I see that the California Initiative For Internet Privacy (CIFIP) is turning up the heat on Google and other search engine provides with threats of legislative campaigns or a push for a ballot initiative regulating data collection.
When it comes to the contentious issue of data retention, search companies are basically damned if they do and damned if they don't. That is, if they DO collect / retain search terms and records, the privacy zealots go crazy and run to Rep. Ed Markey (or, in this case, California legislators) and ask for new laws strictly limiting what can be collected / retained.
On the other hand, if they DO NOT collect / retain any of this info, then the "law and order" / "we must protect the children" crowd in Congress and state AG offices start breathing fire down their necks and demand *mandatory* data preservation / retention, potentially for lengthy periods of time (and for quite a bit of information).
How in the world is Google (or any other search provider or even ISP) supposed to balance those conflicting policy goals? I have no idea, but there is no doubt that this will be one of the top technology policy issues over the coming year. (For more background on the data retention debate, see this earlier essay of mine).