The Justice Department has made a habit of delving into Google’s acquisitions and business dealings throughout the Obama administration. Now the Federal Trade Commission is looking for a piece of the action.
The agency hired a big-name outside litigator to front its current investigation, and in the background lurks the prospect of a novel tactic that, if successful, would expand the ability of the FTC to prosecute companies that dominate in a particular sector.
A broad antimonopoly case against Google by the FTC would face several key hurdles. Because Google’s products are free to use, it’s going to be tricky to show how end consumers are directly harmed by the company’s development of content that is accessible via its search engines. The company mantra, when asked about whether Google is dominant, is that “competition is one click away.”
It appears more plausible that a case could be made under Section 5 of the FTC Act, which prohibits “unfair methods of competition,” a standard that doesn’t specify harm to consumers. FTC Chairman Jon Leibowitz is on record as “strongly” wanting to create standards to pursue Section 5 cases.
Geoffrey Manne, executive director of the International Center for Law and Economics, says that the FTC might be interested in bringing a case under Section 5 because it’s easier to prove.
Some of the complaints surrounding Google’s business practices involve a reduction in consumer choice, which would involve the antimonopoly Section 2 instead. “If that’s all they have for harm,” Manne said, “that’s a case that gets dismissed under Section 2. It’s not clear that the same case is dismissed under pure Section 5.”
The FTC could target Google on several fronts. One is the issue of whether Google unfairly manipulates its search results to favor its own services. According to critics, this practice has hobbled niche players in e-commerce sectors in which Google has business interests, including local search, comparison shopping, and travel booking. Companies like Expedia, Trip Advisor, Yelp, WebMD and others claim to have experienced a loss of Web traffic and revenues as a result of this practice.
What's not immediately clear is why Google, which reported upwards of $10 billion in quarterly advertising revenues in its first-quarter SEC filings, would risk the ire of U.S. and foreign regulators in order to spotlight what appear to be relatively minuscule pieces of its business -- the commissions from travel bookings and other online transactions.
Gary Reback, a Silicon Valley antitrust attorney and longtime critic of Google's business practices, calls it "monopoly maintenance." Reback said that Google got into the local information, maps, and travel space in order to steer the flow of Web traffic away from rivals who offer targeted, topic-based search services. "The reason Google goes into verticals is to keep these verticals from eating away at its horizontal search monopoly," he said.
Another prominent critic of Google, Ben Edelman, an assistant professor at Harvard Business School, said that it's Google's practice to "enter a new sector, create an information aggregation platform and use their power over algorithmic search to direct users to their platform, even though Google is typically late to these new sectors.”
Edelman cited Google Maps as an example of the "Google playbook." Edelman noted that when it was introduced there were established competitors like Mapquest, MSN Maps, and Yahoo Maps, but Google's dominant market share "lets Google favor their own services with unlimited free traffic and withhold their traffic from competitors."
Larry Downes, a senior adjunct fellow with the think tank TechFreedom, expects the FTC will take some action, considering all the preliminary saber rattling. “IBM went through this in the 1980s, Microsoft went through it in the 1990s. It appears now it’s Google’s turn,” he said.
Google is already dealing with a tide of government supervision. Its $12.5 billion purchase of Motorola Mobility in August, 2011 -- largely seen as a patent-defense deal -- was approved by DOJ's Antitrust Division but with the caveat that regulators wouldn't be shy about intervening if Google tightened its hold on key mobile-industry patents. Also last year, Google's $700 million purchase of travel software provider ITA (now Google Travel) is subject to a consent decree designed to protect competition in the travel-search sector. Twice, the Justice Department refused to back proposed settlement agreements between Google and the Authors Guild, over Google's practice of scanning books and making them searchable. Going back to 2008, Justice Department objections scuttled a planned advertising venture between Google and Yahoo over anticompetitive concerns.
Now Google faces the prospect of going to court against renowned litigator Beth A. Wilkinson of Paul, Weiss, Rifkind, Wharton & Garrison, known as the attorney who delivered key closing arguments in the case against the Oklahoma City bombers in 1995.
What’s in store for Google if it loses a court case? The most dramatic outcome would be the severing of Google’s algorithmic search and search-advertising business from its content and commerce offerings. This was the initial outcome of the antitrust case prosecuted against Microsoft in the late 1990s, although that judgment was overturned by an appeals court. Another drastic remedy would be to put Google’s famed organic search algorithm under government supervision, or require that it be open to competitors. Less draconian would be remedies installing firm divisions between the search platform and other business divisions in order to guarantee that Google-owned properties aren’t favored in Google search. Alternatively, a settlement could be instituted without a court verdict that offers competitors some guarantee of prominent placement in Google’s search results.
Before the FTC moves, it’s likely that the European Union will release its long-awaited findings on their investigation into Google. Any settlement with the EU could provide some clues as to how the FTC will proceed with its case against Google.