Google vs. Directive 10-289

Oh, how we love to hate big companies. Microsoft, Apple, McDonald’s… all have felt the wrath of governments and environmental groups alike have been absolutely slammed in recent years about decisions of who and what they let play in their sandboxes and the nature of their influence in global cultures. No company, though, even with the inclusion of Microsoft vs. the Clinton DOJ, has been the target of such an all-out war against a single company than Google.

Yes, that’s right. I called it a war. I said it, and I stand behind the claim.

Perhaps the most obvious, and recent, battlefront for Google has been the issue with China. The consequences of this war between an extremely powerful world government (not to mention economy) and the heavily influential information giant could lead us into any number of possible directions:

• The increased flow of information and the consequences on a dictatorship
• Cultural differences between Chinese and American business methodologies
• How Non-Chinese companies will do business in China from now on (or not, as other companies – such as GoDaddy and Dell– begin to pull out of China)
• Effect of freedom of speech in global communications
• Human rights developments in restricted political regimes
• Protection of Intellectual Property across political boundaries

All of these are extremely important and valid topics for exploration, but I’ve noticed another disturbing trend that shows that Google’s issues aren’t confined to just China.

Italy

In perhaps one of the most egregious cases of governmental bullying, Italian courts found three Google executives guilty of privacy infractions, sentencing them to six months in jail. None of the executives had any personal involvement with the video posted by Italian teenagers ridiculing a boy with Down’s syndrome, and Google removed the video within 24 hours of learning about its existence.

Ryan Calo writes about how some of the reasons behind these decisions are less about the actual infraction and more about the government’s attempt to control the search engine giant (sound familiar?).

The key issue here is that unlike corporations that must use superior products, services (or hell, even marketing), governments have an unlimited supply of resources from which they can draw in order to ‘win’ an economic war. Governments do not have to earn a profit (in fact, they do not have to “earn” anything), and in truth hold the keys to the courts as well. It’s a blatant conflict of interest; think of attempting to play a football (soccer) match where the other team are also the referees for the match.

Additionally, as is the case with these executives, governments have the power of the gun and incarceration to get their way. If Calo is right, and these rulings are due in part to some Italian official’s bruised ego for some unrelated issue, it underscores that the true dangers of international commerce are not just opportunity threats from corporations.

France

Italy is not alone. Europe in general, and France in particular, has been particularly damning of Google’s threat. News aggregators and RSS feeds are not new, but Google’s better-mousetrap product brought the French government to action in 2005 to force the company to cease and desist due to “trademark infringement,” at least until the French government could get its own project underway. Anti Dog-Eat-Dog, anyone?

The problem has been an ongoing one. Despite the fact that Google’s digitization project only included excerpts of books – excerpts that fall within the copyright rules of both the EU and the US – Google has been forced by both French and US governments to pay restitutions to publishing houses.

The trademark violation excuse is a common one with France, but at the heart is the EU’s discomfort with Google’s auction-based AdWords program. Lawsuits brought by French companies against Google involve a highly specious claim that the keywords that companies bid in order to place advertisements infringe upon corporate trademarks.

In other words, suppose you are a technician who fixes Dell computers and want to use Google’s AdWords to help drive traffic to your business. You might want to use keywords such as Dell, Inspiron, XPS, Latitude E-Series, etc. Now, those keywords can be expensive, because it’s an auction and you’ll be bidding against other companies – including Dell! – to get the ads in front of people who are searching for those particular terms.

(For the record, the only Dell product I own is a monitor – their tech support is reason enough for me never to purchase any home-based item.)

So, according to the lawsuit, those small companies cannot bid for those keywords because they are trademarked and people might get ‘confused’ between legitimate Dell offerings and non-Dell companies.

At the heart of the issue, though, is that the EU wants Google to monitor ads linked to searches for terms that are trademarked.

Yeah, right.

Fortunately the EU‘s highest court nipped that in the bud, but that won’t stop France and other vendors from attempting to continue to use legislation in order to punish Google for being successful, a la Directive 10-289.

Consequences

The problem here is that France (via an EU court) is attempting to place an unfair burden upon Google in much the same way Ayn Rand describes in “Atlas Shrugged:” it’s suggested that Google should alter its business practices (or forced, through legislation) which are notably superior through marketplace forces. They should do this through some altruistic motivation, when in reality it serves special interest and government agencies at the expense of true value:

Google could take this as an opportunity to educate people about how their ad system works, said Hakim Kriout, a portfolio manager at New York-based Grigsby & Associates. “If they’re clever they could even spin this a little bit and talk about their process,” he said. “They could claim that they’re fair and at the same way they match information seekers and providers for other topics.”

However, Bloomberg is quick to point out immediately afterwards that process would undoubtably hurt revenues.

Gee, ya think?

Google has indeed created a better mousetrap, and with the promise of Google Buzz (shameless plug!) for companies looking to target their services to customers there is a significant chance of that mousetrap getting even better.

Google pulled in over $27B last year in revenue, and with targeted mobile advertising still only in its embryonic form it appears they’re going to continue to progress forward in a profitable fashion.

But the reason why their stock is down 11% this year is because of these issues surrounding the War on Google, unofficially declared by several of the world’s governments. Even a fundamentally strong stock like Google takes hits when legislative and regulatory uncertainty (especially on a global level) can pull the rug out from underneath.

Build a better mousetrap, and the world will beat a path to your door… to knock it down.

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