Canadian Regulators Probe Google's Ad Model

Among the many Internet success stories of the past two decades, Google stands alone. The undisputed king of search, hundreds of millions rely on it daily, supporting an Internet advertising business model that generates tens-of-billions of dollars annually.

That kind of success invariably leads to legal and regulatory issues, though most of Google's legal fights have focused on content, such as the inclusion of controversial websites in its search index, the digitization of millions of books through its book search initiative, and the removal of links that may lead to websites that host infringing content.

Until recently, Google's Internet advertising business model has, with a few notable exceptions (including a large U.S. settlement involving pharmaceutical advertising), been spared much regulatory scrutiny. That has started to change with high-profile actions in the United States and the European Union and the prospect of similar investigations in Canada.

In the U.S., the Federal Trade Commission conducted a two-year investigation into Google's business practices that wrapped up last year with a settlement featuring several commitments for business practice changes. The settlement stopped short, however, of finding anti-competitive bias in Google's search results.

While the U.S. settlement was widely viewed as a win for Google, European regulators are conducting their own investigation and may demand greater concessions. In fact, European officials recently warned the company that time is running out to settle claims of abuse of its dominant position.

Google on the radar

The U.S. and European Union may have been active on the Google front, but Canadian officials have generally remained on the sidelines. The federal privacy commissioner has examined privacy-related issues, with action involving Google Street View (its popular street-level mapping service) and Google Buzz, but broader investigations into the company's business model have been largely absent.

That too is changing, as in recent months both the Competition Bureau and the federal privacy commissioner have either launched or concluded investigations involving Google's business model. Both investigations were complaint-driven, suggesting that competitors or disgruntled users may increasingly turn to those regulatory bodies to address their concerns.

The Competition Bureau investigation mirrors the actions in the United States and Europe. According to court documents filed in December, the Bureau has worked with Google's competitors to identify the information the company should be ordered to disclose as part of a competition law investigation. Last month, the Federal Court of Canada issued an order mandating disclosure of information related to the company's business activities, which the complainants claim rise to the level of anti-competitive behaviour.

The investigation remains at an early stage with no indication that the bureau is close to reaching a conclusion. However, the bureau's interest in Google indicates the company is now firmly on the Canadian radar and competition watchers will be looking closely to see whether Canada follows the U.S. example or adopts the more aggressive European approach.

Targeted ads probed

The federal privacy commissioner has also waded into Google's business model. Last week, the office concluded an investigation into online behavioural advertising that arose from a complaint by a Google user who was uncomfortable with health-related advertisements that suggested his Internet usage was being tracked. After he searched for medical devices for sleep apnea, he began receiving advertisements on random sites for the devices.

The reality is that website usage is tracked, hence the mounting demand for do-not-track legislation that would provide users with greater control over data generated by their Internet activities. In this case, the privacy commissioner concluded that the advertising breached Canadian privacy law as the tailored advertisements involved sensitive information that required an explicit opt-in consent.

Google agreed to several changes in response to the finding, including increased monitoring of its advertising programs to ensure compliance with company policies and the law. Given the heightened interest from Canadian regulators, the company is apparently no longer alone in the monitoring of its advertising practices and business activities.