In August 2015, Google’s General Counsel announced that the company would be challenging the European Community regulators by rejecting the anti-trust charges. I have had considerable experience with the European regulators and this public announcement just added fuel to the fire. Again, this remark underscores what I recite frequently in my blogs when handling international markets for a technology company.
First, European regulators perceive anti-trust regulations quite differently than U.S. regulators. U.S. counterparts allow a dominant player to continue its activities if the market dominance has no deleterious impact to consumers. The European regulators do not care – de facto dominance is enough to bring anti-trust charges. And these regulators have no compunction in enforcing their authority against any incumbents as well. As an example, the EU had broken up the strangle hold that the European telecommunications carriers had in each country, allowing roaming and competitive market entry at a faster rate than the U.S. market.
Second, the fact that Google is a U.S. company doesn’t help it at all when confronting European companies offering competitive products. To quote Disraeli in his observations about international relations with other countries: “We have no permanent friend. We have no permanent enemies. We just have permanent interests.” There is no better permanent European interest than promoting and protecting their own local technology companies. By making such an arrogant announcement, Kent Walker, the General Counsel, is basically challenging the European authority. I myself faced a challenge by the country, Argentina, which attempted to lock out my company’s product, which represented about 30% of the company’s annual revenues. I was able to resolve that by using the U.S. regulator, the FCC, that essentially returned the favor in shutting out calls from Argentina to the U.S. Maybe Google can pursue a similar strategy, although I see the situation is different in the sense that everything dealing with the European market deals with local, proprietary information — not international.
One solution is to hire enough lawyers, which can be an effective U.S. strategy — not so for Europe. When I was an associate, I asked the lead anti-trust attorney representing IBM whether he was concerned going against the U.S. anti-trust regulators. He replied, “no, we can hire more lawyers than the U.S.” That tactic does not work in Europe. The regulators can delay determinations in a Kafkaesque fashion. And these European regulators don’t play the Washington DC revolving door where they join a law firm representing opposing interests, and expect to be hired later on by the very same companies they ruled against. So that formula will not work in Europe. These regulators are career politicians representing their constituencies. Many expect to return to their respective governments.
Now the challenges what Google is encountering is not much different from the other Silicon Valley companies expanding their international reach. Again, I recite this observation over and over again – what works in the U.S. might not work internationally. I certainly I had that experience in handling legal and business matters internationally for a technology company. But I notice that many Silicon Valley tech companies believe themselves to be bullet proof. And it doesn’t happen that way. I expect to see that Google will need to adapt its business model in the short run — by sharing revenues with the local content providers — probably the only viable settlement solution.
International corporate development is the ability to adapt to the local rules, not challenging them with obtuse argument of “old fashioned regulations with a new technology.” It is also adopting or understanding the local history and culture. An international law professor once remarked that legality is defined locally, and, as example, it was illegal not being communist in Russia. All of the arguments in the world will not change the possibility of being sent to the Gulag. I don’t foresee technology companies like Google winning that battle as well.