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Last time I wrote about Google (NASDAQ:GOOG) I called it a "Microsoft for devices," but noted that the profits lie in its cloud. Since then, the stock is up a full 2%, with IDC confirming Android got 75% of the global smartphone market in the third quarter of 2012.

Google is also doing a better job in controlling its software ecosystem. The latest versions of the software are now on more than one quarter of all Android devices.

But there remains a big cloud on the horizon: government.

Staff at the Federal Trade Commission wants to sue Google on antitrust grounds over both search and its use of patents. But this is a staff report, not a decision by the full commission, which could still decide to seek a negotiated settlement.

The patent case looks likely to settle for money, but the search case is far more troubling because any settlement is likely to involve changes to Google business behavior that would be monitored by the government agency. A U.S. government move against the company will also embolden other governments to tackle it for their own reasons, as Brazil is trying to do on news links and as France is trying to do on taxes, as TechCrunch reports.

There are writers here at Seeking Alpha who see the patent case brought by Vringo (NASDAQ:VRNG) as killing the company, forcing it to pay for patents representing the heart of its business. Recent trends in patent law indicate that's unlikely.

The real threat has to be the risk of placing lawyers, PR people, and others reporting to government on the Google payroll, constantly looking over engineers' shoulders and saying "no" to changes. That's what killed Microsoft (NASDAQ:MSFT) in the 1990s, and this time we're looking at a feeding frenzy from governments around the world.

As global governments see the Internet as vital to their economic futures, they are going to seek more control over it and the people using it. Google's argument has always been that such controls impose a huge cost in terms of growth, and that people will route around blocks just as the Internet protocol does.

That is now going to be put to another test. I think it's a test that Google will pass, but all shareholders need to be wary of adverse headlines on this front.

Disclosure: I am long GOOG, MSFT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source: Google Vs. Big Government