Tech’s European judge, jury and executioner

Google case isn’t just about the massive fine — it’s about what kind of internet we want to end up with.

The European Commission’s decision to fine Google reignites debate about the role of competition regulators, how governments police the internet and whether a single public body should act as judge, jury and executioner in such massive legal cases.

Behind the €2.42 billion fine lies a more fundamental discussion about the most effective way for authorities to change what they deem to be illegal or harmful business practices. That’s why the second element of Tuesday’s decision — the Commission’s instruction that Google change its algorithm — matters so much.

Google can cope with a multibillion-euro fine. But what could cost it a lot more in the long term — and help its competitors, who won’t be getting any of the money from the fine anyway — is the demand that Google change how it operates.

A European Commission official said that fines — even big ones — often barely scratch the surface of problematic behavior.

“When we fined Intel €1 billion [in 2009], the headlines were about the first billion-euro fine for a company. Actually, we calculated that Intel had probably made illegal profits of more than €20 billion,” said the official.

In the Google case, the problem was centered on how the company’s Google Shopping algorithms favored the company’s own products and services over those of competitors. Algorithms are what steer internet users to particular search results and other information. They are the holy grail for technology companies — and algorithm transparency is set to become a new battlefront as regulators flex their muscles.

Of course, Google doesn’t agree with the Commission’s decision. In a blog post, senior vice president and general counsel Kent Walker said the decision “underestimates the value of … fast and easy connections. While some comparison shopping sites naturally want Google to show them more prominently, our data shows that people usually prefer links that take them directly to the products they want, not to websites where they have to repeat their searches.”

Margrethe Vestager has an answer for that. Europe’s competition chief charged in a June 2017 speech that even when a tech company delivers benefits to its customers, because they do not know what is directing the algorithm’s decisions, the company “can still limit our horizons without us even noticing.” Unlike a traditional publisher, an algorithm has no name, no editor-in-chief, she said.

Vestager is not the only one upset by a perceived lack of transparency.

A draft lobbyist letter doing the rounds in Washington on Tuesday evening complained that the EU does not have a “transparent legal framework” and that Vestager’s antitrust cases are simply a disguised form of protectionism.

Future of the internet

Often cast as a battle between a protectionist Europe and an innovative Silicon Valley, transparency battles are perhaps better seen as a proxy for a debate on what type of internet the world will end up with.

A libertarian internet, where innovators break things first, and worry about the mess later? Or an internet that is mostly open, yet also managed with enforcement from regulators and self-regulatory action by companies?

German Chancellor Angela Merkel weighed into the debate in October 2016 when she said major internet platforms needed to publish at least part of their algorithms, so that internet users could know how information channeled to them was selected.

“Algorithms, when they are not transparent, can lead to a distortion of our perception, they can shrink our expanse of information,” the German chancellor said.

Vestager, meanwhile, appealed to geeks in the audience when she addressed the Bundeskartellamt Conference on Competition in March, saying: “In ‘The Hitchhiker’s Guide to the Galaxy,’ a computer called Deep Thought is asked to calculate the answer to the ultimate question, of life, the universe and everything. For seven and a half million years, it runs its algorithm. Then it comes up with an answer. The answer to life, the universe and everything, it says, is 42.

“We’re not yet dealing with an algorithm quite as smart as Deep Thought,” Vestager said. “But we do have computers that are more powerful than many of us could have imagined a few years ago. And clever algorithms put that power — quite literally — in our hands.”

Vestager’s move to take on Google goes further than algorithms: It reopens debate on whether she is picking on U.S. tech firms, which is why all eyes were on Donald Trump’s Twitter feed on Tuesday. At the time of writing, the U.S. president hadn’t fired a shot at the EU, focusing instead on “fake news” CNN.

EU regulation does not attempt to stop companies holding massive market shares — by the EU’s estimation Google had a 95 percent share of some of the markets examined by the Commission. The EU does however draw a line, and give strong executive powers to its competition department, to crack down in instances where a dominant company abuses that position.

It’s also important to note that the bigger a company is, the more likely there is to be an instance of illegal behavior under EU law. That’s not because a big company is inherently worse than a smaller company. It is simply that a small company has no dominant position to abuse, and in a bigger company more things can go wrong or unnoticed.

With tech companies now some of the biggest companies in the world, they are an obvious target for Commission action. There are plenty of European companies which have felt the force of the EU’s fining powers. Nine of the 10 biggest cartel fines in EU history are against European companies, including fines of €670 million or more against Daimler, DAF, Saint-Gobain, Philips and Volvo/Renault.

“The EU has effectively decided that some companies have become too big to innovate,” said Robert D. Atkinson, president of the U.S.-based Information Technology and Innovation Foundation. “The EU’s actions have created a cloud of uncertainty that will make large tech companies overly cautious about making changes to the user experience.”

The EU is “willing to take heavy-handed actions to protect competitors, at the expense of consumers,” he said.