Saturday, January 05, 2013

FTC Closes Investigation into Google's Search Business But Requires Commitments Regarding Standard Essential Patent Licensing

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

The FTC announced on January 3 that it has unanimously decided to close its investigation into alleged “search bias” by Internet search engine Google, Inc. without taking action after a 19-month investigation. At the same time, the agency released for public comment a proposed consent order with the company that would resolve a separate competition-related investigation into alleged misuse of patent protection (In the Matter of Motorola Mobility LLC, FTC File No. 121 0120).

“Today’s bipartisan Commission action brings to an end the Commission’s investigations of Google in a fashion calculated to bring the maximum relief to American consumers in a timely way,” said FTC Chairman Jon Leibowitz at a press conference announcing the agency's long-awaited decisions.

Search Bias Investigation

The Commission decided not to take action against Google under Sec. 5 of the FTC Act based on allegations that the company unfairly preferences its own content on the Google search results page and selectively demoted its competitors’ content from those results. Google is a “horizontal,” or general purpose, search engine, delivering a comprehensive list of results to any query, according to the FTC. Some vertical websites, which focus on narrowly defined categories of content such as shopping or travel and offer an alternative to Google for specific categories of searches, complained that Google unfairly promoted its own vertical properties through changes in its search results page. It also was alleged that Google manipulated its search algorithms in order to demote vertical websites that competed against Google’s own vertical properties.

The Commission's search bias investigation focused on whether Google's algorithm and design changes were aimed at excluding actual or potential competitors or were intended to improve the quality of its search results. “The totality of the evidence indicates that, in the main, Google adopted the design changes that the Commission investigated to improve the quality of its search results, and that any negative impact on actual or potential competitors was incidental to that purpose,” the Commission explained in a closing statement. The evidence did “not support the allegation that Google’s display of its own vertical content at or near the top of its search results page was a product design change undertaken without a legitimate business justification.”

In a footnote, the Commission statement noted that the agency was concerned with two other practices allegedly engaged in by Google: (1) that Google unfairly “scraped,” or misappropriated, the content of competing websites, passed this content off as its own, and then threatened to delist these rivals entirely from Google’s search results when they protested the misappropriation of their content; and (2) that Google placed unreasonable restrictions on the ability of advertisers to simultaneously advertise on Google and competing search engines, or “multihome.” Google committed to refrain from this conduct in the future.

Google agreed to provide a mechanism to allow websites to opt out of being displayed in Google’s vertical search results but remain in Google’s organic search results to remedy allegations that it misappropriated, or “scraped,” the content of three rival websites that supply local information or shopping comparison services. Google also agreed to give online advertisers more flexibility to simultaneously manage ad campaigns on Google’s AdWords platform and on rival ad platforms.

In a separate statement, Commissioner J. Thomas Rosch concurred with the decision to close the search bias investigation but dissented from the Commission’s closing statement for two reasons: (1) the scraping and multihome practices do not violate the antitrust laws; and (2) the practices could be revived at any time without penalty, even if they constituted a law violation. “The Commission’s acceptance of a commitment letter to resolve an alleged violation of the antitrust laws is an unjustified and dangerous weakening of the Commission’s law enforcement authority,” Rosch noted.

Commissioner Maureen K. Ohlhausen said in her separate statement that she would have closed the investigation without imposing any remedy, no matter the form. She said that she saw no claim premised on the so-called “scraping” conduct or the terms and conditions related to Google’s AdWords application programming interface (API). “[T]here is no viable theory of harm…for bringing a case in these two areas,” Ohlhausen concluded.

Standard Essential Patents

The FTC also announced a proposed consent order with Google and its wholly-owned subsidiary Motorola Mobility LLC, resolving allegations that the companies engaged in unfair methods of competition and unfair acts or practices in violation of the FTC Act relating to the licensing of standard essential patents (SEPs) for cellular, video codec, and wireless LAN standards.

The Commission’s proposed complaint alleges that, after committing to license the SEPs on fair, reasonable, and nondiscriminatory (FRAND) terms, Motorola sought injunctions and exclusion orders against willing licensees, undermining the procompetitive standard setting process. After purchasing Motorola for $12.5 billion in June 2012, Google allegedly continued Motorola’s anticompetitive behavior. The company pursued injunctions in federal district court and at the U.S. International Trade Commission (ITC) to block competing technology companies from using MMI standard-essential patents, according to the FTC.

Under the proposed consent order, Google has agreed to meet its prior commitments to allow competitors access—on FRAND terms—to patents on critical standardized technologies needed to make popular devices such as smart phones, laptop and tablet computers, and gaming consoles. Google would be prohibited from seeking injunctions against a willing licensee, either in federal court or at the ITC, to block the use of any SEPs that the company has previously committed to license on FRAND terms.

“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,” Leibowitz said. “This decision strengthens the standard-setting process that is at the heart of innovation in today’s technology markets.”

The Commission vote to accept the proposed consent order relating to standard essential patents for public comment was 4-1, with Commissioner Ohlhausen voting no, while the vote to issue the Commission statement in that matter was 3-0-2, with Commissioners Rosch and Ohlhausen abstaining.

In his separate statement, Commissioner Rosch said, among other things, that he did not agree with the complaint’s allegation or the majority’s assertion that an injunction enforcing SEPs would constitute “patent hold-up.”

Google Response

“The conclusion is clear: Google’s services are good for users and good for competition,” Google said in a January 3 post on its official blog, in response to the FTC's announcement. Google noted its two voluntary product changes: permitting websites to opt out of Google Search and remove content from specialized search results pages, such as local, travel and shopping; and permitting advertisers to export their ad campaigns from Google AdWords and to mix and copy ad campaign data within third-party services that use its AdWords API. “[W]e made clear when the FTC started its investigation, we’ve always been open to improvements that would create a better experience,” the company said.

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