Google Inc. (GOOG), the owner of the world’s largest search engine, reached a settlement to end the European Union’s three-year antitrust probe after it improved an offer to display results from rival search services.
Google will dodge EU fines and any finding that it discriminated against competing sites, a year after the U.S. Federal Trade Commission dropped a similar investigation by saying Google was motivated more by innovation than by trying to stifle competition.
The five-year pledge to the European Commission lets Google add new services or alter its search page as long as it grants three links to rival services next to its own specialized search results such as Google Shopping, the Brussels-based EU said. Competitors will pay at least 3 euro cents (4 U.S. cents) to bid for a spot in a shaded box on some of Google’s search pages.
“No antitrust authority in the world has obtained such concessions,” EU Competition Commissioner Joaquin Almunia told reporters in Brussels. “The concessions we have extracted from Google in this case are far-reaching and have a clear potential to restore a level playing-field in the important markets of online search and advertising.”
The deal will close one of the EU’s most high-profile antitrust cases as the bloc’s antitrust chief seeks similar settlements with OAO Gazprom (OGZD), Samsung Electronics (005930) Co. and Visa Europe Ltd. before he leaves office at the end of October. Breaking the terms of such a pact carries a penalty of as much as 10 percent of global revenue.
“It doesn’t seem like Google has dodged a bullet,” said Greg Sterling, an analyst at Opus Research in San Francisco. “There’s paid placement so they’re going to generate revenue as well. In total, they’ve been quite lucky.”
By settling, Google avoids the lengthy antitrust disputes and heavy fines meted out to other U.S. technology companies. Microsoft Corp. (MSFT) the world’s biggest software maker, has paid more than 2 billion euros in fines to the EU, while Intel Corp. (INTC), the largest chipmaker, got the EU’s highest ever penalty of 1.06 billion euros in 2009.
Triggered by complaints from other Internet businesses, the EU’s probe examined allegations that Google promotes its specialist search services, such as Google News and Google Finance, copies competitors’ travel and restaurant reviews, and has agreements with websites and software developers that thwart competition in the advertising industry.
Criticism from groups representing Microsoft, Expedia Inc. (EXPE) and Nokia Oyj (NOK1V) to previous offers by Google led to the EU seeking more changes before it would accept a settlement. Brad Smith, Microsoft’s general counsel, urged further study in a statement today.
“Market testing of Google’s last two proposals identified serious and widespread concerns about the damage they would have done,” Smith said. “If these new proposals are materially better than those that have already been rejected then they should be broadly market tested.”
Regulators said they will write to the 18 companies and groups that filed complaints before they finalize the settlement and reject the complaints. The deal will be made legally binding sometime in the coming months.
“I don’t see why from now on I would change my mind” about the suitability of the commitments, Almunia told reporters. He said he saw his job as protecting competition for consumers and not for competitors.
By limiting the input on Google’s latest offer “Almunia risks having the wool pulled over his eyes,” David Wood, a lawyer for a group of rivals including Microsoft, said in an e-mailed statement. “A settlement without third-party review is a massive failure.”
Complainants can challenge the settlement and the EU decision to reject their concerns at the EU courts in Luxembourg.
Mountain View, California-based Google will avoid using content from websites that ask not to be included in its specialized search. It will also drop a requirement that publishers use Google exclusively for search advertising and will allow search advertising campaigns to use competing platforms.
“We will be making significant changes to the way Google operates in Europe,” Al Verney, a spokesman for the company in Brussels, said in an e-mail. “We have been working with the European Commission to address issues they raised and look forward to resolving this matter.”
Google has increased the visibility of the rival links, adding three of them with photos to a shaded box next to Google’s own results from specialized services. Unlike a previous offer, the competitors’ links can’t be switched off by users. They will be shown in mobile and any future versions of Google search that uses the specialized search function.
“One may wonder whether such obligations will not damper innovation in the long run,” Bertold Bar-Bouyssiere, a lawyer at DLA Piper UK LLP, said. “Innovation is based on motivation, and motivation needs incentivization. If I already know that I have to share my creations with competitors, why bother in the first place?”
The proposed settlement doesn’t resolve all of the company’s antitrust issues in the EU.
Google’s Motorola Mobility unit, which is being sold to Lenovo Group Ltd. for $2.91 billion, received an EU antitrust complaint last year over legal injunctions against Apple Inc. (AAPL) for patents that are essential for products to comply with industry technical standards.
The search provider had bought the Motorola mobile unit for $12.4 billion in 2012, pushing it into direct competition with hardware partners such as Samsung that use Google’s Android smartphone software.
The settlement won’t affect a separate EU examination of Google’s use of Android, which is still at an informal stage. Almunia expects to discuss next steps in that probe in the coming weeks, he said.
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