Updated by Timothy B. Lee on November 24, 2014, 2:40 p.m. ET
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- On Friday, the Financial Times reported that the European Parliament is on the verge of voting on a resolution that could call for legal against action Google for anticompetitive behavior.
- In a vote expected to occur on Thursday, the European Parliament may endorse forcing Google to spin off its lucrative search engine into a separate company.
- However, the European Parliament doesn't have the power to directly break up companies, and one legal scholar tells me that Google is in no danger of actually being broken up.
Why are European officials investigating Google?
Google has been under scrutiny from European regulators since at least 2010. That's when the European Commission announced it was launching an investigation of the search giant's business practices.
To prove that a company has broken competition laws, European regulators must prove that a company has a dominant position in the market, and that it has abused its dominance. Mark Patterson, an antitrust expert at Fordham University, says that Google clearly has a dominant position in the search business. The question is whether the company has abused that dominance.
European officials are scrutinizing two specific aspects of Google's business to see if the company has crossed any legal lines. One is the company's search results. If Google was deliberately downranking sites it viewed as a competitive threat from search results, that could run afoul of the law.
Second, European regulators are examining Google's business practices in the advertising market. They want to see if Google imposed exclusivity obligations on its advertising partners that would make it difficult for smaller advertising networks to gain traction.
Google CEO Larry Page (Justin Sullivan/Getty Images)
Will Google CEO Larry Page be losing sleep over Thursday's vote by the European Parliament?
Not really.
According to the FT, "executives at the company are understood to be furious at the political nature of the motion and only became aware of the document in the past couple of days." However, the reality is that the European Parliament doesn't have the power to order companies broken up. Rather, a vote in favor of the resolution would merely put pressure on the European Commission — the supranational organization's executive branch — to take a hard line in its ongoing negotiations with Google.
For Google to actually get broken up, the EC would first need to take Google to court alleging violation of European competition laws. The EC would then have to win the case and convince the courts that a breakup was the appropriate remedy.
"I can't believe that would happen," Patterson told me on Monday. "I don't think there have been cases of anyone being broken up in years."
Patterson says that "there's never been a smoking gun" showing that Google has abused its dominance in the search or advertising markets to harm competitors. He notes that the Federal Trade Commission, which enforces antitrust law in the United States, closed a similar investigation last year. The FTC concluded that Google had offered plausible pro-competitive and pro-consumer explanations for its business decisions.
So there's a good chance the European Commission will decide not to formally charge Google with violating competition laws. And even if the EC does decide to bring a case, it's far from certain the agency will win.
German Chancellor Angela Merkel (RONNY HARTMANN/AFP/Getty Images)
What's driving anti-Google sentiment in the European Parliament?
While this week's vote is officially about violations of antitrust law, there are several factors that have led European legislators to be more skeptical about Google.
One factor is privacy. European privacy law is stricter than the laws that prevail in the United States. And because Google amasses more information about people than almost anyone else, the company has often been a target of European privacy advocates.
For example, earlier this year Google was forced to comply with European regulations governing the "right to be forgotten." These regulations give European citizens the right to demand, under certain circumstances, that old and potentially embarrassing information about them be removed from Google's search results.
Some Europeans also object to the way Google uses copyrighted material. For example, Google News displays "snippets" of content from European news organizations. While this kind of use is generally believed to be permitted under the American doctrine of fair use, the practice is more controversial in the Old World. Some European countries have tried to force Google to pay for the inclusion of snippets in its news search results.
Finally, some have pointed to American surveillance policy as a source of trans-Atlantic friction. One writer notes that the current campaign against Google is supported by Germans who are allied with German Chancellor Angela Merkel. Merkel was furious last year when she learned that the US government had been tapping her phone. While that controversy isn't directly relevant to the EC's current investigation, it certainly may have colored the views of European politicians who see Google as excessively close to the American government.
If Google doesn't get broken up, how else could the EC's investigation end?
Negotiations between Google and the European Commission have been going on for several years. Indeed, the company has already made settlement offers to the commission three times. In Google's most recent offer, announced in February, Google would have reserved space in its search results to prominently feature competitors' offerings.
But the commission rejected that offer in September, sending the two sides back to the negotiating table.
At this point, the case could end in one of three ways. Theoretically the EC could simply decide to drop the case. But Patterson says that's unlikely because it would be too embarrassing to concede defeat after four years of high-profile negotiations.
It's also possible that the EC will decide that Google isn't being reasonable and will start a formal case against the company. That could lead to Google's breakup, but it could also lead to lesser punishments such as paying a fine and being required to change business practices.
Finally, Google could make a fourth settlement offer, on terms the EC was willing to accept.
If the European Parliament endorses action against Google, it will increase pressure on European regulators to take the company to court. But going to court is a big gamble, since the EC could lose and get no concessions at all. So even if the European Parliament endorses a tough stance against Google, there's no guarantee the EC will follow its recommendations.
