Google vs. the Government

Privacy? What privacy? That's what many people might be wondering, given last week's word that Google (NASDAQ:GOOG) is fighting a government subpoena for a slice of its search data. If the Department of Justice gets what it wants, it will be a blow against privacy on the Internet -- and of serious concern for Google investors.

Last week, news agencies reported that Google rejected the DOJ's subpoena for a week's worth of search threads and the URLs of 1 million randomly selected Web sites. The DOJ said it's making the request to help it measure how often individuals encounter pornographic Web sites (supposedly to point out that minors could inadvertently stumble upon them even with filters in place), so that it can rejuvenate its Child Online Protection Act, which was declared unconstitutional in 1998, when the American Civil Liberties Union fought it. (The government may sound like it has good intentions here, but I'd like to point out that the road to hell is, of course, paved with good intentions, even when it comes to matters of privacy.) Meanwhile, many would likely point out that the government already does have some means with which it can monitor communications, systems known as Echelon and Carnivore or DCS1000 -- both of which privacy advocates consider troublesome.

Google shareholders do have reason to worry. The company is doing exactly what it should, but a legal battle to protect what it considers to be its trade secrets could be costly (when it comes to users' privacy, it's likely the ACLU will step in once again), and losing any such battle would set a precedent that many would find chilling. What's more, it could dampen enthusiasm for online search, and possibly tarnish Google's brand.

It's not just a matter of Google's public perception, but also that company does gather -- and then, apparently, store -- a lot of search data for its bread-and-butter targeted advertising. In addition, Google is expanding its business into many different areas. For example, its Gmail program has raised privacy advocates' hackles because it scans emails for keywords to aid in advertising. The last thing Google needs is to have its users worrying that the company will cave to government demands for information on their habits, interests, and motivations online.

According to news reports, Yahoo! (NASDAQ:YHOO) and Time Warner's (NYSE:TWX) America Online agreed to the government's request, and there are indications that Microsoft's (NASDAQ:MSFT) MSN unit also complied. Admittedly, what's being done doesn't track searches back to Internet users, so one might ostensibly interpret the government's action as less invasive of privacy. What's more, both Yahoo! and Time Warner were careful to stress that they don't believe the request raised a "privacy" issue. Still, this willingness to comply probably leaves a bad taste in many people's mouths, considering that Yahoo! recently gave some of us the creeps by turning in information on a dissident to the Chinese government.

Regardless of whether you think the government's bid to get into Google's business is defensible or overreaching (and as a libertarian, I find it disturbing to say the least), it could lead us down a difficult road indeed. Google's decision to fight to keep its records private is the right one, in my opinion, and a truly wise tactic. (On our Google discussion board, one poster theorized that Google's stand could even give it some degree of competitive advantage). However, the possible costs -- and long-term ramifications -- connected to this event are reason enough for investors' concern.

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Alyce Lomax does not own shares of any of the companies mentioned.