Last time complaints sunk potential Google antitrust deal

In September, Google Inc. (GOOG) reached out to the EC and promised to make serious changes to address allegations made by EU antitrust regulators, in hopes of avoiding one of the EU's massive fines. Hefty fines have been leveled against Intel Corp. (INTCand Microsoft Corp. (MSFT) for past offenses.

I. Google's Latest Offer to be Scrutinized

Google has been accused of using standards patents -- which come with obligatory licensing -- in patent lawsuits related to smartphones.  It's also accused of manipulating its search results to give its own services more prominent placement than services from its competitors (so called "vertical search" tampering).  And some have also accused it of making it unduly difficult to transfer advertising to other platforms and asking ad partners not to advertise services which compete with its own services.

In May 2012 the EU's antitrust regulatory body, the European Commission (EC), gave Google one "last chance to settle" over antitrust accusations.  In Feb. 2013 Google released a full response, which promised big changes as to how it was scraping and ranking search results.  The EC initially accepted that proposal.  But after Microsoft and others claimed that the punishments weren't severe enough, the EC went back on its approval of the Google settlement and demanded more flesh from Google.

Search on Google
Competitors accuse Google of manipulating search results to boost its own services.
[Image Source: Google Images/Unknown]

Google complied, promising what it claims are even bigger concessions. Now comes the tricky part -- the EU has called upon Google's critics to examine those concessions and give feedback on whether they consider them sufficient.  Remember this is a crucial phase -- the EU was previously ready to settle with Google, but a similar review sunk Google's last proposed settlement offer.

EU books antitrust
 In July the EU "changed its mind" about Google's settlement offer. [Image Source:]

At this point some may be wondering why Google is being so closely scrutinized.  To understand why the EU considers Google to have a "very dominant" position in the search market, you must be aware that Google has traditionally held a much larger piece of Europe's search market than the U.S. and Asian search markets.  In the EU, Google has held as much as 86 percent of the search market; currently it has around an 80 percent market share, according to Reuters.  This is much higher than in the U.S., where its market share is currently around 67 percent, according to market research firm Comscore.

The latest settlement argument will be reviewed by two coalitions of rival online service providers, both of which are led by Google's archrival Microsoft.  The first is The FairSearch Coalition, whose members include Expedia Inc. (EXPE) and TripAdvisor Inc. (TRIP), and Microsoft; the second is named ICOMP, which includes Foundem, Hot-map, Streetmap, and NexTag, and Microsoft as members.  Both organizations had filed complaints against Google, claiming that Google boosts the ranks of its own services when consumers use its search engine.  These complaints helped to initiate the EU probing and later settlement demands.

In a press release the EU comments:

[Google's] commitments are now subject to a market test of one month. Complainants, third parties and members of the public are therefore able to comment on the commitments, and the extent to which they address the Commission's four concerns.

If following the market test, the commitments form the basis for a satisfactory solution to the Commission's competition concerns, the Commission may make them legally binding on Google by way of a Commitments Decision (so-called "Article 9 procedure"). Such a decision does not conclude that there is an infringement of EU antitrust rules, but would legally bind Google to respect the commitments offered. If a company breaks such commitments, the Commission can impose a fine of up to 10% of its annual worldwide turnover [revenue].

Given that Google pulled in over $50B USD in annual revenue globally in 2012, it could face a fine of up to $5B USD, if the EC feels it's not cooperating with antitrust compliance.

II. EC's VP of Competition Says Settlement is "Best Choice" for Consumers 

It's possible Google may yet escape the fine.  EC Competition VP Joaquín Almunia in a speech to the European Parliament on Oct. 1 remarked:

Google has now improved the commitments it has offered. We have negotiated improvements until yesterday.

Although I cannot describe the details, I can tell you that the new proposal more appropriately addresses the need for any commitments to be able to cover future developments. Therefore, the new proposal relates to queries entered in Google in whatever form - whether they are typed or spoken – and irrespective of the entry point or the device.  One of the most significant improvements relates to the vertical search concern, which was the point that received the strongest critical comments during the market test.

Many respondents during the market test said that in this Google proposal the links to rivals that would be displayed for certain categories of specialised search services were not visible enough.

In my opinion, the new proposal makes these links significantly more visible. A larger space of the Google search result page is dedicated to them. Rivals have the possibility to display their logo next to the link, and there will be a dynamic text associated to each rival link to better inform the user of its content

I think that the settlement route remains the best choice. I hope the answers we will receive to our questions will confirm this.

European users want undistorted competition and choice in online search and search advertising.  They want it now and, if possible, deserve it now, and not after many years of litigation.

Apple, Inc. (AAPL) notably escaped an EU fine over e-book price fixing and collusion accusations by offering major concessions to the EU.  Google hopes to follow that example, and avoid the fates of Microsoft and Intel.

EU flags
The EU says that it would prefer to settle with Google, rather than fine it. [Image Source: AFP]

In addition to the current search probe, Google will still have to grappled with the allegations of abuse in the U.S. and EU of so-called "standards essential patents" (SEPs), which are supposed to be licensed under the "fair, reasonable, and non-discriminatory" (FRAND) rules.  Last, but not least, Google also faces a privacy probe in the EU, in which EC regulators have demanded Google make changes by the end of this month.

Sources: Europa [press release], [EC VP speech]

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