Tensions rise between US and EU tech companies

Tensions rise between US and EU tech companies

Amid a recent resolution by the European Parliament to break up Google, tensions continue to rise between Europe and American tech companies. What does this mean for Google, tech and the future of US-EU trade negotiations?

It has been a dynamic year for tech companies on both sides of the Atlantic. There has been a huge expansion of services from companies like Uber, Amazon and Google in both the United States and Europe and not without protest. In Spain, Germany and the UK taxi unions have fought Uber’s attempts to expand into European markets. In the US, politicians have argued over corporate tax loopholes and a surge of corporate inversions, a case in which American firms have relocated to more tax friendly European states. The debate over net neutrality and privacy rages on both sides of the Atlantic.

At the heart of these disputes is Google. With the decision in favor of the “right to be forgotten,” Google has begun rolling out services in Europe allowing users to request personal information to be taken down by the search engine. European lawmakers are now pushing for this ruling to be applied internationally. However, Google still faces several other investigations into its Android platform, patenting and copyright laws.

Of these cases, the latest and biggest Google antitrust investigation, started in 2010, focuses on claims that the search engine uses its 90 percent European market share to benefit its own Google related products and services, placing them first in search rankings while hiding competitors, such as Yelp, lower on the list.

Google has proposed several settlements in the case, offering competitors the opportunity to pay for search rankings that appear alongside Google’s. However, the same competitors that these settlements seek to appease, such as Microsoft and Expedia, claim that Google has not gone far enough, and after three rounds of negotiations, no settlement has been reached.

On November 25th the European Parliament voted 458 to 173 in favor of a resolution that effectively calls for Google to unbundle its commercial and search services.

Is a Google breakup a possibility?

Because the European Parliament has no enforcement power, the November vote becomes primarily symbolic of larger political sentiment. The final decision will rest with the European Commission and Margrethe Vestager, the newly appointed competition commissioner, who has promised to take her time with the already 4 year long case.

Vestager vows to separate parliamentary politics from any future decision and has two fundamental options moving forward: If there is a lack of evidence to support an infringement procedure, Google could remain in negotiations for years and a political back and forth with the EU and its competitors who have used the European courts as a battleground.

More critically, if the Commission decides it has enough evidence to bring infringement charges against Google, it may take any action it deems necessary to end that infringement. This includes a theoretical break-up of Google services. However, this remains highly unlikely for several reasons. First, “the commission has to date never imposed a structural remedy in an infringement decision,” and second, it remains to be seen whether Google and other search engines could even be capable of unbundling search and commercial services since the two are so closely intertwined and interdependent.

The more likely outcome in this case is for the Commission to impose fines that may reach up to 10 percent of Google’s annual global sales, equivalent to 5 to 6 billion euros. In the event of infringement proceedings, this is the most likely outcome, given precedent in similar past cases.

In litigation for over 10 years, in 2003 the European Commission ordered Microsoft to pay a EUR 497 million fine for anti-competitive behavior and fined the company an additional EUR 860 million in 2012 for failing to comply with the earlier commission ruling. In 2009, Intel lost a similar antitrust case in which the European Commission ordered it to pay a EUR 1.06 billion fine and end the illegal practices identified in the case.

Anti-Google or anti-American: the macro perspective

Is the EU picking on Google? While the parliamentary resolution, demanding internet search providers to unbundle their services, never specifically mentioned Google outright, it was clearly aimed at Google who holds 90 percent of the European market share.

However, as the cases with Microsoft and Intel demonstrate, Google is not the first major American tech firm to be caught up in European regulation. Instead, the recent proceedings against Google should be seen in part as a political reaction against the recent abuse of data collection by the US government and its use of American firms to do so, particularly in the most recent NSA and Snowden scandals.

Combined with a greater European value on privacy, this has led to fears of a new American digital colonization and has caused the EU to reassess the power of American firms in the market place and plans to improve Europe’s own digital infrastructure via a Digital Single Market (DSM)

Made a priority since Jean-Claude Juncker’s run for European Commission President, the DSM is an attempt at an indigenous, continental digital economy that would accelerate Europe’s economic recovery by creating universal European telecom, copyright and data protection regulations while promoting European-grown tech entrepreneurs that could compete globally. It is unsurprising that the phrase “digital single market” appears almost thirty times in the parliamentary resolution aimed against Google. The concept of the DSM will continue to grow with new EU tech and data legislations.

Culture war or trade war: what we expect for the future of tech in Europe

Despite the probable settlement or fine in the current case against Google, expect the tech battle to continue in Europe.

Expect more policy and possible taxes addressing online publishing and copyrights. Backed by strong lobbies, Spain and Germany have already passed laws requiring Google and other search engines to pay online publishers and newspapers for listing their content. More states are experimenting with this type of legislation, even though it remains to be seen whether this actually benefits publishers, which Google can simply drop from its listings altogether to avoid any fees.

Plan to see more states like the UK implementing an aptly named “Google-tax” which increases corporate tax rates on transnational companies like Amazon, Apple and Facebook, which use complicated corporate tax structures to avoid paying taxes in the major European countries in which they operate. Expect to see this in-step with an increase of tax-avoidance investigations by the Commission. Apple has already announced to shareholders possible effects of a Commission investigation on its operations in Ireland, and Amazon faces a similar investigation surrounding its 2003 tax deal with Luxembourg.

Finally, some analysts have expressed concerns of a cultural and philosophical war turning into a larger trade war. This is unlikely, with both sides actively pursuing to close the largest free-trade deal in history, the Transatlantic Trade and Investment Partnership (TTIP), before the newest US presidential elections in 2016. However, expect the spate of legal tech battles between Europe and the United States to shape ongoing negotiations as well as the larger cultural debate surrounding privacy and data, particularly concerning future US-EU trade relations.


About Author

Luke Iott

Luke currently works as an international development professional. He has extensive project experience in financial services and enterprise development across Europe, Asia and Africa. Luke holds a BA in international relations, cum laude, from Georgetown University and is particularly interested in the intersection of science, technology and international affairs. He is proficient in French, German, Spanish and Mandarin.