Google Investigation by FTC Ends With Voluntary Changes

Photographer: Andrew Harrer/Bloomberg

Jon Leibowitz, chairman of the Federal Trade Commission (FTC), right, speaks during a news conference, with FTC and Consumer Protection leaders in Washington on Jan. 3, 2012. The FTC voted 5-0 to close its investigation into unfair search practices by Google. Close

Jon Leibowitz, chairman of the Federal Trade Commission (FTC), right, speaks during a... Read More

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Photographer: Andrew Harrer/Bloomberg

Jon Leibowitz, chairman of the Federal Trade Commission (FTC), right, speaks during a news conference, with FTC and Consumer Protection leaders in Washington on Jan. 3, 2012. The FTC voted 5-0 to close its investigation into unfair search practices by Google.

Google Inc. (GOOG), avoiding a potentially costly legal battle with U.S. regulators, ended a 20-month antitrust probe by pledging to change some business practices and settling allegations it misused patents to thwart competitors in smartphone technology.

The Federal Trade Commission voted 5-0 to close its investigation into whether Google unfairly skewed its search results, with the company saying it would voluntarily remove restrictions on the use of its online search advertising platform and offer companies the option of keeping their content out of Google’s search results.

Under a consent decree regarding patents, Google will be limited in its ability to seek court orders barring competitors’ products when the company has agreed to license its technology on reasonable terms.

“The changes Google has agreed to make will ensure that consumers continue to reap the benefits of competition in the online marketplace and in the market for innovative wireless devices they enjoy,” FTC Chairman Jon Leibowitz said today at a news conference in Washington. “This was an incredibly thorough and careful investigation by the commission, and the outcome is a strong and enforceable set of agreements.”

No Enforcement

The agency’s decision to close its probe of Google’s search practices without any enforcement action is a blow to competitors including Microsoft Corp. (MSFT), Yelp Inc. (YELP) and Expedia Inc. (EXPE) An alliance of such e-commerce and Web-search companies pressed the agency to bring a lawsuit, claiming Google’s dominance of Internet search, combined with the company favoring its own services in answers to queries, violates antitrust laws.

“Google’s competitors are looking at this as though it’s a slap on the wrist,” said Jeffrey Jacobovitz, an antitrust litigator with Arnall Golden Gregory LLP in Washington. “It’s clear the FTC thought this was the best deal they could get and if they had gone to court, they may not have been as successful.”

Google said in a blog posting today that it agreed in a letter to the FTC that websites will be allowed to remove their own content such as reviews from search-results pages including those for local, travel and shopping services. Advertisers will also be able to compare data from other search engines within third-party services that use Google’s AdWords software, Google said in the posting.

‘Universal Search’

The FTC decision gives a green light to Google to continue with what it calls “universal search,” where it mixes its own answers to queries with links to other sources of information. Critics complained that by pushing other websites farther down in search rankings, Google was hurting competition and consumers.

“We’ve always accepted that with success comes regulatory scrutiny,” Google said in the blog post. “We’re pleased that the FTC and the other authorities that have looked at Google’s business practices have concluded we should be free to combine direct answers with Web results.”

Beth Wilkinson, the Washington litigator hired by the FTC to oversee a potential lawsuit, said that the evidence didn’t show Google’s actions were against the law.

“Undoubtedly, Google took aggressive actions to gain advantage over rival search providers,” Wilkinson said in an FTC statement. “However, the FTC’s mission is to protect competition, and not individual competitors.”

Google Reports

The agreement requires Google to give the FTC reports on its compliance with the agreement for five years. The agency has the right to review company documents and interview Google employees if it suspects non-compliance, Peter Levitas, a deputy in the bureau of compliance, told reporters.

FTC Commissioner Tom Rosch, a Republican, said in a separate statement that while he believed Google’s behavior didn’t warrant any action, the agreement the agency accepted “creates very bad precedent and may lead to the impression that well-heeled firms such as Google will receive special treatment at the commission.”

“Instead of following standard commission procedure and entering into a binding consent agreement to resolve the majority’s concerns, Google has instead made non-binding commitments with respect to its search practices,” said Rosch, who steps down tomorrow and will be replaced by Joshua Wright, a law professor at George Mason University.

“After promising an elephant more than a year ago, the commission instead has brought forth a couple of mice,” he said.

Urging Delay

Google critics, including FairSearch.org, the alliance of Google competitors, had urged the FTC to delay a decision until Google submitted a detailed proposal to the European Commission’s antitrust probe.

“The FTC’s decision to close its investigation with only voluntary commitments from Google is disappointing and premature” given that the European Commission is seeking to resolve “four abuses of dominance” it identified, FairSearch.org said in an e-mailed statement.

Leibowitz said European law differs from that in the U.S.

“We have to do what’s right under our own laws,” Leibowitz said in an interview with Bloomberg Television. “When an investigation is ready to be closed, we like to close it.”

Consent Decree

The agency voted 4-1 on the patent settlement, a formal, 10-year consent decree that restricts the situations in which Google can seek court injunctions against competitors’ products that rely on so-called standard-essential patents. Google would still be able to try to block rivals from using those patents if it can’t reach a licensing agreement, the agency said.

Companies that create technology that helps to develop an agreed-upon industry standard pledge to license associated patents on “fair, reasonable and nondiscriminatory” terms.

Industry-standard technology helps ensure products such as mobile phone antennas and global-positioning system software can operate together when made by different manufacturers.

Today’s settlement comes amid a surge in patent litigation as handset and device makers vie to increase their shares of the worldwide mobile-technology market, projected to almost double to $847 billion by 2016, according to estimates by Yankee Group, a Boston-based research firm.

Industry Standard

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

Google, based in Mountain View, California, paid $12.5 billion for Motorola Mobility, in part to get its trove of more than 17,000 patents and applications. Some of those patents cover fundamental technology on how mobile electronics operate, so it would be difficult for Apple to work around the inventions.

Before today’s consent decree, judges in Seattle and Chicago had already said Motorola Mobility isn’t entitled to an order blocking sales of products based on the use of standard- essential patents. The U.S. International Trade Commission in Washington, which has the power to block imports, is considering whether it will adopt similar rules.

The agreement still could mean that Motorola Mobility will have to drop some of its claims against Microsoft at the ITC, said Jorge Contreras, an associate law professor at American University in Washington. The commission already has cleared Apple of claims it was infringing Motorola Mobility patents for wireless technology.

Microsoft, Apple

Both Microsoft and Apple have pledged not to seek court bans based on the use of standard-essential patents. While it was seeking regulatory approval to buy Motorola Mobility, Google said it would continue the handset maker’s policy of not pursuing such orders as long as negotiations were under way. The settlement with the FTC requires Motorola Mobility to take extra steps including offering binding arbitration of royalty disputes.

The FTC agreement won’t change the overall litigation between Motorola Mobility, Apple and Microsoft, said James Kulbaski, a patent lawyer with Oblon Spivak in Alexandria, Virginia.

“There was always a likelihood an injunction could not be obtained” on the standard-essential patents, Kulbaski said. “There are some good non-standard essential patents which will not fall under this FTC ruling.”

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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