Since going public in 2004, Google Inc., operator of the world’s most popular search engine, has built a strong position in the Internet search market. Annually, Google generates billions of dollars in revenue by selling online advertising services. Google presently controls approximately 66 percent of the U.S. Internet search market, and more than 80 percent of the European market.
Microsoft’s Bing accounts for approximately 15 percent of Internet searches, with Yahoo at 14 percent. Google’s steady innovative rise in market share, however, has not gone without criticism from some quarters as Google acquires monopoly power. The old adage certainly applies that the good news is you have achieved a dominant market share. The bad news is you are now under investigation for having achieved a dominant market share.
Google’s critics claim that the company is the gateway to the World Wide Web, and as such, has the power to control or choke traffic to websites because computer users are more likely (but not required) to click the top results of any Internet search, forcing companies listed lower in the results to have to buy more advertisements on Google to improve their visibility.
Google’s rivals claim that the company periodically manipulates its algorithm so that if, for instance, a consumer searches for a local business, the result would highlight Google Places, instead of Yelp, a review site and Google competitor, or a search for directions would result in Google Maps being at the top of the search results, and a search for videos would result in Google’s own YouTube being listed first, all of which allegedly put Google’s competitors at a disadvantage. In subpoenas served on the company, the Federal Trade Commission refers to these alleged business practices as “preferencing.”
Google’s rivals have also questioned whether the company periodically adjusts the list of paid advertisers that appear on the right-hand side of a Google search results page to its advantage. Search engines for Microsoft and Yahoo have also been known to engage in preferencing at times; however, Google’s critics argue that the quintessential difference is Google’s possession of nearly two-thirds of all search requests in the United States, and an even larger volume of paid advertising.
FTC Looks at Google’s Business Practices
In June 2011, Google disclosed in a regulatory filing that it had received a subpoena from the FTC, and a notice that the agency would be investigating its business practices. For the past 18 months or more, Google has been under close investigation by the FTC for its Internet search, privacy, patent and advertising business practices. Specifically, the FTC has been exploring allegations that Google favors its own products in search results, making it difficult for competitors’ products to appear prominently on a results page, thereby allegedly engaging in anticompetitive practices.
The FTC’s investigation of Google has been moving in tandem with the European Union’s antitrust agency’s investigation into Google’s business practices on similar issues. The FTC, however, has authority to investigate not just violations of antitrust law, but “unfair methods” of competition that could lead to violations under Section 5 of the FTC Act. Notably, however, there has been no successful case for the FTC litigated under Section 5 alone since the early 1970s, and during the 1980s, the FTC endured three consecutive defeats for cases brought under Section 5 only. Some say the FTC is just trying to flex its muscles to show that it is equal to the Department of Justice in prosecutorial zeal and statutory power. Bagging Google would be a big trophy to counter the sometimes Seabiscuit image of the FTC — small but mighty.
To aid in its investigation, the FTC, like the DOJ in the Microsoft case, has hired an outside economist and emeritus professor, Richard Gilbert of the University of California, Berkeley, and seasoned litigator Beth Wilkinson of Paul, Weiss, Rifkind, Wharton & Garrison, which to some, is a strong indication that the agency is preparing for litigation against Google or, at minimum, wants Google to believe so. Google is also simultaneously being investigated by attorneys general in six states: Texas, Ohio, New York, California, Oklahoma and Mississippi. Google has repeatedly denied any wrongdoing, and maintains that any changes it makes to its search results are intended to give the consumer a better and more rewarding experience in the Internet, not to just preserve its own market share.
FTC Investigates Beyond Internet Search Practices
In addition to a probe into Google’s search-results business practices, FTC investigators have been vigorously examining Google’s practices that impact consumer privacy and patents. Last spring, the FTC settled with Google over privacy concerns arising from the company’s roll-out of its social network, Buzz. The settlement was the first time that the FTC required a company to implement a comprehensive privacy program to protect consumers’ information, and the first time the agency has alleged violations of the privacy requirements of the U.S.-EU Safe Harbor Framework. As part of the settlement, Google agreed to implement privacy safeguards, and submit an independent privacy audit every two years for the next 20 years. In August, Google was required to pay a $22.5 million civil penalty for allegedly misrepresenting how it tracked user Internet activity of Apple Inc.’s Safari browser, which was purportedly in direct violation of the 2011 settlement agreement with the FTC. The penalty was the record largest that the FTC has ever obtained for violation of a commission order. The FTC is also separately investigating Google’s management of patents related to smartphones to determine whether the patents were licensed fairly, and whether patent infringement lawsuits were used to hamper innovation.
FTC’s Investigation Met with Approval, Acrimony
The FTC’s mounting investigation of Google’s business practices has drawn both spirited urging for the agency to do more, and equally vocal criticism to leave Google alone. Such commentary has come from members of Congress and the private sector alike. The chief criticism is that allegedly no consumers are harmed by Google’s Internet search business practices because consumers who are unhappy with the results Google provides can immediately switch to another search engine like Bing or Yahoo at no cost. Some would argue that the search market remains a highly competitive industry with low entry barriers for competition within which Google is just the smarter guy on the block for now.
Earlier this year, approximately 100 economists expressed discontentment with the government’s scrutiny of Google in an open letter — the main argument being that consumer access to Google’s competitors was only “one click away for online users.” Likewise, U.S. Representative Jared Polis, D-Colo., commended Google’s contribution to the nation’s economy, and admonished the FTC’s seeming obsessive investigations in an open letter to FTC Chairman Jon Leibowitz earlier last month. Republican Joshua Wright, the latest nomination to the FTC, and a highly respected economist and law professor at George Mason University, has also criticized a potential case against Google, stating that a case against Google could “chill the innovation and competition currently providing immense benefits to consumers.”
In contrast, earlier this year, U.S. Senators Herb Kohl, D-Wis., and Mike Lee, R-Utah, urged the FTC to accelerate its probe of Google’s business practices to ensure the most competitive Internet search market following the European Union’s recent antitrust settlement discussions with Google. Similarly, last December, 18 members of the Senate Judiciary Committee pressed for even more investigation into Google’s business practices. These and other critics argue that Google uses its dominance in the Internet search market to foreclose specialized rival search engines and advertisers.
FTC Decision Whether to Sue Google Drawing Nigh
Reportedly, the FTC is on the eve of concluding its antitrust investigation into Google business practices. Leibowitz has remarked that a final decision of whether to initiate legal action against Google will be made sometime before the end of this year. The agency is currently fine-tuning a staff recommendation memorandum that is reportedly more than 100 pages. A staff recommendation of antitrust violations, however, will not automatically result in FTC litigation against Google — a vote in favor of prosecution from three of the five FTC commissioners is still required.
Election results could
impact FTC’s next move
The FTC’s decision on how to proceed with its Google antitrust investigations could be greatly impacted by the outcome of the presidential election. President Obama vowed to deliver tougher antitrust enforcement when he took office four years ago by breaking what he referred to as the “weakest record of antitrust enforcement of any administration in the last half century.” Some experts say that he has lived up to that promise, with expectedly more to come if re-elected. If a case is brought against Google by the FTC, it would fuel the perception that antitrust enforcement has experienced a renaissance of sorts under the Obama administration, as evidenced by the Justice Department’s recent lawsuits against several book publishers and Apple over alleged collusion of e-book pricing, as well as challenges to the once-proposed merger of AT&T and T-Mobile — a deal that was eventually withdrawn.
At the other end of the spectrum, GOP presidential candidate Mitt Romney has yet to comment on his specific antitrust agenda. It could be argued that given his “pro-business” platform, Romney has signaled on one hand that he is more inclined to let competitors duke it out in the marketplace instead of the government regulating activity. On the other hand, he stated in one of the presidential debates that the Republican Party should protect small businesses and not big corporations, to get the economy going. So it is really unclear whether he would seek to curtail current FTC and DOJ antitrust enforcement efforts. Indeed, Robert Bork, chairman of Romney’s Justice Advisory Committee and a Google legal adviser, recently criticized the FTC’s ongoing investigation into whether Google unfairly ranks search results to favor its own businesses in an op-ed article published in the Chicago Tribune. These contrasting approaches to antitrust enforcement across political party lines suggests just how much the FTC could change its focus concerning Google based on who sits in the Oval Office. Particularly since Romney would likely select a new chairperson of the FTC if elected, as Democrat Leibowitz is an Obama appointee.
Irrespective of which presidential candidate is sworn into office in January, the possibility of actual FTC litigation against Google continues to hang in the balance as arguably the most far-reaching antitrust investigation of a corporation since the Department of Justice’s case against Microsoft initiated by the Bush administration in the late 1990s. Ultimately, however, actual hard proof of allegations that Google has thwarted competition in its search and advertising business by altering the way it ranks search results and determines search-related advertising rates remains to be seen. So does the FTC’s decision on how to proceed based on the interests of consumers not the shifting political sands. Stay tuned. •
Carl W. Hittinger is the chairman of DLA Piper’s litigation group in Philadelphia, where he concentrates his practice in complex commercial trial and appellate litigation with a particular emphasis on antitrust and unfair competition matters. He can be reached at 215-656-2449 or email@example.com. Monique Myatt Galloway is an associate in the firm’s Philadelphia office, where she concentrates her practice on complex commercial litigation, mass tort, and products liability claims. She can be reached at 215-656-2404 or firstname.lastname@example.org. Galloway Hittinger
Carl W. Hittinger is the chairman of DLA Piper’s litigation group in Philadelphia, where he concentrates his practice in complex commercial trial and appellate litigation with a particular emphasis on antitrust and unfair competition matters. He can be reached at 215-656-2449 or email@example.com.
Monique Myatt Galloway is an associate in the firm’s Philadelphia office, where she concentrates her practice on complex commercial litigation, mass tort, and products liability claims. She can be reached at 215-656-2404 or firstname.lastname@example.org.