Inside Google

There were two major legal developments Friday involving Internet giant Google as the nation focused its attention on the long Labor Day holiday weekend. Both merit recapping, but unfortunately one is less of a victory for consumers than it might first appear. The other development could be a hint of huge problems to come for Google.

First, Google agreed to pay $ 8.5 million to settle a class action suit brought after the company invaded users privacy when it launched its social networking service, “Buzz.” As you may recall, without warning or permission, Google made public consumers’ most frequently used email contacts.

The settlement has the usual language found in deals of this sort where the company admits no wrongdoing, but agrees to pay. About 30 percent will go for legal fees, each of the seven named plaintiffs who brought the action will get $2,500, and the rest — just under $6 million — will go to organizations that promote online privacy. Such money is known as a cy pres fund, a common provision in class action settlements.

Sounds good, huh? Let’s take a closer look. To you and me $8.5 million might sound like a lot. To a global giant with $25 billion in sales, it’s not even pocket change.

And, the money comes with huge strings. According to the settlement:

a)The cy pres recipients will be existing organizations focused on Internet privacy policy or privacy education.
(b) The Parties shall mutually agree on the cy pres recipients and the amounts for each.

Best practice with cy pres funds is that neutral third parties determine who gets the awards. Our initial Google Project money from the Rose Foundation was just such a grant. You’ll remember that when Google didn’t like what we said, an executive sought unsuccessfully to end our funding.

In the Buzz settlement Google gets to help pick grant recipients. The Internet giant will be able to channel money to its supporters and shills to deal with privacy in a Google-friendly way.

As the agreement is written —  though it must still be approved by Federal Judge James Ware in San Jose, CA — Google will just consider the $8.5 million payment a mere PR expense.

The second development came late Friday when Google announced on its corporate Public Policy Blog that Texas Texas Attorney General Greg Abbott is conducting an antitrust investigation of the company.

He is looking into whether Google unfairly ranks Websites of competitors to advantage its own properties. The issue is already being probed  by European antitrust authorities after a complaint from British comparison shopping site, Foundem.

In the United States both TradeComet and and MyTriggers have filed private antitrust actions raising the same issue.

In June Consumer Watchdog published a report showing evidence that Google’s Universal Search does favor its properties hurting competing services such as Mapquest. We’ve forwarded that report to the U.S. Justice Department.

So far, the DOJ has only reviewed specific deals that have been presented to them. Justice blocked the proposed Google-Yahoo agreement, weighed in after Consumer Watchdog’s request to oppose the Google Books Settlement and has just made a “Second Request” for information as it studies the proposed acquisition of travel software company ITA Software.

The Texas probe is the first time a government agency in the United States is known to be looking into Google’s core business in a proactive way. It could well be a sign of more scrutiny to come.  We can only hope the Feds follow suit.