FTC Face-Off

Lisa Shuchman

Corporate Counsel

03-01-2013

Many of Google Inc.'s tech-world rivals were not pleased when the Federal Trade Commission ended a 19-month investigation of the technology giant in January by concluding that it hadn't violated antitrust laws in the way it operated its Internet search engine. But Google did not walk away completely absolved of guilt, and the consent order it signed to make further investigation and potential penalties disappear could leave an important mark in the patent world.

Some patent experts and legal scholars viewed the agreement as a positive step, saying that it answered questions and clarified issues about standard essential patents (SEPs) that had been confusing and unclear. "I think the agreement is really productive and will help reduce the confusion and uncertainty that currently surrounds how SEPs can be used," Colleen Chien, an IP professor at Santa Clara University Law School and an expert on patents, said in an email.

The wording of the agreement only applies to Google and its affiliates, but it presents a clear way forward that courts and companies can use to guide how they resolve similar lawsuits, Chien said.

The FTC found that Google had reneged on its commitments to allow competitors access to SEPs needed to make smartphones, laptops, tablets, and gaming consoles on "fair, reasonable, and nondiscriminatory" (FRAND) terms. The FTC ordered Google to stop seeking to exclude competitors from using the essential patents it had acquired when it paid $12.4 billion to purchase Motorola Mobility last year.

Companies such as Apple Inc. and Microsoft Corporation had complained that Google was using the patents to thwart competition from mobile devices that do not use Google's Android software. The FTC agreed. "This type of patent holdup can lead to higher prices, as companies may pay higher royalties for the use of Google's patents because of the threat of an injunction, and then pass those higher prices on to consumers. This may cause companies in technology industries to abandon the standard-setting process and limit or forgo investment in new technologies," the FTC said. "To remedy this concern, Google has agreed to a consent order that prohibits it from seeking injunctions against a willing licensee, either in federal court or at the [International Trade Commission], to block the use of any standard essential patents that the company has previously committed to license on FRAND terms."

Prior to the FTC announcement, courts had been grappling with questions about the licensing of SEPs in piecemeal fashion. There was little agreement on when a company was bound by a court-adjudicated FRAND license, for example, or when an SEP could be the basis for an injunction. Now there is more clarity, Chien said, noting that the FTC, with its national jurisdiction, has more power than any one judge.

"Companies want certainty, even if it cuts against their interests," she said. "The settlement provides that." It not only provides certainty vis-à-vis Google and Apple, Chien said, but may also set broader norms for smartphone patent holders.

But does this mean we'll be closer to smartphone peace? "I'm not holding my breath on that," Chien said.

Critics of the settlement complained that it left loopholes that could work in Google's favor. One of those critics was rival Microsoft, whose deputy general counsel, Dave Heiner, wrote in a blog post after the announcement: "During patent licensing negotiations, Google can continue to threaten that it will sue for an injunction, knowing that many would-be licensees will not be in a position to engage in litigation or arbitration with Google, and also meet all of the other procedural requirements set forth in the decree."

He went on to say: "Google can even continue to use its standard essential patents to fend off patent infringement actions against it: The proposed decree gives Google leeway to sue for an injunction on its standard essential patents if it takes the position that injunctive relief sought against it is based on a patent that is standard essential. Since it is often hard to tell which patents are standard essential, the risk of injunction lawsuits from Google may dissuade firms from seeking to enforce their nonstandard essential patents."

But FTC Chairman Jon Leibowitz accentuated the positive, emphasizing the impact the commission hoped the settlement would have. "Google's unfair conduct threatened to block consumers access to critical electronic devices," he said in announcing the agreement. "Today's landmark enforcement effort will become what we hope will be a template for resolution of [SEP] licensing disputes across many industries."

If Google breaks any part of the agreement, the FTC can fine the company up to $16,000 per violation. And the agency has demonstrated that it will, in fact, act on the threat. Last year the FTC found that Google broke an agreement governing Internet privacy and fined the company $22.5 million.

In further concessions contained in the new agreement, Google also said that it would stop "scraping" its rivals' content, such as restaurant or product reviews, for use in its own specialized search results. It also agreed to drop contractual restrictions that made it difficult for small businesses to manage their online campaigns across competing advertising platforms.

Still, Google's competitors were not mollified. Microsoft and other companies that had alleged that Google was violating antitrust and anticompetition laws were angered by the FTC's decision not to take legal action against Google's search engine practices.

The consumer review site Yelp, a vocal critic of Google's scraping activities, said that the FTC's failure to take stronger action was "a missed opportunity to protect innovation in the Internet economy, and the consumers and businesses that rely upon it." American Consumer Institute president Steve Pociask accused the FTC of failing to use its authority "for the betterment of the marketplace." And Consumer Watchdog, an advocacy organization that has frequently criticized Google, called for the U.S. Department of Justice and state attorneys general to "press forward to end the Internet giant's monopolistic behavior in search results."

Google's fight is not over. It still has to face regulators in Europe, where it has been accused of anticompetitive practices similar to those investigated by the FTC. After the FTC announcement, Microsoft's Heiner said that his company would now be looking for help in Europe, where Google's search engine is even more dominant than it is in the United States and where the FTC decision may have no impact.

"We have taken note of the FTC decision," European Commission spokesman Michael Jennings told Reuters. "But we don't see that it has any direct implications for our investigation, for our discussions with Google, which are ongoing."