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Google Rebuffs European Union on Antitrust Charges --Update

08/27/2015 | 02:20pm US/Eastern
By Sam Schechner and Natalia Drozdiak in Brussels and Alistair Barr in San Francisco 

Google Inc. on Thursday rebuffed the European Union's demand that it change the way it ranks online comparison-shopping services in its search results, setting up a potentially drawn-out legal battle between the search giant and a regulator empowered to levy billions of euros in fines.

In a formal response Thursday to antitrust charges the EU filed this spring against the California company, Google argued the bloc's antitrust regulators erred in their analysis of the fast-changing online-shopping business, misconstrued Google's impact on rival shopping-comparison services, and failed to provide sufficient legal justification for its demands.

In particular, the company argues that the EU's charges--detailed in a document called a Statement of Objections, or SO--fail to take into account the fast growth of companies like Amazon.com Inc. and eBay Inc. Google executives have said these firms pose a new competitive threat, which undercuts the case that Google has harmed comparison-shopping companies like Nextag and LeGuide.

"We believe that the SO's preliminary conclusions are wrong as a matter of fact, law and economics," Google general counsel Kent Walker said in a written statement.

Google also argues--in a report it commissioned to accompany its filing--that the EU doesn't have the legal justification to demand the firm include rivals in its comparison-shopping ads. To do so, Google argues, the EU would need to show that such ads are as essential as utility services.

The EU commission, the bloc's executive arm and central antitrust authority, said it would carefully consider Google's response before deciding how to proceed.

By taking aim at the framing and legal justification of the EU's case, Google is setting the stage for a potentially drawn-out legal challenge. The case, which stretches back to 2010, has led to three tentative settlements that were later scuttled.

The continuing tussle could thrust Google's operations in Europe into legal limbo for years to come. It also gives the company room to keep operating as it currently does--without making big changes to its search algorithms.

At issue in the case is whether Google uses its alleged dominance in online search--where the EU says it controls some 90% of the market in some countries--to hurt competitors in related businesses where Google also operates.

According to a version of the charge sheet sent to some of the complainants in the case, the EU alleges that Google's abuses occurred in several countries and stretch back as much as a decade, people familiar with the matter said in June.

News Corp, which owns The Wall Street Journal, is among the complainants against Google.

Some opponents say Google's argument that the EU should take account of new competitors, like Amazon, is a move straight from the antitrust playbook.

"All dominant companies think that their position is precarious and are about to be knocked off their perch," said Thomas Vinje, a partner at law firm Clifford Chance, who represents companies that have complained about Google to the European Commission, the EU's antitrust authority.

"I would not doubt Google's sincerity on this. But I've never seen any defendant in a dominance case win by changing the EU Commission's stance on the definition of the market," he added.

Google's response comes as more technology companies are under investigation or in legal conflict with EU regulators on subjects ranging from antitrust to privacy.

Facebook Inc. is facing an array of privacy inquiries across Europe, while Google is clashing with France's privacy watchdog, which has ordered the company to expand the EU's new "right to be forgotten" rule to its search engine globally.

Antitrust officials have been particularly active. EU antitrust chief Margrethe Vestager recently opened a number of high-profile investigations into how large Web companies like Google and Amazon operate in Europe, and whether e-commerce companies are raising barriers to competition, something the companies deny.

Her office has also opened inquiries into chip maker Qualcomm Inc., including one into alleged predatory pricing tactics--a charge the company described as without merit.

Google's response Thursday now puts the ball back in the EU's court. The EU could decide to immediately impose injunctions against Google, and announce fines as high as 10% of the company's annual global revenue. Or it could seek to negotiate a new settlement.

Google has decided not to seek an oral hearing at this stage. But it could appeal any commission decision to EU courts in Luxembourg, a process that could take years. EU courts have traditionally sided with the bloc's antitrust regulators.

Google argues that the fast-changing online-shopping market, with more competitors joining the market, shows that its behavior hasn't harmed companies like the complainants--and rather says that Google has significantly boosted the traffic it sends to such companies in the time covered by the EU's complaint.

Google also recently added a buy button to some of its shopping search results, turning the service into more of a marketplace like Amazon. Google did this to make it easier for smartphone shoppers to complete purchases on smaller screens, but that change could also help its argument that its competition in online shopping includes Amazon and eBay.

The shopping case isn't the only one Google faces. In addition to a continuing probe into its Android operating system, the EU has also stepped up a probe into the allegations that Google abuses its dominance in advertising contracts with web publishers and that it copies or "scrapes" content from rival sites, according to two documents reviewed by The Wall Street Journal. Google has declined to comment.

The EU has sent out questionnaires to companies to gather more information into how Google operates in those areas, suggesting the EU could potentially expand the formal charges or open a new case against the company.

Write to Sam Schechner at sam.schechner@wsj.com, Natalia Drozdiak at natalia.drozdiak@wsj.com and Alistair Barr at alistair.barr@wsj.com

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