FTC Staff Said to Formally Recommend Google Patent Suit

The U.S. Federal Trade Commission should sue Google Inc. (GOOG) for trying to block competitors’ access to key smartphone-technology patents in violation of antitrust law, the agency’s staff told commissioners in a formal recommendation, according to four people familiar with the matter.

A majority of the agency’s five commissioners are inclined to sue, according to the people, who declined to be identified because the matter isn’t public. A final decision on the staff recommendation, made last month, isn’t likely until after the Nov. 6 presidential election, they said.

At issue are Google’s efforts to block U.S. imports of products made by Microsoft Corp. (MSFT) and Apple Inc. (AAPL) by claiming the devices, which rely on industry-standard technology, infringe patents owned by Google’s Motorola Mobility unit, the people said.

“We take our commitments to license on fair, reasonable, and non-discriminatory terms very seriously and are happy to answer any questions,” Niki Fenwick, a Google spokeswoman, said. Peter Kaplan, a spokesman for the FTC, declined to comment.

Formal Probe

The FTC opened a formal probe into the matter in June, when it began seeking information from companies including Microsoft and Apple about whether Google offered licensing for technology under patents that help operate 3G wireless, Wi-Fi and video streaming on fair and reasonable terms, a person familiar with the matter said at the time.

Industry-standard technology helps ensure that different manufacturers’ products, such as mobile phone antennas and global-positioning system software, work together. Companies that create technology that helps develop the agreed-upon industry standard pledge to license patents for those inventions on reasonable terms.

The FTC is also focusing on Google’s decision to continue litigation started by Motorola Mobility over industry-standard patents before Google bought the company. Those lawsuits could end up blocking imports of popular consumer products such as Microsoft’s Xbox and Apple’s iPhone and iPad.

“There is a tough emerging attitude by antitrust regulators who’ve recognized that the failure to honor standard essential patent commitments needs to be treated much more severely than in the past,” said Bert Foer, president of the American Antitrust Institute in Washington, which advocates strong enforcement of antitrust law.

“The agencies want to move this issue to the forefront by speaking out and tackling these high profile cases.”

Samsung Electronics

U.S. antitrust regulators have agreed the FTC will focus on Motorola Mobility while the Justice Department will scrutinize Samsung Electronics Co.’s handling of industry-standard patent claims, said a person familiar with the matter June 30. The European Commission opened formal probes of Motorola Mobility and Samsung Electronics Co. for the same issues earlier this year.

The investigation into Google’s use of standard-essential patents is separate from the agency’s broader probe examining whether Google’s business practices in search, advertising and mobile hurt competition, the people said. FTC investigators are also recommending the commission sue Google in that case, three people familiar with the matter said Oct. 13. A final decision hasn’t been made.

Smartphone Market

Patent litigation is escalating as device makers vie for increasing shares of the worldwide smartphone market, which reached $219 billion last year, according to data compiled by Bloomberg. The global patent fights heated up in March 2010, when Apple filed its first complaint at the International Trade Commission against Android-phone maker HTC Corp. (2498)

An ITC judge is considering whether Microsoft infringed Motorola Mobility patents including two for video compression technology. Motorola Mobility dropped two patents on Wi-Fi standards that will expire shortly after the scheduled end of the investigation. The ITC found that Apple didn’t infringe two of Motorola Mobility’s standard-essential patents.

Two federal judges will consider arguments that Motorola Mobility breached its commitment to the industry groups to offer its standard-essential patents on fair terms. The first trial, involving Apple Inc.’s breach of contract claims against Motorola Mobility, begins Nov. 5 in federal court in Madison, Wisconsin, while a non-jury trial of Microsoft’s claim against Motorola Mobility is scheduled to begin Nov. 1 in federal court in Seattle. Neither judge is expected to rule immediately.

Retail Royalties

Motorola Mobility had asked for royalties of 2.25 percent on the retail price of each product, which it has said was the standard opening offer it makes. It has said neither Microsoft nor Apple would negotiate.

Microsoft said in court papers the royalties would amount to $4 billion a year, a figure it would never agree to pay. Apple, in its own case, said the technology is worth, at most, $1 per unit.

“It’s hard to see the antitrust violations here as being very strong,” said Jorge Contreras, an associate law professor at American University in Washington. “They are rattling a lot of sabers at the regulatory agencies, but my suspicion is that those won’t go that far,” said Contreras, who participated in an FTC workshop last year on standards.

To contact the reporter on this story: Sara Forden in Washington at sforden@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.

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