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Don’t read too much into that. It’s simply a legal argument used as a defense in a court case, and is based on well settled caselaw. When you give information to a company, you have essentially released it into the wild, subject to any contractual limitations between the parties. After all, employees of that company may see it, so you cannot reasonably expect that it will remain completely private. For example, your bank shares your "private" financial information with all sorts of companies, all the time. That is not the same thing as saying that Google is going to give all your information to anyone willy-nilly; they are still constrained (such as it is) by the terms of the user agreement that practically no one bothers to read. There are many valid concerns about privacy, but Google is really saying nothing new here, but of course read outside of the context of a pleading, it does sound quite ominous.
Incidentially, the government used this same argument vis a vis telephone conversations during prohibition, and until the law caught up with the advances in technology then, they had a good argument. It's the same story all over again with modern communication methods.