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Google Rebuffs European Union on Antitrust Charges --2nd Update

08/27/2015 | 08:13pm US/Eastern
By Sam Schechner and Natalia Drozdiak in Brussels and Alistair Barr in San Francisco 

Google Inc. on Thursday rebuffed a European Union demand that it change how its search engine functions, signaling a drawn-out legal battle in the continent's most visible antitrust case in a decade.

In a formal response to antitrust charges levied this spring, Google conceded little and unveiled a new legal argument against a European demand that it change how it ranks comparison-shopping services in its search results.

The tussle could thrust Google's European operations into legal limbo for years, but allow the company to keep operating as it currently does--without making big changes to its search algorithms.

"Google is making it clear that they will fight this to the bitter end and the EU is making clear that the bitter end will have a lot of intermediate steps for Google," said Gary Reback, an antitrust attorney who represents Google rivals that have filed complaints against the search giant.

It could be another 18 months or longer before the EU makes a decision. Google could then challenge that ruling in two European courts, prolonging the case for another six or seven years, according to Renato Nazzini, an expert in European competition law at King's College London. "These really drawn-out cases are not good for anyone," Dr. Nazzini said.

The response comes amid multiple conflicts between EU regulators and U.S. technology companies on subjects ranging from antitrust to privacy. Facebook Inc. is facing privacy inquiries across Europe, while Google is clashing with France's privacy watchdog, which has ordered the company to expand the EU's "right to be forgotten" rule to its search engine globally.

Google also is facing a second EU antitrust inquiry over its control of the Android mobile-operating system, which powers roughly three-fourths of the world's smartphones.

In the response in the search case Thursday, Google said 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 said the EU's charges--detailed in a document called a Statement of Objections, or SO--fail to account for the fast growth of companies like Amazon.com Inc. and eBay Inc. Google executives have said these firms pose a competitive threat, undercutting 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 argued--in a report it commissioned to accompany its filing--that the EU lacks legal justification to demand the firm change its algorithms to treat comparison-shopping rivals equally in search results.

To do so, Google argues, the EU would need to show that its results 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.

Dr. Nazzini said Google might score points with its argument in court, because under EU law an essential utility has to control a bottleneck that no other company can replicate. Without that, regulators struggle to force dominant companies to treat rivals equally.

A 1990s antitrust case against Austrian newspaper group Mediaprint failed on these grounds, Dr. Nazzini noted. The court ruled that Mediaprint didn't have to give a rival access to its nationwide home-distribution system because Mediaprint wasn't an essential utility.

The commission's case against Google isn't public, but attorneys representing Google rivals said the commission didn't rely on this theory. Instead, they said the regulator is focusing on how Google's dominant position in general search--the EU says it controls 90% of the market in some countries--creates a legal obligation for the company not to discriminate against rivals. That strategy has succeeded in past cases, according to Thomas Vinje, a partner at law firm Clifford Chance, who represents companies that have complained about Google to the European Commission.

The probe stretches back to 2010, and led to three tentative settlements that were later scuttled.

News Corp, owner of The Wall Street Journal, has officially complained to the commission about some of the Internet company's conduct.

According to a version of the charge sheet sent to some 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.

Some opponents say Google's argument that the EU should take account of new competitors, like Amazon, is common in antitrust cases. "All dominant companies think that their position is precarious and are about to be knocked off their perch," said Mr. Vinje.

Google's response 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, which would total more than $7 billion in Google's case. Or it could seek to negotiate a new settlement.

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

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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