Google Execs Hunker Down for Fight With EU as Fines Loom

As European Union officials count the days before their annual vacation, Google’s lawyers and lobbyists are hunkering down in Brussels, preparing for what may be a record EU antitrust fine.

A penalty in the shopping-search probe could come within weeks and many expect it to exceed a $1.2 billion fine on Intel Corp. in 2009.

That would be another show of strength by EU Competition Commissioner Margrethe Vestager who slapped Apple Inc. with a 13 billion-euro ($14.5 billion) tax bill in August. Google is a top priority case for her as European politicians and publishers push for action against the Mountain View, California-based company that’s come to dominate online advertising.

"If there’s going to be a fine, it has to be the biggest ever," said Stephen Kinsella, a lawyer at Sidley Austin who represents companies that have complained to the EU about Google. “The European Commission has strongly signaled that if there is going to be a fine it would need to be at a level that would have deterrent effect.”

Timing on a decision could slip and Google representatives and the commission both remain tight-lipped, declining to talk about it. The company hasn’t yet met with regulators to discuss a potential EU order or how it might implement any changes, according to a person familiar with the probe, who spoke on condition of anonymity.

Major Rulings

But the EU has a long tradition of issuing major rulings just before officials quit Brussels for their summer break. Last July saw more than $3 billion in fines for truck makers including Daimler AG and Volvo AB. With one eye on the impending decision, some Google officials have been getting ready, moving vacation dates or making sure they are close to the action, other people familiar with the probe said.

Vestager “has a keen eye to maximizing the impact of any announcement on a case and July sees a slowdown in the news cycle,” said Christopher Bright, a lawyer at Shearman & Sterling in Brussels, who’s not involved in the Google probe. “Together with the advanced state of preparation of the case, this points to a July announcement for Google.”

Vestager isn’t afraid of big numbers, setting records with the tax bill for Apple -- which it’s appealing -- and the cartel fine for truck companies. Facebook Inc. may have got off lightly with a mere 110 million-euro penalty for not providing correct information in the WhatsApp merger probe.

Top Spot

Intel holds the top spot for a monopoly abuse with a fine of 1.06 billion euros. That represented more than 3 percent of Intel’s $37.6 billion in sales in 2008, below the maximum penalty of 10 percent of yearly sales regulators can impose.

As Alphabet Inc. pulled in $90 billion in revenue last year, any fine would be capped at $9 billion. But within that limit, the actual size of the fine would be calculated from sales in the market under investigation. Alphabet’s Google division generated $79 billion in ad revenue in 2016. While it doesn’t break out sales for shopping search advertising, ads from search provide most of its revenue.

The EU also factors in how many years the illegal conduct lasted. Regulators say the systematic promotion of Google’s own shopping search started in 2008, allowing Google Product Search and Google Shopping grow more quickly than rival comparison-shopping services.

A large penalty and an order for Google to change its ways might just be the start. The EU is also examining its AdSense advertising service and its Android mobile phone software. The Android investigation goes to the heart of what Google does in the mobile-phone space, questioning the strict terms Google places on phone makers and app developers to use the software it provides for free.

Cash Pile

While money matters, Alphabet has a cash pile of more than $92 billion as of March 31 and any changes to its business model ordered by the EU may “probably be of more significance," said Spencer Waller, a competition law professor at Loyola University in Chicago.

"I doubt this is going to hamstring the company but the commission is going to order what it thinks is necessary to give competition a chance," he said.

EU’s claims that Google Shopping results harm competition "are wrong as a matter of fact, law, and economics," general counsel Kent Walker wrote in a blog post last year. The EU’s case "rests on a theory that just doesn’t fit the reality of how most people shop online" because price comparison sites aren’t the only way to shop around.

Google can appeal, which could take years. Microsoft only won a 4 percent cut to its fine. Intel has been waiting eight years for a final ruling.

Vestager’s move against Google is sure to attract further criticism that she’s unfairly singled out U.S. companies. Transatlantic tensions are already on the rise after President Donald Trump’s decision to pull the U.S. out of the Paris climate accord, adding to concerns over global trade.

"We’re entering a period in the States where foreign competition enforcement against U.S.-based companies is going to be a matter of more public comment and criticism," said Waller. "I think you’ll hear similar things" to the outcry over the Apple tax bill when the Google probe wraps up, he said.

The U.S. Chamber of Commerce in March called on Trump to "address the misuse of competition law by other nations that impede international trade and competition and harm U.S. companies."

On the other hand, Vestager is under pressure in Europe from companies and politicians eager to see her punish Google.

Complaints about Google continue to pour in to the EU, most recently from publishers about Android software. And new fronts could open; Vestager tweeted recently that she’d be playing close attention to Google’s new ad-blocking feature.

Bbloomberg