Google Dodges FTC Antitrust Charges, Will Change Business Practices

By Todd R. Weiss  |  Posted 2013-01-03

Google Dodges FTC Antitrust Charges, Will Change Business Practices

Google could have been hit with a government sledgehammer in connection with charges of anticompetitive behaviors against rivals, but instead the search giant has come away with a much less damaging fate—a voluntary agreement with the Federal Trade Commission to change some of its business practices.

Google also won a separate and large part of the multipronged battle as the FTC voted to close its longtime investigation into allegations that Google has been manipulating its search algorithms to favor Google's results over competitors. Instead, the FTC found that there was not enough evidence to prove such allegations.

Both decisions were announced Jan. 3 in an FTC conference call that caps a 19-month investigation into Google's search practices and patent portfolios in the smartphone, tablet and gaming device markets.

"Today's action delivers more relief for American consumers faster than any other option available to the commission, and protects competition and consumers in a number of crucial markets central to the daily lives of hundreds of millions of American consumers and businesses," Jon Leibowitz, chairman of the FTC, said during the call. "It ensures Americans continued access to smartphones, tablet computers and computer gaming systems as well as continued competition in Internet search and search advertising. Today's commission action follows an exhaustive investigation into Google's business practices."

Among the key parts of the FTC agreement with Google is that the search company will end some past business practices that could stifle competition in the markets for popular devices such as smartphones, tablets and gaming consoles, as well as the market for online search advertising, according to the agency. Under a binding settlement with the FTC, Google will allow competitors access "on fair, reasonable, and nondiscriminatory terms to patents on critical standardized technologies needed to make popular devices such as smartphones, laptop and tablet computers, and gaming consoles," the FTC reported.

As part of that agreement, Google will not seek court injunctions to block competitors from using Google-owned patents that are essential to key technologies used in products developed and sold by competitors, according to the FTC. Many of those patents came from the company's acquisition of Motorola Mobility in May 2012 for more than $12 billion, which included a large patent portfolio for technologies related to mobile and other consumer and business devices.

"We are especially glad to see that Google will live up to its commitments to license its standard-essential patents, which will ensure that companies willing to license these patents can compete in the market for wireless devices," said Leibowitz. "This decision strengthens the standard-setting process that is at the heart of innovation in today's technology markets."

In addition, Google also agreed to "give online advertisers more flexibility to simultaneously manage ad campaigns on Google's AdWords platform and on rival ad platforms; and to refrain from misappropriating online content from so-called 'vertical' Websites that focus on specific categories such as shopping or travel for use in its own vertical offerings," according to the FTC.

This means that Google "has agreed to remove restrictions on the use of its online search advertising platform, AdWords, that may make it more difficult for advertisers to coordinate online advertising campaigns across multiple platforms," the commission said.

Google also "will stop misappropriating—or 'scraping'—the content of its rivals for use in its own specialized search results," according to the FTC. "Google will also drop contractual restrictions that impaired the ability of small businesses to advertise on competing search advertising platforms. Google has made enforceable commitments to resolve the commission’s concerns, and these commitments have reporting requirements that will allow the commission to vigorously monitor and enforce Google's compliance."

Google Dodges FTC Antitrust Charges, Will Change Business Practices

As part of the agreement, Google "also has promised to provide all Websites the option to keep their content out of Google's vertical search offerings, while still having them appear in Google's general, or 'organic,' Web search results," the commission reported. "The FTC investigated allegations that Google misappropriated content, such as user reviews and star ratings, from competing Websites in order to improve its own vertical offerings, such as Google Local and Google Shopping. Some FTC commissioners were concerned that this conduct might chill firms' incentives to innovate on the Internet."

Beyond those steps, however, Google escaped FTC enforcement scenarios when it came to one of the biggest parts of the agency's 19-month-long investigation into the company's conduct—the allegations by competitors that the company had manipulated its search algorithms to harm vertical Websites and unfairly promote its own competing vertical properties.

Many business rivals, including Microsoft, have loudly complained about this alleged practice for several years, but Leibowitz said that not enough evidence was found to make such a case.

"Many of Google's critics—including many of its competitors—wanted the commission to go further in this investigation and regulate the intricacies of Google's search engine algorithm," he said. "Although some evidence suggested that Google was trying to eliminate competition, Google's primary reason for changing the look and feel of its search results to highlight its own products was to improve the user experience. Similarly, changes to Google's algorithm that had the effect of demoting certain competing Websites had some plausible connection with improving Google's search results, especially when competitors often tried to game Google's algorithm in ways that benefitted those firms, but not consumers looking for the best search results. Tellingly, Google's search engine rivals engaged in many of the same product design choices that Google did, suggesting that this practice benefits consumers."

Overall, the FTC "did not believe that the evidence supported a FTC challenge to this aspect of Google's business under American law," Leibowitz said.

Competitors who don't agree with the FTC's actions can still file their own lawsuits, he said, and take Google to court over the matter.

"You have to at some point resolve your investigations, and even though a lot of people would like us to bring a big search bias case against Google, there's nothing there to investigate," Leibowitz said.

In the meantime, Google has entered into enforceable agreements with the FTC to change its behaviors, he said. "If they stop complying ... the actions are enforceable. There are monitoring requirements. If they are scraping content of rivals we will know that, [competitors] will come to the FTC, and many of them did. We'll know, let me assure you."

In a statement on the Official Google Blog Page, David Drummond, senior vice president and chief legal officer for Google, wrote that the company is fully prepared to voluntarily implement the changes that have been laid out for it.

"As we made clear when the FTC started its investigation, we've always been open to improvements that would create a better experience," wrote Drummond.  "We've always accepted that with success comes regulatory scrutiny. But we're pleased that the FTC and the other authorities that have looked at Google's business practices—including the U.S. Department of Justice (in its ITA Software review), the U.S. courts (in the SearchKing and Kinderstart cases) and the Brazilian courts (in a case last year)—have concluded that we should be free to combine direct answers with Web results. So we head into 2013 excited about our ability to innovate for the benefit of users everywhere."

Google Dodges FTC Antitrust Charges, Will Change Business Practices

Several IT analysts say the FTC probe's conclusions are sensible. Dan Maycock, an IT analyst with Slalom Consulting, called the case "Google's coming of age."

"You get a company starting up in Silicon Valley, and it grows up and prospers, but to be a real company in America, you have to eventually have your day in court," Maycock told eWEEK. "So Google gets to a point where they are innovating, and at the same time being potentially anticompetitive and like any large company, they eventually have their day."

It's all part of Google's journey in the last few years, he said. Google bought Motorola Mobility, then made a lot of noise with Google AdWords and the company is making a lot of money and keeping their shareholders happy, said Maycock. "So the government steps in, and now they're going to be heavily regulated."

This is what happens with large, successful companies that have made it, he said. "I don't think this is super unusual, given the influence Google has. I expect similar things for Facebook someday, too, if they continue to grow."

It's all part of a system of checks and balances that come into place for many American businesses, said Maycock.  "It's not a bad thing. This is the system really saying, 'Hey, you're very successful. You're very big.' So the government steps in so you don't become too successful and not allow competition. Now you have a new set of rules to play by, and I think it's totally fair what the FTC is asking them to do. It just keeps them from being monopolistic."

Charles King, principal analyst with Pund-IT, said he is "somewhat surprised" that the FTC was so willing to work with Google to come to an enforceable agreement rather than a full-bore FTC action.

"In previous instances related to antitrust, in the case of say Microsoft, we saw the FTC act in a more proactive, punitive manner," King told eWEEK. "Since this is coming from a [presidential] administration that is extremely friendly to government regulation of business, there may have been less concern about alleged violations than some of Google's competitors have been alleging all along."

Since the FTC is allowing Google to voluntarily implement some of these things on their own rather than under restrictions, King said it "suggests a problem that could be repaired with a carpenter's hammer rather than with a wrecking ball."

At the same time, he said, it's ironic that one of the loudest critics of the expected lighter FTC action against Google has been Microsoft, which itself was declared a monopolist in earlier cases by the U.S. government.

"Irony is something I've learned to expect from Microsoft over the years," he said.

Google Dodges FTC Antitrust Charges, Will Change Business Practices

Meanwhile, Richard B. Brosnick, an antitrust attorney with Butzel Long, called the resolution of the case between Google and the FTC "an interesting and largely correct outcome."

"[The FTC] is aware of how Google's competitors will seek to criticize them, but they looked at the facts and backed away where ... they didn't have the evidence to bring a claim related to Google's search," said Brosnick.

"What pleasantly surprised me was that the FTC got relief in some other areas, but after extensive investigation they took no action on the search bias allegations," said Brosnick. "It's always struck me as unlikely in the extreme that Google would intentionally bias its search results because the vast majority of Google's business is horizontal search and they would be jeopardizing the primary line of its business. If it got out that you couldn't trust Google search results, then people would stop using them and their entire business model would go into the toilet."

One key for the FTC's agreement with Google is that it gives the government some of its most desired results without having to conduct a legal fight that would stretch from four to 10 years, he said.

"We might be witnessing a different paradigm where the enforcement agencies are satisfied with getting a half-loaf or quarter-loaf rather than have a case go on for 10 years," said Brosnick.

Now Google will have to see what happens in Europe with similar antitrust cases against the company in the European Union, where harsher consequences and actions are being considered.

Google was first notified by the FTC of a "formal review" of its business practices in June 2011 after similar reviews began in Europe. At that time, the European Commission launched an investigation into the company's search practices after vertical search engines such as Foundem, and Microsoft's Ciao complained the company favored its own Web services in search results on over theirs. They argued that this put them at a significant competitive disadvantage in the market.

The initial FTC review in 2011 began after the agency heard complaints from Microsoft, Expedia, TripAdvisor, Yelp and other Websites that Google promotes its own Web services above those of competitors.

Google denied all such allegations at that time, noting that its search algorithms analyze Website quality and popularity based on links for placement as part of its PageRank system.

In July, Google reached a record $22.5 million settlement with the FTC to resolve charges that Google bypassed Apple Safari browser privacy settings that blocked cookies for their users. The settlement was criticized by the Competitive Enterprise Institute, an industry group, as "a dangerously overbroad precedent that will chill Internet innovation and hurt online startups," the Institute said in a statement at that time.

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