Investors Sue Alphabet, New Parent of Google

REDWOOD CITY, Calif. (CN) — With Google, now known as Alphabet, facing $7.4 billion in possible antitrust fines in the European Union, shareholders sued its board of directors, demanding money and corporate reforms.

The European Union found in April that Google that "systematically and illegally leveraged its proprietary Android operating system and applications" to monopolize the European market, Robert Jessup said Monday in a shareholder derivative complaint in San Mateo County Court.

He sued Google founders Larry Page and Sergey Brin, Eric Schmidt, L. John Doerr and eight other corporate directors, claiming they were caught at using Android "as a Trojan horse for other services offered by the company — imposing anticompetitive restrictions on device manufacturers and developers through Alphabet's licensing arrangements for proprietary Android technology and applications."

Google did this, primarily, by bundling apps and programming, forcing manufacturers to preinstall the software and make Google apps the default on every device. If it couldn't do it by force, Google paid manufacturers to preinstall the apps, according to the complaint.

The EU gave Google/Alphabet 12 weeks to answer the claims against it, and could face fines of up to $7.4 billion, Jessup says.

EU Competition Commissioner Margrethe Vestager said: "A competitive mobile Internet sector is increasingly important for consumers and businesses in Europe. Based on our investigation thus far, we believe that Google's behavior denies consumers a wider choice of mobile apps and services and stands in the way of innovation by other players, in breach of EU antitrust rules."

Jessup claims Google's board of directors knew for six years that the European Union was investigating it for antitrust violations, but "Nevertheless, the individual defendants permitted Alphabet's unlawful and anticompetitive Android practices to continue unabated."

CEO Page, President Brin and Chairman of the Board Schmidt "dominated the board," the complaint states. Page controls 26.6 percent of the vote, Brin 25.9 percent and Schmidt 5.6 percent, and they "have the power not to re-elect any director who votes to discipline them for their improper acts."

The 59-page complaint includes the compensation board members receive: Doerr's salary, bonus and stock awards came to $1.65 million in 2013, according to the complaint; Allan Mulally, a member of the audit committee, got $1 million in 2014, and audit committee member Diane Greene got $1.2 million in 2012.

Greene joined the board in 2012 and got $148 million this year when Alphabet bought the company for $380 million, the complaint states. Because of financial entanglements like these, board members lack independence to act, Jessup says.

The European announced 2010 that it was opening an antitrust investigation of Google's practices with Android phones. Microsoft, Apple and other tech heavy hitters filed complaints and the U.S. Senate held hearings on the issue.

Despite this fair warning, Google continued to "engage in licensing arrangements and other business practices that were illegal under EU antitrust laws," Jessup says.

He seeks restitution and disgorgement and corporate reforms: specifically, allowing shareholders to nominate at least three board members; better shareholder input into supervision, operations and procedures; reformed Android licensing practices; and stronger internal controls.

He is represented by Brian Robbins with Robbins Arroyo in San Diego.

Robbins Arroyo and Alphabet declined comment.

Google was split up into Google and Alphabet in October 2015.

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