When the Federal Trade Commission launched its investigation of Google Inc. 19 months ago, antitrust lawyers predicted it would be the next Microsoft–a landmark competition case pitting the federal government against a technology behemoth.
Instead, the FTC on January 3 closed its inquiry, requiring Google to license patents that are essential to the interoperability of electronic devices but securing minimal agreements on what many viewed as the heart of the case: Google’s dominance in the search market. Google was represented on search matters before the FTC by a team from Wilson, Sonsini, Goodrich & Rosati, including partner Susan Creighton (an FTC alum) and Scott Andrew Sher.
FTC Chairman Jon Leibowitz at a press conference defended the settlement, calling it “good for consumers, it is good for competition, it is good for innovation, it is the right thing to do.” Still, he sounded almost wistful when he added, “Anyone in charge of an antitrust agency would like to bring the big case. But more important than that is faithfully executing the law.”
FTC Commissioner J. Thomas Rosch was blunt in his assessment. “After promising an elephant more than a year ago, the Commission instead has brought forth a couple of mice,” he wrote in a statement concurring and dissenting in part.
According to Leibowitz, the proof of wrongdoing just wasn’t there. “While not everything Google did was beneficial, on balance we do not believe that the evidence supported a FTC challenge,” he said.
The news disappointed Google’s rivals, which had intensely pressed the FTC to take action. Fairsearch.org, a coalition of online travel sites and companies including Microsoft Corp. and Oracle, in a statement called the FTC’s decision to settle the case “disappointing and premature” and said the agency’s “inaction…will only embolden Google to act more aggressively to misuse its monopoly power to harm other innovators.”
The group had recently urged the FTC to hold off on its decision until the European Commission resolved its antitrust case against Google, which may happen later this month.
Leibowitz however was not persuaded. “We apply our own law,” he said. “We had the evidence we needed. It’s time for everyone to move on here.”
The most significant aspect of the FTC settlement concerns the patents that Google acquired when it bought Motorola Mobility last spring. Motorola owned key, standards-essential patents used by devices such as iPhones, Android phones and Xboxes to communicate with each other.
According to the FTC, Motorola initially promised but then refused to license the patents to competitors on fair and reasonable terms, a practice that Google continued after the acquisition. “Google’s unfair conduct threatened to block consumers access to critical electronic devices,” Leibowitz said. “Today’s landmark enforcement effort will become what we hope will be a template for resolution of [standard essential patent] licensing disputes across many industries.”
The settlement strictly limits Google’s ability to seek an injunction in federal court or at the International Trade Commission barring a rival from licensing a standard essential patent, and requires Google to attempt to resolve such disputes before a neutral third party.
“This agreement establishes clear rules of the road for standards essential patents going forward,” wrote David Drummond, Google’s chief legal officer in a blog. Google was represented on the patent issues by John Harkrider and Russell Steinthal of Axinn, Veltrop & Harkrider.
To FTC Commissioner Maureen Ohlhausen, however, the settlement terms are anything but clear.
“I fear the legacy of our actions in this area will be greater uncertainty for patent holders about their contractual obligations, intellectual property protections, and Constitutional rights,” she wrote in a dissenting statement.
“In this matter, we are essentially treating sophisticated technology companies, rather than end-users, as ‘consumers’ under our consumer protection authority,” she wrote. “Departing from this approach makes the FTC into a general overseer of all business disputes simply on the conjecture that a dispute between two large businesses may affect consumer prices, which is a great expansion of our role and is far afield from our mission of protecting consumers.”
The other major area of FTC inquiry concerned Google’s dominance in the search market, and allegations that the company biased its search results to disadvantage competitors. The FTC took no action in this area.
“Although some evidence suggested that Google was trying to eliminate competition, Google’s primary reason for changing the look and feel of its search results to highlight its own products was to improve the user experience,” Leibowitz said.
However, the FTC did secure voluntary commitments from Google to stop “scraping” the content of rivals for use in its own specialized search results. Also, Google agreed to drop contractual restrictions that made it difficult for small businesses to manage their online campaigns across competing advertising platforms.
The agreement came in the form of a voluntary commitment letter rather than a consent decree because, as Leibowitz explained, “We didn’t have a complaint, so there’s no basis for a traditional order.” Still, he said the commitment was binding—and if Google “changes its practice and crosses the line, we can always come back.”
But the voluntary nature of the settlement didn’t sit well with Commissioner Rosch. While he disputed that either scraping or the advertising management issue even constituted antitrust violations, he also noted that “without a consent decree, the practices could be revived at any time without penalty, even if they constituted a law violation.”
He continued, “Our ‘settlement’ with Google creates very bad precedent and may lead to the impression that well-heeled firms such as Google will receive special treatment at the Commission.”
“The Commission’s acceptance of a commitment letter to resolve an alleged violation of the antitrust laws is an unjustified and dangerous weakening of the Commission’s law enforcement authority,” he wrote. “Going forward, parties under investigation are likely to demand similar treatment. Failure to do so would imply that Google has received preferential treatment in this investigation.”