Alphabet Inc’s (GOOGL) stock is down 2% on Tuesday following the announcement that the company’s subsidiary, Google, was handed a $2.7 billion fine by the European Union in an antitrust ruling. The EU found that the company favored some of its own services over rivals.
The stock’s downturn comes as the company is embroiled in an intense fight between European officials that has implemented strict regulations against the world’s largest tech companies.
The ruling is the largest in history, doubling the highest fine handed down by the European Union in antitrust claims.
Margrethe Vestager, EU antitrust chief, states, “In Europe, companies must compete on the merits regardless if they are European or not. What Google has done is illegal under EU antitrust rules.”
Vestager has worked hard to tackle fraudulent activities in the tech sector, famously demanding that Apple (AAPL) pay $14.5 billion in back taxes.
Investors will look at Google’s next steps to determine the measures the company needs to take to comply with European regulations. Investors fear that the company will need to make changes that are so drastic, they may be under regular monitoring that reveals the company’s search algorithm in the process.
The company has 90 days to make changes to their algorithm to comply with regulations or face additional penalties as a result.
“We respectfully disagree with the conclusions announced today,” states a Google spokesperson. The company will conduct its own review into the ruling and may appeal the decision, depending on their findings.
The company is being accused of giving their shopping service a priority placement on their website while pushing rivals’ products into placements that receive fewer clicks. Google’s shopping service shows products at the top of the page where clicks are more prevalent.
“You may not realize this, but as many as 10% of your overall website visitors may have clicked on your website because of Google Reviews,” states PSM Marketing. According to eMarketer, 90% of all global search traffic in 2014 came from Google.
Local and e-commerce businesses rely on Google’s organic traffic to lure in leads and drive sales.
Google faced a fine that equated to as much as 10% of their global annual sales, or $9 billion, compared to the $2.7 billion fine imposed against the company. The company ended the March quarter with $92.4 billion in cash, alleviating investor concerns that the fine will have a major impact on the company’s earnings.
Google is also facing allegations in Europe due to the company’s Android operating system. The company is under investigation for some of its advertising products, too.
The company alleges that it helped grow the digital economy in the EU, and states that Amazon (AMZN) and other tech companies are significant competition against Google in the EU.
If the company fails to make changes in the next 90 days, they face fines of up to 5% of their daily average revenue. The company, by law, is required to draft proposals that ensure that the company treats its competitors fairly. Regulators have the right to demand further changes if the initial changes by Google are not satisfactory.