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E.U. hits Google with antitrust double-whammy

The European Union hit Google Inc. (GOOG) with a double-whammy Wednesday, formally accusing it of abusing dominance of the online search market and opening a new formal probe into its control of the Android operating system for similar abuses.

The announcement on search comes five years after the European Commission’s antitrust department first started looking into Google’s affairs, and may start the biggest antitrust case of the Internet Age, topping previous battles with Microsoft Corp.(MSFT) and Intel Corp. (INTL). As with those two disputes, the Commission’s probe comes against a backdrop of deep-seated mistrust in Europe of the U.S.’s tech giants and concern about their respect for users’ privacy.

Commissioner for Competition Margarethe Vestager said that she has sent a “statement of objections” to the Mountain View, Ca.-based company after coming to the “preliminary” conclusion that Google favors its in-house Google Shopping service over other services when responding to search queries for certain goods, to the detriment of other providers. That constitutes abuse of a dominant market position, she argued. The maximum penalty for that under E.U. law is a fine equal to 10% of a company’s global revenue.

Google Shopping represents only a fraction of the traffic that goes through Google’s site in Europe (where the company has market share in search of over 85%), but the case could set a precedent that would have implications for other services such as Google’s flight or hotel booking operations.

Departing with the line of attack favored by her predecessor, the Spaniard Joaquim Almunia, Vestager said she wasn’t looking for control of Google’s search algorithm or its screen display, but was rather seeking a “principles-based” ruling that wouldn’t be overtaken by future innovation.

The company, which had twice offered to settle with the E.U. before Vestager took over from the Spaniard Joaquim Almunia as antitrust head last year, has already begun its fightback. In a post on its website, it argued that neither Google Shopping nor Google Travel had a dominant position or had threatened to gain one.

Dominant? Affiliation with the search engine provider hasn't guaranteed Google Travel success.
Where’s the harm? Affiliation with the search engine provider hasn’t guaranteed Google Travel success in Germany, the EU’s biggest national market. Source: Google, ComScore
Courtesy of Google

 

Google has 10 weeks to respond to the Statement of Objections.

Vestager wasn’t content to let it lie with just the one issue though. The Dane also confirmed what had been increasingly rumored in recent months: a formal investigation into the bundling of Google apps and services with phones and tablets that run on the company’s Android operating system (read the release here).

Google launched Android as an open-source system in 2005, a format that encouraged the rapid development of an ecosystem of apps and related services. Samsung’s adoption of the system propelled it from being a bit player in the smartphone market into the world leader (until Apple Inc. overtook it in the first quarter of this year).

But more recently, both app developers and smaller phone makers have started to complain that Google was pressuring them into pre-installing its apps and services such as Google Play.

Again, the company isn’t short of counter-arguments. Android Engingeering VP Hiroshi Lockheimer said in a post that the system is still “free to use by anyone” and that Google paid out over $7 billion to app developers and content publishers last year.

“In comparison to Apple—the world’s most profitable (mobile) phone company—there are far fewer Google apps pre-installed on Android phones than Apple apps on iOS devices,” Lockheimer said.

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