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Inquiries in Europe Target US Tech Giants

Inquiries in Europe Target US Tech Giants

By Mark Scott, The New York Times | Updated: 3 April 2015 13:01 IST

It is not a good week to be a giant American tech company in Europe.

The European antitrust investigation into Google appears to be heating up. More European countries are looking into Facebook's privacy settings.

And Apple, which already is under scrutiny for its low corporate tax arrangements in Ireland, is now facing potential antitrust questions from the European Commission about the company's new music streaming service expected this year.

The new developments offer the latest and perhaps clearest sign yet that US tech giants face intensifying scrutiny in Europe - pressure that could potentially curb their sizable profits in the region and affect how they operate around the world.

It is unclear what exactly set off the recent flurry of moves. But many local lawmakers have long been wary of the dominance of US tech companies, and those politicians have become increasingly outspoken about how the companies have used their financial deep pockets and ability to innovate quickly to outmuscle European rivals.

"It's no wonder Europe is going after these companies," said Luca Schiavoni, a regulatory analyst at the technology research company Ovum in London. "They are the biggest fish in the pond and have become very powerful. That inevitably means regulators are going to get involved."

Europe's willingness to police tech companies' activities contrasts with a relatively hands-off approach favored by US authorities, which have so far refrained from widespread antitrust lawsuits and privacy investigations into how tech companies use people's online data.

In recent years, however, US tech companies have become the central target for Europe's antitrust officials. Advocates say this approach is aimed at limiting the dominance of a small number of companies, though industry executives say Europe is using the investigations to promote the region's own tech companies, which often have been unable to compete with their US rivals.

On Thursday, Apple became the latest tech company to face this scrutiny after it was revealed that European competition officials had sent questionnaires to several music labels and rival music streaming companies, according to several people with direct knowledge of the interactions who spoke on the condition of anonymity.

The questions are part of attempts by European authorities to gather evidence to decide whether an official antitrust investigation into Apple's new music service will be needed, the people added. News of the questionnaires sent to music industry executives was earlier reported by The New York Post.

An official investigation by the European Commission, the executive arm of the European Union, could lead to big fines against Apple and other restrictions on its activities if the company is found to have broken antitrust rules. In a previous antitrust case, for example, Microsoft agreed to pay fines totaling $1.8 billion for breaking European competition rules.

The most recent concerns focus on whether Apple, a crucial partner for the music industry, may try to persuade labels to favor its new paid streaming service over those of rivals like Spotify, which have free tiers, according to one executive at a major label, who declined to speak publicly.

Representatives of Apple, the European Commission, Spotify and the major record companies all declined to comment.

Perhaps no company is in European regulators' cross hairs more than Google, whose search engine holds roughly a 90 percent share of the region's online search market.

As part of its five-year antitrust investigation into whether Google used its dominant position to favor its own services over rivals, the European Commission has now asked several companies that had filed complaints against the search giant to make their confidential submissions public, according to several people with direct knowledge of the matter who spoke on the condition of anonymity.

By asking several of these companies to make their submissions public, the European Commission can ask Google to respond to the companies' claims and bring the case closer to resolution, according to several of the people. News of the requests to companies to make their submissions public was earlier reported by The Wall Street Journal.

Officials and analysts warned, however, that it was still unclear whether the European Commission would file charges against Google.

Yet by pushing ahead with their investigation, Europe's antitrust officials have gone beyond efforts by the Federal Trade Commission, which is under renewed scrutiny over how it handled its own investigation into Google. A recently released internal report by the agency suggested that some officials had recommended that Google should have been sued for antitrust practices, though the FTC decided in 2013 not to bring charges.

If Google is found to have broken European antitrust rules, the financial penalties could be substantial. Officials have the power to fine Google up to 10 percent, or roughly $6.5 billion, of its most recent annual sales and to place restrictions on the company's operations in Europe. A spokesman for Google declined to comment.

"Everyone is very aware that this case has to come to some sort of conclusion," said Mario Mariniello, a researcher at the think tank Bruegel in Brussels and a former antitrust official. "The pressure is rising. They will have to come to some sort of decision soon."

European lawmakers have also paid increasing attention to the tax activities of the likes of Apple, Facebook and Amazon, many of which have used complicated accounting structures to reduce their tax burdens across the region.

In the last 12 months, countries like France and Britain have criticized companies like Google for not paying enough tax on their operations in those countries.

And in a sign that European regulators' interest in American tech companies has continued to expand despite industry efforts to appease local authorities, several European data protection regulators are now questioning how companies like Facebook and Google protect the online data of the region's more than 500 million people.

Many of the region's data protection watchdogs are reviewing whether Facebook's new privacy policy, which went into effect from Jan. 1, broke the region's tough privacy rules, which offer people greater control of how companies can use their data than is currently offered in the United States.

On Thursday, French, Italian and Spanish privacy officials said they had opened investigations into the social network's privacy policies; similar inquiries have already been started by Dutch, Belgian and German officials.

The regulators are asking whether Facebook gained sufficient approval from users when the company gained access to their online data.

"We're not afraid of scrutiny," a Facebook representative said in a statement. "We have been responsive to local regulators and stand ready to respond to additional questions."

The first hearing in a separate class action against Facebook took place less than a week ago in Austria, where roughly 25,000 claimants are arguing that the social network misused their online data. Facebook contends that it has complied with the region's data protection rules.

"This is just the beginning of our investigation," said Mathias Moulin, deputy director of enforcement at the French data protection regulator, who is overseeing the watchdog's review of the company's activities. "Facebook affects millions of people across Europe. There are a lot of privacy issues to look at."

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