EU Commission Levies Record Fine Against Google

EU antitrust regulators have leveled a record $2.7 billion fine against Alphabet’s (NASDAQ:GOOG) Google in a precedent-setting decision defining the company as a monopoly. The fine is the largest the European Union has levied against a company for abusing its dominant position.

Google was accused of favoring its own shopping service over others in search results. EU competition chief Margrethe Vestager said, “What Google has done is illegal under E.U. antitrust rules. It has denied other companies the chance to compete on the merits and to innovate. And most importantly, it has denied European consumers the benefits of competition.”

As part of the decision, Google must change the design of Google Shopping in Europe within 90 days in order to meet the region’s legal requirements. If the changes don’t satisfy the Commission, the company will be sent back to the drawing board. Antitrust remedies usually direct firms to stop certain behavior or implement particular fixes. However, the EU’s decision against Google puts the responsibility on the company to identify and implement changes that will put it on more even footing with its rivals.

The internet giant is likely to be shackled for years by the new EU ruling. Google will have to demonstrate that rivals have made substantial inroads into its businesses before regulatory scrutiny will be removed. Vestager promised Google would have to endure years of monitoring to ensure compliance with the decision. The ruling also opens the door for further regulatory actions against Google and relaxes the standard of proof for rivals to launch civil lawsuits alleging Google has harmed them.

The ruling also could have a considerable effect on the company’s bottom line. Google’s lucrative advertising business model accounted for roughly 85 percent of parent company Alphabet’s $90.3 billion in revenue in 2016. Displaying paid shopping ads less prominently could make the ads less valuable to the companies buying them.

Google says it will consider an appeal to the ruling. However, Google could face additional penalties if it loses the appeal and fails to comply. Google’s holding company Alphabet’s shares were down 1.8 percent in early U.S. trade after the announcement. The stock has doubled over the past two years. The company currently has a market capitalization of roughly $666 billion.

There are also two on-going EU probes into Google’s Android mobile operating system and AdSense ad system. Google may be able to relieve EU concerns in the AdSense case by making relatively modest changes to its advertising systems. The Android case may be more difficult as it has many complicated factors with no easy solution.

 

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