Q&A: How has Google ended up facing charges?

The European Commission’s charges against Google’s shopping service mark a dramatic escalation of an inquiry into the company’s search business that started in 2010. Brussels will have to decide whether the company abused its market dominance to favour its own retail services over those of its competitors unfairly.

Google, which now faces a large fine, denies any wrongdoing.

How dominant is Google in the EU?

With a share of more than 90 per cent in web searches, the US search engine commands even more of the market in the EU than in the US. Still, Google argues the 90 per cent figure is misleading. Instead, the company argues the market should be measured differently to reflect that competition in sectors such as online shopping is far more open.

And is being dominant illegal?

No, but dominance requires you to take special responsibility so that your business model does not distort competition in the market by, for example, preventing small businesses from building a presence.

What are the exact concerns in Google’s case?

For now, the focus is fairly narrow. The concern raised is that Google’s shopping searches are biased and prioritise its own services.

So what does the EU want?

Brussels says that it does not want a solution based on temporary fixes to the page layout or the algorithm. Instead, it is looking to agree a “future-proof” solution based on broad principles of fair search.

How big can a fine be?

Theoretically, this could be as much as 10 per cent of the previous financial year’s turnover, which was $66bn in 2014. But lawyers reckon that it is very unlikely that Brussels would ever demand anywhere near that figure.

What happens next?

Google has 10 weeks to respond and allay the commission’s concerns. One of the potential big set pieces of an antitrust inquiry is a hearing in which arguments can be aired from all sides. With up to 20 complainants in this case a hearing could take days. National envoys generally attend a case of such international importance.

Who are the complainants?

They range from the likes of Expedia, an online travel service, and Streetmap, a mapping company, through to Microsoft and French and German publishers.

So is this only about shopping?

Not necessarily. If the commission establishes wrongdoing, the shopping case could well be a precedent for the way that Google handles other businesses such as travel and mapping. This could just be the beginning of an epic showdown, like the commission’s epic battle with Microsoft which began in the 1990s and ran for over a decade, ultimately resulting in €2bn of fines for the US software company.

Didn’t Google reach a deal with the EU last year?

For a while, the parties seemed to come close to a settlement on the third attempt by Joaquín Almunia, the previous competition commissioner.

However, the settlement failed and the four main grounds for concern still need to be fully resolved. They are:

1) Is the search formula equally fair to everyone? This is now the focus of the formal charge sheet on shopping. In last year’s attempted settlement, Google suggested a new page layout, giving greater prominence to rivals. The complainants were dissatisfied and felt that the bidding structure for advertising space would leave them even worse off.

2) Scraping. This is the practice of harvesting useful material — for example customer reviews from rival travel sites — to improve the quality of results for Google’s own services. Google last year said that it was happy to let rivals opt out from allowing this material to be used or “scraped”.

3) Exclusivity. The commission feels that websites that show (and earn money from) advertisements through Google are locked in to using Google exclusively. Brussels wants Google to let website publishers source their search ads elsewhere and Google last year agreed.

4) Portability. The commission has been concerned that advertisers who designed campaigns on Google’s AdWords platform (the one used for search ads) find it too difficult to rejig software to transfer those campaigns to a rival service. Google has agreed to no longer impose obligations that prevent ads from being easily used elsewhere.

Can’t Google say competition is just a click away?

That is technically true. It is easy to go to Yahoo or Bing. But this is where the argument becomes broader with complainants saying that they can never rival Google because its dominance gives it enormous data flows. This flow of inputted data gives Google a real edge, enabling it to tailor advertisements more effectively.

Google retorts that there is nothing in this selling technique that rival search engines cannot mirror using readily available data. Several of the complainants want the value attached to data to come into an antitrust inquiry. But it is not clear whether that is possible, particularly in the context of a narrowed investigation.

How political is this going to be?

The European Commission says that it is acting entirely based on EU rules intended to protect European consumers and businesses. However, we can expect transatlantic tensions over this case, with the US growing increasingly tense about a perceived German-led attempt to protect Europe’s technology industry.

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