Friday, June 24, 2011

Google Acknowledges FTC’s Investigation of Business

This posting was written by John W. Arden.

In a blog item posted this morning, Google Inc. acknowledged that the Federal Trade Commission has begun an investigation into its business.

“Yesterday, we received formal notification from the U.S. Federal Trade Commission that it has begun a review of our business,” the posting stated. “We respect the FTC’s process and will be working with them (as we have with other agencies) over the coming months to answer questions about Google and our services.”

The blog item (“Supporting choice, ensuring economic opportunity”) indicated that Google was still uncertain of “exactly what the FTC’s concerns are . . .” However, the Internet giant maintained that it intended to continue its practice of doing what is best for the user, providing the most relevant answers as quickly as possible, labeling advertisements clearly, operating transparently, and engendering loyalty rather than locking in users.

The agency investigation has been the subject of much discussion since the Wall Street Journal reported in its June 24 edition that the FTC was launching a “broad, formal” antitrust investigation into whether Google has abused its dominance in the Web search advertising market.

“The people familiar with the matter said issues in the FTC probe are expected to include whether Google searches unfairly steer users to the company’s own growing network of services at the expense of rival providers,” according the Journal article (“Feds to Launch Probe of Google”) by Thomas Catan and Amir Efrati.

Companies providing products and services on the Web have complained that Google’s dominant search engine gives it the power to determine which businesses succeed or fail. Google is alleged to have used others’ content without permission, manipulated search results to favor its own products, and acquired competitors that threaten its dominant position.

The investigation is expected to take at least a year and may or may not result in formal charges, according to the Journal.

Some commentators are comparing an antitrust probe of Google to the Justice Department’s antitrust investigation and lawsuit against Microsoft Corp. in the 1990s.

“If history is any guide, the probe may represent the beginning of the end of Google’s dominance,” writes Dan Lyons in an article in The Daily Beast. “That’s what happened to Microsoft. The software maker was never the same after going through a three-year antitrust trial brought against it by the Department of Justice. The trial ran from 1998 to 2001 and ended up with Microsoft agreeing to relatively minor settlement terms.”

The trial itself was such a distraction that Microsoft lost focus, “missing out on almost every big trend in tech—Internet search, digital music and movies, social networking, Internet advertising, tablet computers,” Lyons writes.

Google recently has been the subject of antitrust scrutiny. Late last year, the European Commission (EC) opened an in-depth antitrust investigation into Google’s method of displaying search results. The EC is attempting to determine whether Google search display practices were designed to shut out competitors.

Specifically, the EC is investigating whether Google abused its dominant market position in online search by (1) lowering the ranking of unpaid search results of so-called vertical search services and according preferential placement of its own vertical search services; (2) lowering the "Quality Score" for sponsored links of competing vertical search services and thereby influencing the price paid for advertising and the corresponding rankings; (3) imposing exclusivity obligations on advertising partners that prevent certain types of competing ads; and (4) restricting the portability of online advertising campaign data to competing online advertising platforms.

Earlier this year, the Department of Justice Antitrust Division filed suit to block Google’s $700 million acquisition of travel search provider ITA Software, Inc., a leading producer of airfare pricing and shopping systems used by travel companies such as Travelocity, Kayak, and Orbitz.

The Justice Department entered a proposed settlement agreement with Google, allowing the acquisition to proceed. Under the proposed settlement agreement, the company would be required to continue to license ITA’s software to airfare websites, to offer the websites ITA’s next generation product, to refrain from entering into agreements that would restrict airlines’ right to share booking information with Google’s competitors, and to establish internal firewalls to prevent unauthorized use of competitively sensitive information from ITA’s customers. (See Trade Regulation Talk, April 12, 2011.)

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