Google's Schmidt Heads to Berlin Talks to Soothe Rattled Germans

Bloomberg News

Chairman Eric Schmidt recalls how during a meeting with Angela Merkel in June, the German Chancellor pulled out her phone and asked him what U.S. spies were doing listening to her calls with her mother.

'That's how personal this felt,' Schmidt said during a panel with U.S. Senator Ron Wyden last week. 'We're dealing with emotion and history and things well beyond our intent.'

Concern about Google's market power and expanding reach into markets such as the automotive sector have mixed with fears of U.S. cyber espionage to make the company the focal point of mistrust among German and European politicians. As Schmidt meets German Economy Minister Sigmar Gabriel today in Berlin, he must sway his interlocutor to refrain from measures that would curb Google's business in the region.

'One talk alone won't solve the problems posed by Google - - they're too multi-layered,' said Joachim Pfeiffer, the parliamentary economy spokesman of Merkel's Christian Democrats, on the phone yesterday. 'Still, talking's better than not -- we need to find a basis for mutual understanding.'

German concern that Google may come to dominate what's been dubbed 'Industry 4.0' or next-stage, Internet-based industrial development has added to the tensions between the Mountain View, California-based company and Europe's biggest economy. Industry accounts for about 40 percent of German economic output.

'Industry 4.0 is an issue,' said Pfeiffer, citing Google's move into home energy-consumption metering. The digitalization of production will have a 'revolutionary' impact, Siemens AG, Europe's biggest engineering company, says on its website.

'Oligarchical' Dominance

The German government isn't envious of Google's success, said Hans Michelbach, a Christian Social Union lawmaker and spokesman for the 'Mittelstand,' or medium-sized companies that are the backbone of the economy. Google's 'oligarchical' position in the Web economy is squeezing fair competition, Michelbach said on the phone yesterday.

By advancing its views in Germany, Google would gain leverage in other parts of Europe as well, given the country's economic weight and its political role in shaping rules across the European Union.

Gabriel may prove a brusque conversation partner. The head of Germany's Social Democratic Party in May discussed the possibility of dismantling companies like Google if they're found to abuse a dominant position in the market. Last month, he called Google, and 'anti-social' for skirting appropriate taxation.

Fines, Stigma

'Germany has been a hotbed of difficulty for Google, featuring some of Google's most vocal critics in Europe,' Greg Sterling, vice president of strategy and insights for U.S. trade group the Local Search Association, said in an e-mail. 'Much is at stake as Google seeks to avoid formal antitrust proceedings, considerable potential fines and the stigma of being formally branded a monopolist.'

Merkel herself doesn't recall making the remarks to Schmidt and generally doesn't recount details from personal meetings, a spokesman said by e-mail. Kay Oberbeck, a spokesman for Google in Germany, said he couldn't confirm details of the private conversation.

Before meeting the minister, Schmidt is set to discuss Google's decision-making regarding requests to remove links to pages containing personal information under the so-called 'right to be forgotten.' The process, which became necessary following a ruling by the European Court of Justice in May, is a relative nuisance when compared with other regulatory issues that have beset the company.

Search Probe

Google's plans to settle a lengthy EU antitrust probe were derailed last month by negative feedback from companies that complain the company promotes its own services in its search results. Deutsche Telekom AG, a unit of Axel Springer AG and German publishers are among companies that have filed formal complaints alleging Google broke monopoly-abuse rules.

'The reality is that Google works very differently from other companies that have been called gatekeepers, and regulated as such,' Schmidt said in a speech text posted on Google's Europe Blog yesterday. 'No one is stuck using Google.'

The company has been facing probes across Europe into changes it made in 2012 to harmonize privacy policies for more than 60 products. Data protection watchdogs from the 28-nation EU wrote to Google Chief Executive Officer Larry Page the same year, saying the company empowers itself to collect vast amounts of personal data about Internet users without demonstrating that this collection was proportionate.

Regulators including those in Spain and France have fined Google over its use of customer data. The EU's watchdogs last month said they had reached agreement on how to tell Google 'to ensure compliance of its new privacy policy.'

Data Rules

European governments are also tightening rules requiring the storage of sensitive user data in the region in order to keep legal oversight over their usage and transfer. Such data localization rules have prompted U.S. companies including Microsoft Corp. and Salesforce.com Inc. to invest in hosting capacity in the region. Google last month announced plans to spend 600 million euros ($764 million) on a new data center in the Netherlands.

Google's push to regain trust in Europe depends to a large extent on cleaning house at home. The company, along with Facebook Inc. and others, is trying to convince judges in the U.S. that a statute forbidding it to disclose demands for information from the Federal Bureau of Investigation is unconstitutional.

To contact the reporters on this story: Cornelius Rahn in Berlin at crahn2@bloomberg.net; Brian Parkin in Berlin at bparkin@bloomberg.net; Stephanie Bodoni in Luxembourg at sbodoni@bloomberg.net

To contact the editors responsible for this story: Kenneth Wong at kwong11@bloomberg.net Ville Heiskanen, Leon Mangasarian