Google’s Legal Troubles with EU

Search giant Google Inc. (GOOG - Analyst Report) is facing increasing tensions in Europe, as the company’s actions are now being scrutinized by the European Union’s competition council. The EU probe follows three separate complaints by ejustice.fr (a French legal search engine), Foundem (a UK-based price comparison venture, which is a member of Microsoft (MSFT - Analyst Report)-funded organization called ICOMP) and Ciao! (a product review and price comparison site that is a Microsoft subsidiary).
 
Foundem and ejustice.fr have complained that Google’s ranking system deliberately de-emphasized them, thus reducing the flow of traffic to what would be Google’s competitor sites. The Ciao complaint centers on difficult terms and conditions that make compliance a challenge.
 
And this is not all. There are many other allegations by many other parties, although these are not before the EU.  For instance, the German mapping site Euro-Cities A.G. has objected to Google maps and Italian map publishers have also complained on similar grounds.
 
Another bone of contention is privacy, which came into focus during the Google books’ scrutiny. Even while the regulators are considering Google’s new proposal, fresh privacy issues have arisen with respect to photographing of streets or persons. In fact, three Google officials—SVP and Chief Legal Officer David Drummond, former CFO George Reyes and global privacy counsel Peter Fleischer have recently been convicted by an Italian court on privacy matters. A fourth accused, Senior Product Marketing Manager Arvind Desikan was acquitted earlier.
 
Google is currently the dominant search engine in Europe, so anti-competitive probes could continue. This is especially true since Microsoft seems hell-bent on cutting the company down to size. However, previous probes by the EU, for example when the company bought DoubleClick, had gone in Google’s favor.

The company may not be as lucky this time round, simply because of the fact that it is stepping on too many toes. Additionally, lobbying costs, which have been showing an uptrend, could escalate further.
 
Google shares slid 1.4% yesterday, as investors responded to the EU probe. The shares have been declining steadily this year due to continued negative news flow.
 
We maintain our Neutral stand on Google.
 

Read the full analyst report on GOOG

Read the full analyst report on MSFT