Europe just made a big protectionist mistake with its latest Google ruling

Profile picture for user slauchlan By Stuart Lauchlan June 27, 2017
Summary:
The European Commission's fine on Google is a protectionist move too far when facing down a protectionist President in the White House. This is going to get ugly.

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The utterly predictable decision by the European Commission (EC) to slap a €2.42 billion fine on Google for supposed abuse of power is another example of an inherently protectionist politics-of-envy on the part of Brussels.

The problem is that this time there’s an equally protectionist administration in Washington hellbent on a mission to Make America Great Again. The end result of this collision of egos can only be negative for all concerned.

EC competition chief Margrethe Vestager, the latest in a long line of commissioners who never saw a large US tech firm they didn’t want to penalise, says that Google has abused its market dominance as the world's most popular search engine:

Google has come up with many innovative products and services that have made a difference to our lives. That’s a good thing. But Google's strategy for its comparison shopping service wasn't just about attracting customers by making its product better than those of its rivals.

'Instead, Google abused its market dominance as a search engine by promoting its own comparison shopping service in its search results, and demoting those of competitors. What Google has done is illegal under EU antitrust rules. It denied other companies the chance to compete on the merits and to innovate. And most importantly, it denied European consumers a genuine choice of services and the full benefits of innovation.

This ruling has been a long time coming. The EC launched its investigation into Google Shopping seven years ago. Google now has a deadline of 90 days to ‘clean up its act’ or Brussels will try to extract fines of up to 5% of tjhe daily global revenue of parent company Alphabet. You can criticise the arrogance, but you can't fault the Eurocrats for their ambition!

The EC’s case is based on its conclusion that said Google is the most dominant search engine across the 31 countries in the European Economic Area (EEA). It argues that this enabed the US firm to give its own comparison shopping service an illegal advantage in at least 13 countries, including the UK, Germany and France where traffic for Google’s service jumped 45-fold, 35-fold and 19-fold respectively.

Meanwhile other services saw their traffic decline. The Commission cites specific evidence of sudden drops of traffic to certain rival websites of 85% in the United Kingdom, up to 92% in Germany and 80% in France.

Response

For its part, Google says it its “respectfully” disagreeing with the Commission. Kent Walker, Google's general counsel, said in a statement:

When you shop online, you want to find the products you're looking for quickly and easily. And advertisers want to promote those same products. That's why Google shows shopping ads, connecting our users with thousands of advertisers, large and small, in ways that are useful for both.

We respectfully disagree with the conclusions announced today. We will review the Commission's decision in detail as we consider an appeal, and we look forward to continuing to make our case.'

He adds:

When the Commission asks why some comparison websites have not done as well as others, we think it should consider the many sites that have grown in this period--including platforms like Amazon and eBay. With its comparison tools, reviews, millions of retailers, and vast range of products from sneakers to groceries, Amazon is a formidable competitor and has become the first port of call for product searches.  And as Amazon has grown, it’s natural that some comparison services have proven less popular than others. We compete with Amazon and other sites for shopping-related searches by showing ever more useful product information.

US President Donald Trump has yet to take to Twitter to comment, but the EC ruling clearly won’t go down well. For its part, the US tech policy think tank Information Technology and Innovation Foundation (ITIF). has stated:

Today’s ruling is bad for consumers and bad for innovation. The EU has effectively decided that some companies have become too big to innovate. The EU’s actions have created a cloud of uncertainty that will make large tech companies overly cautious about making changes to the user experience and service offerings that would benefit consumers.

The decision in this case shows the fundamental problem with the EU’s approach to antitrust issues: It is willing to take heavy-handed actions to protect competitors, at the expense of consumers. This is evident in the Commission’s decision to levy a record €2.4 billion fine against Google in a case where consumers were helped, not hurt, by the development of a product-comparison tool that allowed users to shop online more effectively. The only real beneficiary of today’s ruling is the EU’s treasury.

Google might yet find itself being tapped into again as a way of topping up those coffers as the Commission has two other investigations ongoing. One is into Google's AdSense software, which the Commission fears places unfair restrictions "on the ability of certain third party websites to display search advertisements from Google's competitors”. A second case alleges Google abused its Android market dominance by placing restrictions on Android manufacturers and mobile network operators.

There are those who support the EC decision and who were quick to press home their advantage yesterday by writing to the Commission to praise its ruiing and calling on Washington to follow its lead. These include Yelp, Oracle and News Corp, who in a letter to Vesteger said:

As you near final decisions in the Shopping and Android cases, Google and its allies will no doubt continue to press through its lobbying and public relations machine the fiction that any adverse decision amounts to European “protectionism.” As US-based companies, we wish to go on record that enforcement action against Google is necessary and appropriate, not provincial. We have watched Google undermine competition in the United States and abroad. Google operates on a global scale and across the entire online ecosystem, destroying jobs and stifling innovation.

Google and its allies may also claim that there is no factual basis for a decision against Google. That too is untrue. The case against Google, both in Europe and the United States, rests on sound legal and factual foundations. Indeed, the US Federal Trade Commission legal staff found that Google has monopoly power and that it engages in anticompetitive practices.

We believe that decisive action is necessary to restore competition and once again open the Internet to innovation and growth. We hope that your counterparts in the United States will use this as an opportunity to address similar anticompetitive conduct by Google.

My take

The most ridiculous thing I read yesterday about the EC Google ruling came from The Guardian newspaper, which opined that anyone suggesting this was protectionist and anti-American was wrong. It argues:

Note, too, that many of the onlookers cheering Vestager’s efforts are themselves American – the likes of Oracle and Yelp.

Er..and News Corp, don’t forget News Corp. Or is finding itself a fellow traveller with Rupert Murdoch too uncomfortable for The Guardian’s liberal sensititivies?

Whatever the case, the ‘argument’ doesn’t begin to hold water. Yelp, Oracle and News Corp have public grievances against Google and competitive agendas that are well-documented. In no way can these “onlookers cheering Vestager’s efforts” be deemed impartial.

This is a protecitonist ruling, the latest in a long line of EC rulings that are built upon ‘Silicon Envy’ as much as anything else. From data sovereignty and cloud onwards, the list of demands on the US tech industry just gets longer and longer. ‘This is what we want and we want it now and when we get it, that won’t be enough either and we’ll want more, so pay attention ‘cos there’s more to come!’

As noted above, the biggest issue now is that in the White House sits a President with his own nakedly protectionist agenda, an open antipathy for the European Union and, for better or worse,  no fears of picking a fight to Make America Great Again.

Vestager and her cheering onlookers will no doubt be very pleased with themselves today. But they might just come to regret picking yet another fight with the US in the current political climate.