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  Google Slapped With $2.7 Billion EU Fine Over Search Results
WSJ

EU orders Google to treat rival comparison-shopping services equally in its search results

RUSSELS—The European Union’s antitrust regulator on Tuesday fined Alphabet Inc.’s GOOGL -0.87% Google a record €2.42 billion ($2.71 billion), saying its search engine stacks the deck in favor of its own comparison-shopping service.

The move, which follows more than seven years of investigations, threatens far-reaching ramifications not just for Google, but for the design of products and services from other increasingly dominant tech giants.

If the ruling sets a precedent that sticks, Google and other large tech firms may be forced to rethink how they plan to profit from some of their most popular offerings.

Antitrust experts and tech executives say that question arises in areas where tech giants have introduced major innovations—like Google’s search engine—that become gateways to the internet. EU regulators worry that tech firms, by inserting themselves into such a key role of funneling and directing consumer traffic, could take unfair advantage.

In her announcement of the Google decision, EU antitrust chief Margrethe Vestager stressed that dominant companies have special “responsibilities” not to hinder competition. “They are not allowed to abuse their power in one market to give themselves an advantage in another,” she said.

Google General Counsel Kent Walker said “we respectfully disagree with the conclusions announced today.” The company said it will review the decision and consider an appeal.

How Google ends up changing its business model to comply with the EU ruling “could eventually apply to any way that Amazon, Facebook or anyone else offers to search for products or services” depending on “what sort of bottleneck they impose on the process,” said Michael A. Carrier, a law professor at Rutgers University.

Tuesday’s fine is the latest broadside by European authorities against Silicon Valley, at a time when tech firms face few regulatory challenges in the U.S. or elsewhere. The EU has already indicated it is looking at the same potential issue in relation to some of the newest innovations Silicon Valley is pushing, including voice-activated digital assistants, which often provide a sole answer in response to a query.

At the heart of the EU’s case is what regulators believe is Google’s outsized control over internet traffic. Google handles about 92% of global internet searches, according to research firm StatCounter. For product-related searches, such as “gas grill” or “smartphones,” Google often returns a series of ads atop its search results that link to retailers’ sites. Merchants pay Google each time a user clicks on their respective ad.

Comparison-shopping sites operate similarly, charging merchants for clicks, but they say their traffic has plummeted in recent years as Google expanded its own shopping service. Links to those shopping sites typically appear much lower in Google search results, which the EU says gives Google an illegal advantage.

Google says users prefer links that send them directly to a merchant’s site to buy a product, rather than another comparison-shopping site. Mr. Walker said the company believes its service benefits users and helps European merchants compete against e-commerce giants Amazon and eBay Inc. He added that regulators also erred in not considering Amazon and eBay as competitors to Google, pointing to a 2016 study by marketing firm BloomReach that said more than half of internet users start their shopping searches on Amazon.

The EU’s fine is more than double what had been the bloc’s previous record penalty for a company it found had abused its market position—a €1.06 billion fine on Intel Corp. in 2009. While the penalty is larger than many had expected, it’s one Alphabet can easily afford, considering its $92 billion in cash and liquid securities on hand.

As part of its decision, the EU ordered Google to treat rival comparison-shopping services equally in its search results, but it left it up to Google to figure out how. Google has 90 days to comply with the order to change its services, or faces penalties of up to 5% of average daily global revenue for each day it doesn’t comply.

That could mean no more shopping ads in Europe. More likely, analysts said, Google will propose rebuilding the service. EU regulators may require Google to retool the system in a way that would allow results from competing comparison-shopping sites to get mixed in and be as easy to click through as Google-hosted ads.

Losing those ads would deliver a hit to Google revenue. Company executives have repeatedly highlighted the ads in recent quarters as a growth driver for its core search-ad business. Such ads now account for roughly 52% of clicks on retailers’ Google search ads, up from about 25% three years ago, according to digital-marketing firm Merkle Inc.

Google will need to comply with the order regardless of any appeals or court action. Google has three months to pay Brussels. If it chooses to appeal, it has the option of transferring a bank guarantee pending the outcome of the appeal.

The fine and broad remedy order mark an escalation in Brussels’ fight over whether the Mountain View, Calif., firm has used its dominance as a cudgel to promote its own services at the expense of competitors.

They are also the first to come from multiple probes the commission has opened into Google. Three have resulted in formal charges: on comparison shopping, on Google’s Android mobile operating service and on its AdSense advertising service. Google has rejected accusations it breaches EU competition law and said it disagrees with the concerns in other areas.

News Corp , owner of The Wall Street Journal, is an interested third party in the shopping case, meaning it can participate in the investigation. The company has also formally complained to the EU about Google’s handling of news articles in search results.

The EU’s decision in the shopping case could expedite its probes into Google’s conduct with other services. Ms. Vestager said the finding of Google’s dominance in search in the shopping case would be a starting point for a legal review in other search services.

Tuesday’s move also highlights its divergence with U.S. regulators in their approach to Google. The Federal Trade Commission closed a probe into Google’s search practices in 2013 after the company agreed to voluntary changes. Some firms have been lobbying U.S. regulators to reopen the case.

—Jack Nicas contributed to this article.

Write to Natalia Drozdiak at natalia.drozdiak@wsj.com and Sam Schechner at sam.schechner@wsj.com

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