An Update About Alphabet Inc's Dispute With the European Commission

In 2015, the European Commission alleged that Alphabet's  (GOOGL -1.23%) (GOOG -1.10%)Google Shopping service was anticompetitive, as it apparently channeled user attention toward Google Shopping products and away from the competition. This activity, said the Commission, tends to "hinder [those rivals'] ability to compete on the market."

Alphabet, staring down a potential $6.4 billion fine from the Commission, is naturally trying to sway the regulators into changing their minds.

Tune in as Dylan Lewis and Sean O'Reilly follow up on the story -- what Alphabet has done, what it seems to be planning, and how long it might take before this case actually wraps up.

A full transcript follows the video.

This podcast was recorded on Dec. 18, 2015.

Dylan Lewis: So, just as a refresher, the European Union was plotting a fine as large as $6.4 billion against Google, and this was roughly about 1/10 of their annual revenue.

Sean O'Reilly: That apparently slipped my mind, that's actually quite large.

Lewis: It is, yeah. And just a refresher, and this is a quote from the EC: "Google give systematic favorable treatment to its comparison shopping products, currently called Google Shopping, and its general search result pages, e.g., by showing Google Shopping more prominently on the screen ... it may therefore artificially divert traffic from rival comparison shopping services, and hinder their ability to compete on the market."

O'Reilly: Wow.

Lewis: So, this is an anticompetitive claim against them. Not much more to it than that.

O'Reilly: They are more than willing to use Russia's Yandex, I would think. They're more than capable of doing that, if they want.

Lewis: We talked about this on the show, there's the counterargument to all of this. Yes, they have a 90% market share in desktop searching in Europe, but they built a really great product. Why wouldn't they want to feature some of the really great stuff in there?

EC is also currently looking into some issues with Google Android, and this has to do a little bit more with app bundling, and whether Google is doing some anticompetitive measures based on forced app bundling and crowding out potential competitors with things like Maps that are forced onto the platform when they enter an agreement with a smartphone manufacturer, because their operating system would power the device.

O'Reilly: Let's do the "What's Up Now" portion, because it seems like you might have a better case with Android, because they run the actual operating system. And that has a Microsoft-y (MSFT -1.27%) feel to it. So, what's going on with this stuff now?

Lewis: This was one of the more interesting, really in-the-weeds tech things that I've read in a while. I was talking with Vince a couple weeks ago, when he filled in for you, about the patent disputes back and forth between Apple and Samsung, and how those have been put to bed recently, but it was a side of tech that a lot of investors don't get a sense for unless you seek it out.

O'Reilly: Tech wars!

Lewis: It's one of these things that can drag on and on. It's like the dark underbelly of tech. That's something I joked about before we started the show. And this is along the same lines, where it's really in the weeds, and it's kind of insider-y, but if you like that, then this is a really fun story to watch. And there was this scathing article put together by The Guardian that went out earlier this week, the headline was "Revealed: How Google Enlisted Members of U.S. Congress It Bankrolled to Fight $6 Billion EU Anti-Trust Case." So, that may be a little harsher than the reality, but that's still pretty loaded. 

O'Reilly: So, they're calling Congress to call up their counterparts in Europe?

Lewis: Yeah, calling in the cavalry to help them out. Some of the bullet points from the story: between December 2014 and June 2015, according to The Guardian, Google held more high-level meetings with commission officials than any other company. From 2010 to 2014, Google has more than quadrupled their annual lobbying spend in Brussels, which is where the EC is based. It's up to over $4 million, which really isn't that much, given the scope of Google, but I think that ramp-up is a testament to what they're looking to do in terms of influencing policy there, and the decision of the regulatory body. Google has employed several former E.U. officials as in-house lobbyists, and has funded European think tanks and university research favorable to its position as part of a broader campaign.

O'Reilly: Woah, woah. What are they doing with universities? This is crazy.

Lewis: Yeah. So, this is looking for research and information, academic publishing that is favorable to your positions ...

O'Reilly: You, you're an economics professor, come up with a good paper.

Lewis: Yeah. Last year, Google spent twice as much on lobbying in Brussels then Apple, Facebook, Yahoo!, Twitter, and Uber combined.

O'Reilly: I don't buy that Uber thing, because they have that whole Paris altercation thing with the tax. Anyways ...

Lewis: So, it's very clear -- and we talked about this when we first brought it up, Google sent out a memo to everyone around in-house: "We're going to fight this. We think there's no grounds for this, we're going to battle." And I think that this scale-up here is a testament to, they are rounding up the cavalry, like I said, and coming at them with everything they've got.

Some publicly elected officials from the U.S. also seem to have been involved. There were some memos that The Guardian got ahold of, one of them in particular, some U.S. members of Congress, many of whom have received campaign funding from Google, wrote to the EC in November, basically called some of the acts that they're going after ones that would deter continued innovation and investments from U.S.-based Internet companies.

O'Reilly: ... OK.

Lewis: Yeah. So, there's a lot going on there. I think it's just really fascinating to see how a big tech company combats an unfavorable regulatory environment. So, that's kind of what's going on in the Google Shopping side. Unfortunately, we're not going to have any resolution on this for years. So, as much as I'd love to wrap this up and put a bow on it for the holidays ...

O'Reilly: Next holidays, maybe.

Lewis: Yeah, maybe we'll check in on it then. On the Android issue that we mentioned earlier, not a ton to update on there. There was a Reuters report in September that said the EC is still yet to determine whether it will charge Google with market abuse with its Android mobile efforts. So, that is another ongoing thing.

O'Reilly: Refresh everybody's memory, was this as bad as, remember in the '90s, when Microsoft was charged with blatantly blocking Netscape and putting Internet Explorer on their operating systems? Is this that bad?

Lewis: Do you mean in terms of the fine itself?

O'Reilly: Yes, and in what Google was doing.

Lewis: Yeah. So, for total dollars, I think the original fine that was levied against Microsoft was like $600 million or something like that. So, adjust for inflation.

O'Reilly: Even then, it'd be like $700 million to $800 million now.

Lewis: But I think what they wound up paying with multiples of that, because [they] dragged it out and weren't compliant for a long time.

O'Reilly: Oh, that's fun.

Lewis: They thought they were being compliant. I think the final settlement was $1.5 or $2 billion.

O'Reilly: Wow.

Lewis: Still, about one-third of what Google is looking at, in terms of unadjusted dollars at least.

O'Reilly: Cool!