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European inquiry shows Google’s size matters

The decision by European officials to open a formal antitrust investigation of Google Inc. highlights a reality for the online search giant — its size matters to regulators more than it ever has.

Until now, Google has largely faced inquiries focused on specific acquisitions or narrow complaints. A much-rumored deal to buy online discount coupon company Groupon Inc., for example, would be an action that typically would spark an antitrust examination, legal experts said.

But the European inquiry announced Tuesday is the broadest yet, investigating whether Google has abused its search-engine dominance to squelch online rivals.

“They’re looking at the forest and they are looking at the trees,” said Jarrett Arp, an antitrust lawyer in the Washington office of law firm Gibson, Dunn & Crutcher. “In the past, the pattern both in Europe and elsewhere has been to look at a tree here and a tree there.”

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The European inquiry was triggered by complaints from some websites that Google stifled competition by rigging search results to favor its own services over those of competitors, said the European Commission, the governing body of the European Union.

“This initiation of proceedings does not imply that the commission has proof of any infringements. It only signifies that the commission will conduct an in-depth investigation of the case as a matter of priority,” the commission said.

Google is even more dominant in Europe than in the United States. Google controlled 77% of the search market in Europe in October, compared with 66% in the U.S., according to research firm ComScore Inc.

Google said it would cooperate with the investigation but stressed that the company ranks search results for its users, not to please individual websites.

“At Google, we’ve always focused on putting the user first,” Susan Wojcicki, senior vice president for product management, and Udi Manber, vice president for engineering, wrote on the company’s public policy blog.

“However, given our success and the disruptive nature of our business, it’s entirely understandable that we’ve caused unease among other companies and caught the attention of regulators,” they wrote.

Google acknowledged in February that European officials had contacted it about complaints received from three websites — Britain’s Foundem, a price comparison site; France’s Ejustice, a law search engine; and Ciao from Bing, a product-rating site run by Microsoft Corp. in several European countries.

“Though each case raises slightly different issues, the question they ultimately pose is whether Google is doing anything to choke off competition or hurt our users and partners,” Google’s senior competition counsel, Julia Holtz, wrote on the blog in February. “This is not the case.”

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European regulators said they would investigate whether Google used its dominance in online search to give its own services, such as its price comparison feature, “preferential treatment … in order to shut out competing services.”

Regulators will examine whether Google lowered the ranking of competitors in the unpaid search results displayed under and next to the so-called sponsored links, for which companies pay Google.

The inquiry also will look into complaints that Google lowered the so-called Quality Score for sponsored links of competing services, which would increase the price those services would have to pay to Google to receive a high ranking.

And the European Commission said it would investigate allegations that “Google imposes exclusivity obligations on advertising partners, preventing them from placing certain types of competing ads on their websites, as well as on computer and software vendors, with the aim of shutting out competing search tools.”

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Friction from intense regulatory scrutiny could increase Google’s cost of doing business, especially when it comes to buying large companies, said Lou Kerner, an analyst at Wedbush Securities.

“It makes it more expensive to do these kinds of large acquisitions,” he said. “Acquirers have to worry about the length of time it’ll take to close a deal and the possibility that regulators won’t approve it.”

Although Google announced its plans to buy DoubleClick Inc. in mid-2007, it was nearly a year before the takeover was officially complete. Regulators were scrutinizing the deal for much of that time, so Google was prevented from doing much of the operational planning that accompanies an acquisition.

And Google abandoned plans for a search advertising deal with Yahoo Inc. in 2008 after U.S. officials said they were ready to challenge the acquisition on antitrust grounds.

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But on a day when Google’s stock dropped more than 4%, some analysts seemed more concerned about whether the company was paying too much in its rumored buyout of Groupon than about the antitrust inquiry and whether it would change the way Google displays search results.

“It’s not a situation a company wants to be in, but I don’t think it undermines their core business,” said Steve Weinstein, an analyst at Pacific Crest Securities. “If they have to change their practices in that area, they could.”

jim.puzzanghera@latimes.com


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