in the EU action had links with Microsoft, which has just been cleared by European regulators to form a search partnership with Yahoo! in a bid to challenge Google's market lead.

Ms Holtz noted in her posting that Foundem was part of a trade grouping sponsored by Microsoft called the Initiative for a Competitive Online Marketplace and that Ciao, which has complained about Google's online advertising market, was owned by Microsoft. Ciao was bought by Microsoft in 2008 for nearly $500 million and is now called Ciao Bing, after Microsoft’s search engine.

She said: "Though each case raises slightly different issues, the question they ultimately pose is whether Google is doing anything to choke off competition or hurt our users and partners. This is not the case. We always try to listen carefully if someone has a real concern and we work hard to put our users' interests first and to compete fair and square in the market. We believe our business practices reflect those commitments."

The EU and Microsoft have long clashed over the US company's practice of bundling other software such as media players into Windows.

In September 2007, Microsoft lost an appeal before Europe's second-highest court against a fine of nearly €500 million that EU regulators slapped on the company in 2004 for abusing its dominant market power.

Microsoft declared a truce with the European Commission in December. The move ended a decade of legal strife that cost the world's top maker of software €1.67 billion in fines and penalties.

In February 2008, the commission hit Microsoft with a further fine of €899 million for defying its 2004 ruling. Microsoft has lodged an appeal against the decision.

Microsoft declared a truce with the European Commission in December. The move ended a decade of legal strife that cost the world's top maker of software €1.67 billion in fines and penalties.

(Published by Times On line- February 24, 2010)