01.03.13

Google Emerges Largely Unscathed From a Government Investigation Into Its Competitive Practices

The way Google organizes content and search results has been the subject of a long-running government investigation. In a two-part ruling, the Federal Trade Commission let the Silicon Valley giant off easy.

So the big Federal Trade Commission ruling on Google’s competitive practice finally came down Thursday. After almost two years of investigation, the FTC issued a two-part decision (PDF) that reflected its strength and willingness to intervene in one area of competition law, and its relative timidity in another. In a nutshell, the FTC was physical tough on Google but digitally soft on the search giant.

Google acquired a large number of patents used in all sorts of wireless devices from Motorola. In its ruling, the FTC insisted that it license them on a consistent and open basis to competitors and has instituted a process for insuring Google does so. That’s the physical toughness. But when it came to accusations of “search-bias” and that Google was using its market dominating web search to disadvantage competitors, the Commission agreed in a bipartisan, 5-0 vote not to pursue any regulatory action (PDF). that’s the digital weakness.

Although Google is facing an antitrust suit in Texas as well as an investigation from the more regulation-friendly European Commission, it can breathe a sigh of relief because the senior competition regulator in the U.S. found little to complain about its search practices. “Google emerges from this process on few restrictions on its business practices,” said William Kovacic, a professor at George Washington University law school and a former FTC commissioner.

In a statement announcing the decision, FTC chairman Jon Leibowitz, a Democrat appointed by President Obama, said that “Google’s primary reason for changing the look and feel of its search results [was] to highlight its own products was to improve the user experience.”  Further, “the evidence did not demonstrate that Google’s actions in this area stifled competition in violation of U.S. law.”

Google did agree to change some search and advertising practices, such as making it easier for companies to use Google’s AdWords advertising platforms along with other advertising platforms, as well as allowing companies to not have their content appear in Google’s vertical listings while still appearing in its Web search results.

The FTC’s statement, however, unambiguously said that Google’s placement of its own “vertical” search results—i.e. data from its specialized search products like Google Shopping—on the same page as the standard ten blue links from its normal web search was not anticompetitive behavior and not grounds for an enforcement action. Some competitors to Google’s vertical searches, like Yelp, the user-generated review site, complained that Google both demoted other vertical sites in its web search and that putting Google’s vertical content on the same page also had the effect of unfairly demoting its competitor. The FTC found that “Google adopted the design changes … to improve the quality of its search result.”

That Google even had to answer for the design of its results and the intermingling of general, “horizontal” searches,” and more specific “vertical” ones shows the strange situation Google finds itself as a massively popular search engine. Many users view it as a crucial tool for navigating the internet itself, and countless companies rely on Google search traffic to gain customers. But Google is also in the business of selling its own services, especially advertising. So, as Google has tried to develop more focused search results, like show times for movies and information about products people want to buy, it is running up against companies that couldn’t exist without it.

Google CEO Larry Page said in an earnings call this year that Google’s users expect it to “turn your intentions into actions in the blink of an eye,” not just “return ten blue links.” Not surprisingly, the company’s “vertical” competitors were unhappy with the decision. A Yelp spokesman told The Wall Street Journal that the FTC’s decision “represents a deeply disappointing missed opportunity to protect innovation in the Internet economy, and the consumers and businesses that rely upon it.” Eric Goldman, a law professor at Santa Clara University School of Law, a skeptic of the case against Google, said that the FTC “decided to protect consumers by doing nothing.” He continued: “from the outset it was clear there wasn’t good evidence that Google had engaged in impermissible practices.”

As Google has tried to develop more focused search results, like show times for movies and information about products people want to buy, it is running up against companies that couldn’t exist without it.

This is clearly a major win for Google. It survived a 19-month investigation in which the FTC brought on lawyers, technologists, and economists with particular expertise in Google, without having to alter significantly its business practices. Kovacic, the former FTC commissioner, told the Daily Beast that this was likely FTC’s best chance to get a major action against Google, with a three-Democrat majority and a chairman, Leibowitz, seen as open and willing to go after large companies. Although there is still ongoing litigation in Texas, Kovacic said that “if the highly motivated, hard-working commission doing its best to find a case cannot find something they were willing to fight over in court, what is Texas going to do?”

Google will, however, likely continue to face regulatory scrutiny going forward simply on account of its size. “As long as you are the dominant enterprise, you will always be under scrutiny,” said Kovacic. Of course, it takes a very long time to put together investigations and enforcement actions.

While Google continues to be the leader in online search, much of the company’s focus is now on its Android mobile operating system which runs on 500 million devices. Microsoft, which has long pressured regulators to go after Google for alleged anticompetitive practices (and was the defendant in perhaps the largest antitrust case of all time), has pointed to Google’s refusal to allow a fully functional YouTube app on Windows phones as another potential grounds for an investigation. But the FTC’s unwillingness to directly tinker with Google’s search algorithm may reflect an unwillingness or inability to get involved in the minute operations of high-tech companies’ products, especially because the companies are so dynamic and change so quickly. Said Kovacic: “The concern is that you’re always looking in the rear-view mirror when everything important is coming at you.”