Nicholas Hirst reports in Politico:
European antitrust regulators and the Silicon Valley darling wanted to avoid a repeat of the Microsoft debacle. They failed. Google is facing a considerably broader onslaught of complainants than Microsoft. And they have very few allies
Google’s founders wanted their company to be the opposite of Microsoft.
Where Microsoft was expensive, Google was free. Where Microsoft was boring, Google was fun. And where Microsoft fought antitrust regulators, both in Washington and in Brussels, Google sought to settle.
Yet in Europe, Google’s attempts to avert a clash with regulators — and avoid a repeat of Microsoft’s own Brussels train wreck of the previous decade — have failed. The coming year will lay bare just how much that will cost Google.
While Google’s search engine is taking the brunt of regulators’ attention at the moment, charges against its lucrative advertising business and omnipresent mobile software could come soon. Litigation lawyers around Europe are ready.
The stage is set for another tortuous battle between European antitrust regulators and a defiant torchbearer of U.S. innovation. First it was IBM in the 1990s, then Microsoft in the 2000s. Now it is Google’s turn.
“We have seen this movie before,” says Thomas Vinje, a lawyer running several complaints against the Mountain View, California-based firm. He should know: Vinje marshaled opposition to Microsoft a decade ago.
This clash is worrying news for Google, but it also spells trouble for the European Commission.
Once again, as in the Microsoft case, Brussels must grapple with applying time-honored antitrust principles to a novel, fast-changing market. And in Google’s case, it is doing so against business practices that its U.S. counterparts in Washington have deemed fair and legal.
“If this case goes on, it could make Microsoft look like a legal picnic,” says Konstantinos Maragkakis, a senior consultant at Instinctif Partners in Brussels.
This is the story of how both Google and the Commission sought to avoid a rerun of that epic battle, based on interviews with more than a dozen officials, advisors and company sources involved in the Google or Microsoft cases.
They failed because they mistakenly believed Google was more popular in Europe than its archrival. As a result, Google gave too little too late, while the Commission jumped at the first opportunity to settle and felt the political pushback on its home turf.
Both were surprised by the groundswell of opposition that subsequently emerged. By then it was too late.
Now both parties face a predictably messy endgame. Google will struggle to resolve the wide spectrum of complaints against it to the satisfaction of critics. And the Commission will struggle to impose itself on one of the world’s richest companies and one of its most protean.
Ringside seats
When Eric Schmidt, Google’s then-executive chairman left the InterContinental hotel in Davos in January of 2014, he was optimistic.
His efforts to resolve a four-year-long European probe into Google’s search business were bearing fruit. Google’s veteran CEO had presented a third, improved settlement offer to Joaquín Almunia, Europe’s top competition enforcer and former leader of Spain’s Socialist party.
At the heart of the Commission’s concerns was the way Google expanded its formidable search engine into various more specialized areas, such as travel, local listings and shopping. Antitrust enforcers suspected Google’s search engine was pushing websites like Ciao, a price comparison page, Expedia, a travel portal, or Hot Map, a map provider, down its own rankings so as to boost traffic to its own fledgling services.
The Commission was also critical of how Google’s new ventures pilfered hotel reviews or weather forecasts from rival websites, and of the restrictions it placed on advertisers looking to use other advertising services.
Google made its first settlement offer in April 2013. It would revise the terms for advertisers and allow websites to modulate what information Google could display on its own pages. Yet most controversial was its proposal to sell advertising space at the top of its page to sites like Ciao and other complainants. That offer was revised in a second proposal in October 2013, and again a third time by Schmidt in Davos.
Almunia’s backing for the plan vindicated Schmidt’s strategy for dealing with the Commission.
That strategy was based on experience: Schmidt and his team of advisors had witnessed much of the Microsoft bust-up first-hand.
Microsoft flashback
Led by the ultra-competitive Bill Gates, Microsoft built a fearsome reputation for slashing prices to destroy rivals or stealing away their engineers.
But it was the way that Gates’ firm hampered rival software from running in or alongside Microsoft’s operating systems that caught the eye of Europe’s antitrust authorities, triggering a series of bitter European probes beginning in 2000 and ending only in 2014.
During the 2000s the Redmond, Washington-based software maker fought European regulators louder than any company before, or since. But in the end it paid out billions in fines and settlements, while the saga proved wildly damaging to Microsoft’s reputation and represented a major distraction for management.
Schmidt’s team had a fine view of it all. He headed up Novell when the software maker helped the Commission build a case against Microsoft, while two of Google’s outside counsels, Dutch attorney Maurits Dolmans and Swiss lawyer Thomas Graf, ran complaints against Microsoft on behalf of RealNetworks and IBM.
A third outside counsel for Google, the Danish lawyer Bo Vesterdorf, was the European judge who presided over Microsoft’s main appeal, which was unsuccessful.
In Google’s eyes, Microsoft wrote the rulebook of how not to deal with EU antitrust prosecutors. “Microsoft was a company that was extremely angry,” said a source close to Google.
So where Microsoft fought, Google sought to make peace.
“‘Google is facing a considerably broader onslaught of complainants than Microsoft. And they have very few allies.’It described the EU regulator’s decision to open a preliminary probe in 2010 as “entirely understandable.”
Tide moves against Google
For a while it looked like Google had deftly defused the Commission’s concerns.
“In four years of investigation Microsoft received three sets of charges, while Google had the chance to negotiate three settlement deals,” says Jacques Lafitte, an EU affairs consultant who headed up Microsoft’s public affairs team in 2000. He filed one of the first complaints against Google in 2009 on behalf of eJustice.fr.
Yet one after another the settlement offers collapsed in a maelstrom of criticism from complainants, other tech firms and politicians.
The search engine, barely a decade old at that stage, had misjudged the politics that grew up around the investigation.
Its low-key demeanor left a void that rivals rushed to fill. The company found itself with few if any allies in town. “We just didn’t have the people on the ground to be able to have some of those conversations as we grew,” Matt Brittin, Google’s European CEO, told POLITICO in June.European competition commissioner Margrethe Vestager
The changed political climate in Europe about America and American technological dominance didn’t help. Revelations of mass surveillance online by U.S. spies soured Europe’s view of Silicon Valley, and Europe’s politicians grew anxious to reverse the U.S.’s lead in the tech sector.
Almunia’s attempts to settle with Google became a lightning rod for those anxieties, both inside and outside the Commission.
Arnaud Montebourg, France’s firebrand economy minister at the time, had already besmirched Almunia as a “a right-wing Taliban.” Then in the Spring of 2014 he wrote expressing “deep concerns” about the Spanish commissioner’s compromise and lambasted his handling of the probe. The letter, leaked to the press, was co-signed with Montebourg’s counterpart in Berlin, Sigmar Gabriel.
Günther Oettinger, then Germany’s European commissioner for energy and now commissioner for digital affairs, later said he intervened personally to block Almunia’s deal, showing scant regard for the rule that competition probes be free of political interference.
A spokesperson for the Commission said: “Competition investigations, such as the Google antitrust investigation, are firmly based on the facts and EU legislation.” She pointed to remarks by Almunia attributing the change in direction to “serious empirical arguments” presented by Google’s rivals. Almunia declined to comment for this piece.
In September 2014 Almunia issued a final invitation to Google for more concessions. Yet his proposal was too late and too vague. Both Google and the Commission waited out the final two months of the Spaniard’s mandate as commissioner.
Google political risk
Fourteen months after meeting with Almunia in Davos, Schmidt sat before his successor at the head of Europe’s competition body, Margrethe Vestager — a hip yet calculating Liberal from Denmark, who took on Europe’s top regulatory post in November 2014.
Schmidt presented his company’s defense to an impassive Vestager.
One Tuesday six weeks later Google heard back: The gloves were off. The following day Vestager publicly charged Google’s search business with breaching EU law.
Given the failure of the settlement process, she had few other options. Yet her decision to escalate a parallel inquiry into Google’s Android made clear her determination to face Google head-on. Once again Europe’s antitrust regulators would be sizing up the world’s most widely-used operating system – not Microsoft’s Windows this time but Android.
Schmidt’s strategy lay in tatters.
The Google boss knows what Microsoft’s antitrust problems cost it.
Of course, there is over €2.2 billion in EU fines — still a record — and almost double that sum in global civil settlements. But that represented just a fraction of Microsoft’s bumper profits, which increased through its antitrust battle to a company-record of €16.5 billion in 2011. Microsoft declined to comment for this article.
More importantly, the saga hurt Microsoft’s reputation, hampering its ability to hire the best and brightest engineers. Many of them wound up working for Schmidt.
And crucially, it distracted Microsoft’s management, who were slow to adapt to light-speed changes of the Internet — and the emergence of Schmidt’s Google.
More foes than Microsoft
Google is not there yet, argues David A. Vise, a journalist and author of a book about Google’s rise, “The Google Story.” Unlike Microsoft, it still enjoys a good reputation with consumers and can hire the best engineers globally.
Nor have the charges against Google had an impact on the company’s share price, which is up almost 40 percent since April.
But the case by the European Commission, currently the world’s predominant antitrust enforcer, will serve as a bellwether for global regulators over the coming decade. “Today the greatest risk [Google] faces is political risk,” says Vise.
Internet disruptor Google has spawned a wider cross-section of foes than Microsoft ever did.
These include tech rivals, media firms and telecom operators, but also parts of the old economy, including powerful European publishers like Axel Springer. (Axel Springer co-owns POLITICO’s European edition.) Google loomed large at a 2014 event organized by car-maker BMW in Brussels, which discussed the challenges to European industry as they adapt to the digital age.European Commission President Jean Claude Juncker, left, welcomes Microsoft founder Bill Gates to Brussels last January. After fighting its own acrimonious antitrust battle in the last decade, Microsoft is now one of the companies behind the EU complaint against Google.
Even the organizer of the U.K.’s main football league, The Premier League, has lent its voice to the anti-Google camp by joining iCOMP, a lobby group co-founded and largely sponsored by Microsoft. Google’s old foe has drawn on its own experience of antitrust woes to marshal the opposition in Brussels to Google.
In the words of plaintiff lawyer Vinje: “Not only is Google facing a considerably broader onslaught of complainants [than Microsoft], while on the other side of the ledger they have very few allies.”
That hostility is likely here to stay.
“Google, and indeed other technology leaders, are likely to disrupt other sectors,” says Philippe Blanchard of the advisory firm Brunswick. “This is likely to create further opposition.”
Shift in strategy
In August 2015, Google responded to the Commission’s charges.
Schmidt’s company was now following the Microsoft playbook: Fight.
It was resolved to no longer let its opponents dictate the public debate. And the company and it advisors were convinced the Commission’s case was weak.
When Google changed tact and decided to fight, it tore into into every aspect of Brussels’ case, from whether its search engine is dominant to alleging procedural irregularities in the Commission’s handling of the probe.
The response was “robust” but not “aggressive,” insists one source close to Google.
The Commission has not lost an abuse of dominance case before the EU courts since the 1970s.Defiance may only make things worse. Microsoft’s constant criticism of the Commission’s case signaled that the company “did not want to comply,” according to an official involved in the Windows case. That led the Commission to push for harder remedies and harsher punishment.
Google’s odds of emerging unscathed are slim to zero, warn former advisors to Microsoft. The Commission can refine its charges, or issue new ones altogether until it finds the sweet spot.
The Commission’s credibility both in Europe and internationally depends on it winning, as do the ambitions of its officials, say the former advisors, who grumble that the Commission’s power is unchecked.
By most accounts, the Commission has not lost an abuse of dominance case before the EU courts since the 1970s.
Google doesn’t care, say some opponents. The firm declared it had €60 billion in the bank at the end of 2014. The company reported profits of €3.7 billion in the third quarter of last year.
“Google may well be dragging out the process for as long as possible so as to maximize the monopoly profits it is earning — just as Microsoft itself did,” says Vinje, the complainant’s lawyer.
Google declined to comment on this point. It insists that it is taking the Commission’s concerns seriously, but argues that its services have increased choice for European consumers.
‘Fast-moving markets’
It was a spring evening in Brussels in 2014 when a dozen current and former European Commission officials met in a Spanish restaurant to celebrate. Ten years prior, they built the antitrust case that brought Microsoft to heel.
Over paella and chorizo, the friends and former colleagues reminisced about what probably remains the biggest antitrust probe of the century, and the most controversial. But few regrets were on display: They say the case drew important red lines for Microsoft, and all would-be Microsofts.
This view of the Microsoft case is hotly disputed. Even those sympathetic to the Microsoft inquiry accept it was quickly rendered irrelevant by business and technological developments.
An example: Microsoft issued a version of Windows XP without a media player to comply with the Commission decision. According to the company’s former advisors, it sold less than 2,000 copies. Windows XP sold in the tens of millions.
In any case, Windows Media Player was rapidly losing market share as Windows users could download superior rivals via the fast-expanding Internet.
That history with Microsoft figured prominently in Almunia’s thinking as he pushed, against the advice of some officials, to settle complaints against Google.
He spoke of the need for “quick resolution” in “fast-moving markets.” He failed.
Google is now using that failure against the Commission, touting its indecision as a sign of the case’s weakness.
“The theory on which the [Commission’s] preliminary concerns rest is so ambiguous that the Commission itself concluded three times that the concerns had been resolved,” it says in its confidential response to the Commission, which was reviewed by POLITICO. “But the [Commission] now asks for remedies that are difficult and had been previously rejected by the Commission itself.”
Andrea Renda, a senior researcher at the Centre for European Policy Studies, argues that, like in the Microsoft case, “it will be very difficult to come up with a verifiable remedy for Google.”
If no negotiated settlement is possible, then what?
The alternative for the Commission is to serve Google with a cease-and-desist order. The Microsoft case provides a salutary lesson against such ultimatums: It took three and a half years and over a billion in extra fines before the software giant complied to the satisfaction of Brussels.
Some take the long view. Ramon Tremosa i Balcells, a Spanish member of the European Parliament who has taken the side of some tech companies against Google, argues that the Microsoft case set a clear precedent: “A very big American giant is fined and they change their policy.”
After all that acrimony and ill-blood, he added, Microsoft was now well-regarded within the Commission.
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