Google Probed by European Union Over Search Results, Online Ads

Eric Schmidt, chief executive officer of Google Inc.
Eric Schmidt, chief executive officer of Google Inc. Photographer: Tony Avelar/Bloomberg

Google Inc. faces a probe by European Union antitrust regulators for allegedly discriminating against competing services in its search results and for stopping some websites from accepting rival ads.

The European Commission said it’s investigating whether Google’s AdSense contracts prevent publishers from striking deals to place ads from other services on their sites. It will also look at allegations that Google limits advertisers’ ability to move data, such as search terms, from AdWords to competitors.

Google, the world’s biggest Internet-search company, is drawing increasing scrutiny from regulators over its market power. Microsoft Corp.’s Ciao from Bing and other rivals filed an antitrust complaint against the company in Europe earlier this year. There also has been separate criticism from French, German and U.K. data protection regulators over Google’s Street View service, which shows pictures of streets and homes.

“Given the dominance of Google in the European search market, this doesn’t come as a huge surprise,” said Sam Hart, a media analyst at Charles Stanley & Co. in London. Any remedies will probably result in “minor tweaking” of Google’s search functionality, rather than sweeping changes, he said.

The EU investigation will examine whether Google’s size has turned the market into a “closed system,” said Martin Sorrell, chief executive of WPP Plc, a U.K.-based advertising company. “If there’s nothing wrong and everything’s hunky-dory, then there’s no problem.”

‘Do the Right Thing’

Antitrust regulators have power to impose fines of as much as 10 percent of revenue for monopoly abuses. The EU’s highest-ever penalty of 1.06 billion euros ($1.38 billion) was against Intel Corp. last year.

Google said in an e-mailed statement it “worked hard to do the right thing by our users and our industry” by marking ads clearly and enabling users and advertisers to move data to other services.

Google shares fell $26.40, or 4.5 percent, to $555.71 in Nasdaq Stock Market trading at 4 p.m. New York time. The shares have declined 10 percent this year.

“There’s always going to be room for improvement, and so we’ll be working with the commission to address any concerns,” Mountain View, California-based Google said. Advertising accounted for almost 97 percent of its revenue last year, or about $22.9 billion.

Getting Cooperation

Joaquin Almunia, the European Union’s antitrust commissioner, told European lawmakers today that the company had cooperated with the probe “a lot.”

The company’s European market share is more than 90 percent, Almunia said. “We cannot ignore this, and we need to do our best to follow up this investigation,” he said.

Google said in a separate statement that its contracts “can’t prevent users from choosing other search providers.” Online contracts for AdSense “have never been exclusive” and the company stopped using exclusive terms for non-online contracts almost two years ago, it said.

Advertisers can export their ad campaigns to other platforms, Google said. Even so, ad agencies are restricted from using an AdWords tool to automatically copy data from one screen or tab to another.

The commission said it will also investigate whether Google abused its dominant position by promoting its own services over rival price-comparison sites.

No Proof Yet

“This initiation of proceedings does not imply that the commission has proof of any infringements,” the commission said. “It only signifies that the commission will conduct an in-depth investigation of the case as a matter of priority.”

The agency can close probes if it finds no evidence to back up the allegations.

Google is “stifling innovation,” price-comparison site Foundem, one of the complainants, said in an e-mail. It “should not be allowed to discriminate in favor of its own services” and should clearly label its own services in search results, the U.K. shopping-search site said.

Microsoft, another of the complainants, declined to comment, said Jesse Verstraete, a spokesman for the Redmond, Washington-based company.

“Google is being very conciliatory in their initial response,” said Ian Brown, a researcher at the U.K.’s Oxford Internet Institute. “Clearly any company that has the market share Google does in Europe is going to have to be very careful.”

Previous Agreements

Google has reached a series of accords with European governments and cultural groups this year, aiming to cool tensions. Last week, Google’s YouTube division announced an agreement with three French artistic collection agencies over compensation for online video consumption, following a similar deal with the country’s largest music-industry group.

Microsoft, the world’s largest software company, has waged its own battle over competition. Last year, it ended more than a decade of antitrust disputes with the EU by pledging to offer consumers an automatic choice between its Internet Explorer and competitors’ browsers.

Today’s probe announcement “represents growing concern over Google’s power and dominance, which echoes earlier antitrust investigations against its rival Microsoft,” said Greg Sterling, an analyst at Sterling Market Intelligence in San Francisco.

Google is expanding via acquisitions, spending $1.6 billion on more than 20 companies in the first nine months of this year. It also is close to an agreement to acquire daily coupon company Groupon Inc. for about $6 billion, according to two people with knowledge of the negotiations.

On Sept. 25, European regulators said they had closed investigations into Apple Inc.’s practices after the company relaxed restrictions on the development tools for iPhone applications and introduced cross-border iPhone warranty repair services within the EU region.

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