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Google is in "tentative" negotiations with European Union regulators to end the EU's investigation into allegations that the company abused its dominant position in the online search market, according to a report citing a source familiar with the case.

The news comes just after lame duck Google CEO Eric Schmidt told The Sunday Telegraph that the company would prefer such a deal.

Asked to comment by the newswire, the European Commission said that the EU is not in discussions with Google and that the investigation is still ongoing. "As is known, the Commission is conducting an in-depth market investigation and is still awaiting replies. We will not prejudge the outcome of the market investigation and of this case," said Commission spokeswoman Amelia Torres.

The Commission announced its formal investigation in late November, after receiving complaints from a trio of companies, including UK-based vertical search engine Foundem, the now-Microsoft-owned vertical search engine Ciao, and the French legal site ejustice.fr.

In its complaint, Foundem accuses Google of "exploiting its dominance of search in ways that stifle innovation, suppress competition, and erode consumer choice." The complaint makes two basic arguments. It alleges that Google used "discriminatory penalties" to remove certain sites from its search results regardless of relevance, and it claims that Google's so-called Universal Search setup is transforming the company's search engine into an "immensely powerful marketing channel" for its own services. Universal Search inserts links from other Google services, such as Google Maps and Google Product Search, into prominent positions on the company's main search result pages.

It's no surprise that Google is keen to reach a quick settlement. In 2008, when the US Department of Justice threatened a lawsuit over the search pact that Google signed with Yahoo! in an effort to fend off a Microsoft hostile takeover of Jerry Yang and company, Google pulled out of the deal rather than face the suit. The company's strategy is to avoid the sort of lengthy legal investigations that Microsoft and Intel have dealt with over the years.

Speaking of the EU investigation, Schmidt said: "I think it is in our interests and I would hope in their interests to do a quick analysis of concerns that have been raised by competitors, hopefully they are minor or they are not correct, and we'll find out and make sure we are operating well within the law and the spirit of the law.

"We understand we play a major role in Europe and we're not denying that. We have a lot of meetings with appropriate government officials."

On one level, Google wants to avoid the PR hit of a lengthy investigation and a potentially large fine. But we've always said that the company is equally keen to sidestep a probe that would show just how dominant its search engine is and how much control it has over the success or failure of third-party sites. The Commission has already sent questionnaires to advertisers, website owners, and vertical search engines, asking detailed questions about their businesses and how they're affected by Google. The deadline for answering the questionnaires is February 11.

We're seen two of the three questionnaires. The EU requests, among other things, six years of traffic data and Google ad contracts from third parties, and we have no doubt that Google doesn't want anyone compiling and looking through that data. In one questionnaire, advertisers are asked to specify how much traffic they received through Google AdWords ads and how much they received from other sources. They're asked if they've ever seen a sudden reduction on their AdWords quality score without any material changes to their website. They're asked if after joining AdWords, they were automatically opted-into other services and whether they were aware of it at the time.

Here's hoping the EC takes its investigation to its conclusion – though that is likely many months away. ®

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