EU accuses Google of abusing Internet search dominance

Google is accused of cheating consumers and competitors by distorting Web search results to benefit itself

Like other U.S. high-tech titans, Google Inc. is learning that doing business in Europe is no vacation.

The European Union's antitrust chief on Wednesday accused Google of abusing its search engine dominance to favor its own comparison shopping services over those of its competitors — the first-ever formal antitrust action by any government against the Silicon Valley giant.

Regulators there also launched a separate investigation into whether Google improperly leveraged its widely used Android mobile operating system to hinder the development of rival software and products.

The case highlights the difficulties large U.S. firms have in operating in countries where regulations designed to promote competition have a different focus than in the U.S.

Antitrust investigations are just part of the problems tech companies face. China, for instance, has blocked Google over censorship issues. And Europeans have raised serious privacy concerns, heightened by the revelations of widespread high-tech spying by U.S. intelligence agencies.

"It's increasingly a problem for multinational corporations dealing with very different antitrust regimes around the world that try to protect competitors rather than consumers," said David Balto, a former policy director at the Federal Trade Commission.

President Obama has raised concerns about protectionism.

"In defense of Google and Facebook, sometimes the European response here is more commercially driven than anything else," he said in a February interview with Re/code. "Their service providers who can't compete with ours are essentially trying to set up some roadblocks for our companies to operate effectively there."

But Margrethe Vestager, the European competition commissioner, dismissed such suggestions Wednesday.

"Dominant companies have a responsibility not to abuse their powerful market positions by restricting competition either in the market where they are dominant or in neighboring markets," she said.

"This has nothing to do with a company being European, American, Russian, Chinese or whatever," she said. "If you want to compete in the European market, you will have to do that by abiding to European competition rules."

European officials have been tougher on antitrust issues in recent years than their U.S. counterparts.

Microsoft Corp. can attest to that. The company paid a total of $2.1 billion in fines for antitrust violations in Europe over about a decade and had to alter its business practices in the 28-nation region as well.

Google faced similar allegations in the U.S. that it favored its own services in search results. But after a 19-month investigation, the Federal Trade Commission decided in 2013 against imposing any major sanctions. The company agreed to make some changes in a settlement with the FTC.

Still, there's not enough evidence to conclude that European officials are targeting U.S. tech firms, said Nicolas Veron, a visiting fellow at the Peterson Institute for International Economics in Washington.

"The fact that the EU would have a different view doesn't mean it's protectionist," Veron said.

Europe has different antitrust standards that seek to protect competitors as well as consumers, Balto said, pointing out that U.S. antitrust law puts the focus on consumers.

"In the United States, it's how consumers would be affected. Do they have to pay more?" Balto said. "If the answer is no, there's no action."

Google, meantime, still could settle the European case.

Company executives "respectfully but strongly disagree" with the accusations "and look forward to making our case over the weeks ahead," said Amit Singhal, senior vice president for Google Search.

European regulators began investigating Google's search engine practices in 2010 after complaints from competitors that the company favored its own services in search results. A settlement was announced in February 2014, but it collapsed last fall after criticism from politicians and competitors that it wasn't tough enough.

Google's search engine is more dominant in Europe than in the U.S. The company has a more than 90% market share in most European Union nations, compared with about 75% in the U.S.

In November, the European Parliament passed a non-binding resolution calling for the company to be broken up.

Tim Bajarin, a longtime tech analyst and president of Creative Strategies Inc. in San Jose, said the European antitrust action didn't surprise him.

Google executives, he said, "brought it on themselves because their business model forces this kind of scrutiny."

"The EU still has a lot of teeth from an antitrust standpoint," Bajarin said. "My belief is that they're going to hold Google's foot to the fire for a while on these issues."

The probe's preliminary conclusion is that Google displays products offered through Google Shopping more prominently than those from other websites. By doing so, Google has been able to "artificially divert traffic from rival comparison shopping services" and hinder their ability to compete, European regulators said.

The investigation into Android, which is used on a majority of smartphones in the region, is just beginning after complaints from competitors.

One allegation is that Google "has illegally hindered the development and market access of rival mobile applications or services" by tying up makers of smartphones or tablets in exclusive deals to pre-install Google's own apps, according to Vestager's office.

Hiroshi Lockheimer, vice president of engineering for Android, said that "there are far fewer Google apps pre-installed on Android phones than Apple apps on iOS devices."

China has been cracking down on U.S. tech companies as well. Last year, anti-monopoly investigators raided Microsoft's China offices.

And after years of grappling with censors, Google was blocked in China last summer, just before the 25th anniversary of the Tiananmen Square crackdown. Six months later, the government blocked Gmail.

Afterward, Foreign Ministry spokeswoman Hua Chunying told reporters that China "always welcomes and supports foreign investors' legal business operations in China, and we will continue to provide an open, transparent and fair environment for foreign enterprises operating in China."

But tech companies face a major hurdle — the country's ruling Communist party and its obsession with maintaining control.

In recent years, the party has proved adept at harnessing the Internet's economic power while stripping it of its democratizing elements.

Officials, wielding a censorship apparatus known as the Great Firewall, have blocked a huge swath of Western online operations, including Facebook, YouTube, Twitter, Google, Instagram and the New York Times.

Meanwhile, officials have allowed homegrown competition to prosper.

jim.puzzanghera@latimes.com

andrea.chang@latimes.com

Puzzanghera reported from Washington; Chang from Los Angeles.

Times staff writer Jonathan Kaiman contributed to this report.

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