BRUSSELS — At the annual World Economic Forum in Davos, Switzerland, the hottest ticket in recent years has invariably been an invitation to Google’s lavish private party, and 2011 was no exception.þþEric E. Schmidt, soon to leave the post of chief executive, was avidly working the crowd amid free-flowing liquor and pulsating dance music. þþBut in recent months, Google has been attracting a different kind of attention. As its ambitions have grown, stretching into businesses far beyond Internet search and advertising by the click, so has the scrutiny of antitrust agencies on both sides of the Atlantic. þþSo Google extended an even more exclusive invitation to another Davos attendee, Joaquín Almunia, the European Union antitrust chief, asking him to meet face-to-face with Mr. Schmidt. þþThe details of the investigation are not public, and Google has not disclosed its responses to the European Commission. A Google spokesman, Al Verney, said recently that “there’s always going to be room for improvement” and that Google would “continue to work closely with” E.U. regulators to address any concerns. þþBut with investigations by the U.S. antitrust authorities piling up — including questions about Google’s proposed acquisition of ITA Software, a flight information company — and with complaints growing louder on other issues ranging from privacy to copyright, the last thing Google wanted was to get bogged down in a lengthy antitrust battle in Brussels. þþThe case could also be costly for Google, and not just in tarnishing its “don’t be evil” motto. If found in violation of European law, Google could be fined as much as 10 percent of its annual worldwide revenue, which topped $29 billion last year. It could also be required to adjust its business model as part of a remedy. þþGoogle has some reason to be hopeful — to a point. þþMr. Almunia is portrayed by those who know him as more of a consensus-seeker than his immediate predecessors, who imposed huge fines on Microsoft and, in another case, on the U.S. chip giant Intel, a ruling that is still under appeal. þþAnother reason for caution in Brussels is the danger, in the fast-moving world of the Internet, that any antitrust investigation would fail to keep pace with changes in technology and markets, a challenge that Europe faced during the Microsoft case and that threatens to arise again with Google. þþ“Very, very often, it turns out that dominance doesn’t have a very long life,” said Philip L. Verveer, the U.S. State Department coordinator for international communication and information policy, speaking about the European investigation this month in Brussels. “It’s important from an antitrust perspective to have a certain humility about whether or not activities involving major interventions are necessary.” þþIndeed, the commission was wary of rushing into another high-stakes battle with another U.S. corporate powerhouse. But its members could not ignore the clamoring — from struggling start-ups, major newspaper publishers and telecommunications companies, among others — for them to take a look at Google’s ever-reaching operations. þþYet now that the investigation has gotten under way, the wheels of justice are likely to turn more slowly than Google would like. In part, that is because of the complexity of such issues, but in Brussels, the problem is also exacerbated by the commission’s limited resources. þþIn recent weeks, Mr. Almunia’s department began seeking bids on a four-year contract worth €6 million, or $8.2 million, for consultants to help with cases, including Google, in the technology sector. þþOn Nov. 30, Mr. Almunia’s office issued a news release saying it had opened a formal investigation into “allegations that Google Inc. has abused a dominant position in online search, in violation of European Union rules.” þþThe decision was a risky one. Despite Google’s market share in Internet searches of more than 90 percent in parts of Europe — bigger even than in the United States — the evidence in hand was limited. The E.U. case team had formal complaints from only three companies — one French, one British and another German — and each was a minnow in the technology world. þþIn addition, the commission’s old antagonist, Microsoft, was among those pushing hardest for an investigation; two of the three complainants had ties, one directly, the other indirectly, to the company. þþYet during the course of 2010, the case team received signals that if a formal investigation were started and official questionnaires sent industrywide, they would get plenty more evidence. þþThose detailed questionnaires have now been sent to dozens of companies, with replies starting to become due this month. Investigators are looking for any evidence that Google has the power to foreclose competitors, or shut out competition, and to restrict advertisers from doing business with other search engines. þþDuring the preliminary inquiries, Google’s own actions were perceived in Brussels as bumbling, according to at least one person with direct knowledge of the investigation. There were also apparent inconsistencies between Google’s public and private statements regarding practices like “whitelisting,” or adjusting the results of Google’s algorithms to favor certain sites in search results. þþThat specific issue has relevance in the United States as well. In an antitrust investigation there that strikes at the heart of Google’s core search business, investigators in Texas are seeking evidence about the “manual overriding or altering of” search result rankings. That inquiry involves at least one of the Web sites in the E.U. investigation, a British price-comparison service called Foundem. þþUnusually, last February, Google chose to publicize the names of the European companies that had filed complaints against it. They were Foundem; Ciao, another price comparison site in Germany; and Ejustice.fr, a French legal advice site. Google highlighted the fact that Ciao was owned by Microsoft and that Foundem had ties to a Microsoft-financed lobbying group in Brussels. þþThe decision, however, was seen as “defensive and naïve,” said one senior commission official, who spoke on condition of anonymity. þþOfficials also saw Google’s early responses as inadequate in addressing their central concern: whether Google had shut out competition. Google’s submissions frequently dwelt on what it saw as its prerogative to preserve the quality of its own service for consumers. þþ“Suggesting that Google is under an obligation to show search results of other search services is like suggesting that Mercedes is under an obligation to put Fiat motors in its cars,” the company’s lawyers wrote to the commission in a confidential response on May 3, a copy of which was seen by the International Herald Tribune. That was in response to specific charges by Ejustice.fr. that Google had removed most of its pages from an online index. As a result, Ejustice said hits to its site suddenly dropped so sharply that it was effectively invisible on the Web. þþGoogle said Ejustice.fr was violating guidelines set by Google about how to make the Web site findable in Google’s search engine. That violation was a problem, according to Google, because users could end up never finding a Web page with the answer to their question — just more pages of search results. þþGoogle also said Ejustice.fr created pages with thousands of hyperlinks consisting only of search keywords, many with little or nothing to do with the law. “This is typical behavior of sites that seek artificially to increase their search result ranking without offering authentic content,” Google lawyers wrote. þþAt the same time, Google acknowledged that it had probably also removed some potentially useful links. þþAnother complaint by Adam and Shivaun Raff, the husband-and-wife team behind Foundem, was pivotal. þþFoundem was singled out by “The Gadget Show,” a popular program on Channel 5 in Britain, as “the U.K.’s best price comparison site” in 2008. But for some time, the Raffs said, their site had become virtually invisible on Google’s search results, and in July 2009, the couple headed for Brussels to complain. þþThere, they told Per Hellstrom, a cautious Swede who heads the antitrust unit in charge of the technology sector, how their site had been penalized by Google, starting in June 2006, even though its ranking remained competitive on other search engines like Bing and Yahoo. þþThey said that Google had then made it prohibitively expensive for them to make their site easier to find in a different way — through paid advertising that appears next to Google’s search results. And they made a third charge: that Google’s algorithms had the effect of favoring Google’s own price comparison tool, originally called Froogle and since renamed Google Product Search. þþMr. Hellstrom — who was involved in the Microsoft battle, led the acrimonious case against Intel and also successfully defended in court the E.U.’s trail-blazing 2001 decision to block the merger of General Electric and Honeywell — told the Raffs that their allegations alone were insufficient to start a case. But neither did he dismiss them out of hand. þþAt least two more meetings were held, and eventually the Raffs submitted a formal complaint, backed by written evidence that seemed at odds with some of Google’s public statements. þþFor example, Julia Holtz, Google’s chief lawyer in Europe, told reporters in February 2010 that “we don’t whitelist or blacklist” other Web sites. þþYet one message to the Raffs from Google in September 2007 was labeled “Update on Whitelisting.” It focused on returning Foundem’s paid advertising rates to normal. Two weeks later, Google informed Foundem that it had successfully “facilitated a change” and remedied the problem. þþFoundem was still not satisfied with its search ranking, however, and the Raffs persisted. þþBy the autumn of 2009, Matt Cutts, the head of Google’s Webspam team, which works on search quality, had begun a detailed dialogue with Foundem. Mr. Cutts advised Mrs. Raff in a Nov. 20, 2009, e-mail to do more to clean up garble on the site, and then “we should see some positive changes to Foundem’s relative ranking.” Mr. Cutts insisted that there was “no manual penalty affecting the ranking of Foundem pages.” þþIn a confidential May 3, 2010, filing to the European Commission, Google said that it had given Foundem “the benefit of the doubt and removed the demotion” after Foundem had fixed “the most egregious quality deficiencies.” þþHad Foundem done even more to clean up its site, made its original features clearer to Google and added product reviews or a blog, Google wrote, then “Google’s algorithms would have picked up these changes” and any demotion would have been “automatically removed.” þþFoundem, however, charges that Google’s remedy took too long — three and a half years — and that the process was too difficult. þþFoundem also charges that Google uses other algorithms to favor its own services. Foundem produced color diagrams displaying where price comparison sites ranked compared with Google’s own when more than 250 related terms were typed into Google’s search engine. Across the top was a thick line of red dots showing how Google’s own service usually came up at or very near the top. þþBelow was a lighter shower of green dots showing how competitors, including Foundem, lagged behind. þþGoogle, however, is accustomed to dealing with complaints about search placement. Last November, on the day the commission formally opened its case, Google wrote on its European Public Policy Blog that its goal was serving users with “the best, most relevant” information and that not all Web sites would get the prominent billing that their operators thought they deserved. þþEven as the small fry were making antitrust complaints, some of Europe’s biggest corporate players began raising the alarm about other perceived threats to their interests. þþIn early March 2010, Martin Sorrell, the chief executive of WPP, a major advertising company, said in a newspaper interview that some of his leading clients wanted the European Commission to investigate Google, which was coming to dominate the marketplace for online search advertising. He was joined by Vittorio Colao, the head of the mobile phone company Vodafone. þþIn April, the European Publishers Council, a powerful industry group, went straight to the top, telling the president of the commission, José Manuel Barroso, that European business interests were at stake. þþThe publishers told Mr. Barroso that the ways in which Google was dividing advertising revenues with them and controlling what appeared in Google News and in Google’s search engine were “problematic,” according to one person who attended the meeting but who asked not to be identified because the discussion was confidential. At least one person at the meeting suggested that the commission consider opening a broad antitrust inquiry into the Internet search market, the person said. þþTwo months later top newspaper representatives, including Francis Morel, the director general of Le Figaro, the French daily, and Mike Newman, the group circulation director for Associated Newspapers, which owns The Daily Mail and The Mail on Sunday in Britain, publicly called on Mr. Barroso to enforce “fair competition among all players, including search engines.” þþMr. Barroso promised the newspapers “a bigger share in the battle for information and content.” þþImportantly for the commission, national regulators were starting to act on their own turf, and not just on antitrust grounds. þþE.U. officials were disturbed by the way Google was treating privacy issues being raised in Germany and other countries about its Street View mapping service. The company eventually conceded that there had been mistakes. Similarly, many European officials were troubled by the ramifications of Google’s project to digitize books. þþA few days before the commission formally opened its case against Google, Mr. Almunia telephoned David C. Drummond, the company’s chief lawyer, to alert him of the investigation. þþMr. Drummond expressed his disappointment but there were no attempts at negotiating by either party, according to people with direct knowledge of their conversation, and who spoke about the call on condition of anonymity. þþA couple of weeks later, Mr. Almunia’s investigators broadened their inquiry by taking on two German cases, one from groups representing newspapers and magazines, the other from an online mapping company, Euro-Cities. þþThe industry groups B.D.Z.V., which represents newspapers, and V.D.Z., which represents magazines, have about 450 members and have accused Google of manipulating search rankings and favoring its own content. þþEuro-Cities has complained that Google Maps was being integrated on other Web sites for free, and that this was destroying its business model. þþAsked about the meeting between Mr. Schmidt and Mr. Almunia, Mr. Verney, the Google spokesman, said, “We frequently talk to regulators as a normal part of any investigation process.” þþAmelia Torres, a spokeswoman for Mr. Almunia, said that the antitrust chief was “happy with Google’s cooperation in the commission’s investigation.” She declined to comment further. þþPaul Geitner contributed reporting from Davos, Switzerland þþ
Source: NY Times
