The EU is charging that the company used its search dominance to push its own products over those of rival companies. Search is not the only issue, as antitrust regulator Margrethe Vestager also said she had opened a formal antitrust investigation into the company's Android smartphone software, according to The New York Times.
"If the investigation confirmed our concerns, Google would have to face the legal consequences and change the way it does business in Europe," said Vestager, the EU's competition commissioner.
The investigation is not a small problem for the search giant as it could lead to a $6.4 billion fine, Re/Code reported.
What the EU is charging
Regulators are focusing on charges that Google diverts traffic from its rivals in favor of its own comparison shopping site, reported the Times. The European Commission has issued a set of formal charges, known as a statement of objections.
Google has the option to ignore the charges, which would almost certainly result in a fine. It could also dispute them or attempt to negotiate a settlement.
The case is very similar to a protracted action between the EU and Microsoft (NASDAQ:MSFT), in which the company fought the charges, paid some fines, and ultimately had to make changes to its business practices.
How Google responded
An internal memo from Google, printed by Re/Code, showed that the company did not agree with the charges in the Statement of Objections (SO) and planned to fight them:
First, a few facts about the SO process. An SO is not a final finding. It's a document in which the Commission staff sets out its preliminary arguments so that the company in question can respond. Expect some of the criticism to be tough. But remember, it's also an opportunity for Google to tell our side of the story. The back-and-forth over an SO can take some time (even a year or two), and in a number of cases has resulted in the Commission modifying their claims or settling the case. If the two sides cannot settle their differences, the Commission issues an infringement decision, which can be appealed in court.
The memo continued, explaining that the company believes it has a strong case specifically because it has increased services for users and because new competitors have emerged. The memo listed out those competitors:
People can use Bing, Yahoo, Quora, DuckDuckGo, and a new wave of search assistants like Apple's Siri and Microsoft's Cortana, as well as more specialized services like Amazon, Idealo, Le Guide, Expedia, or eBay. In addition, users increasingly turn to social networks like Facebook and Twitter to find news and suggestions -- where to eat or which movies to watch.
Google did not exactly refute the charges, but it did provide a number of charts showing how much competition it has in various countries. The search leader has acknowledged that charges would likely be filed against Android, and it was defiant on those as well:
This is just the start of a process and does not mean the EC will necessarily take action (for example they opened and closed an inquiry into iTunes a few years ago). We have a very strong case on Android as well.
The memo then noted that, "Android has lowered prices and increased choice for consumers" and pointed out that it's an an open-source operating system that can be used free of charge by anyone. Google also claimed to have "paid out over $7 billion in revenue over the past year to developers and content publishers."
Lastly, the memo noted that, "consumers decide which apps they use and download on Android devices." This includes apps that compete directly with Google such as "Facebook, Amazon, Microsoft Office, and Expedia."
This may not be a quick fight
The Microsoft case began in 2000 and was fought in various courts through 2013. Google's may go faster, but the memo above shows little willingness to settle. Clearly, the company is setting itself up for a fight, and it has enough money that fines and other financial penalties are not going to force it into a deal it finds unfair.
This could drag out for a long time as Google is not likely to easily concede that it's using unfair practices -- because that could impact its business globally.
Daniel Kline owns shares of Apple, Facebook, and Microsoft. He has never been to France but has visited Google France. The Motley Fool recommends Amazon.com, Apple, eBay, Facebook, Google (A shares), Google (C shares), Twitter, and Yahoo!. The Motley Fool owns shares of Amazon.com, Apple, eBay, Facebook, Google (A shares), Google (C shares), Twitter, and Yahoo!. Try any of our Foolish newsletter services free for 30 days.