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In Victory for Google, U.S. Ends Antitrust Investigation
A Victory for Google as F.T.C. Takes No Formal Steps
(about 3 hours later)
WASHINGTON — The Federal Trade Commission on Thursday handed Google a major victory by declaring that the company had not violated antitrust or anticompetition statutes in the way it arranges its Web search results.
WASHINGTON — The Federal Trade Commission on Thursday handed Google a major victory by declaring, after an investigation of nearly two years, that the company had not violated antitrust or anticompetition statutes in the way it arranges its Web search results.
The unanimous decision by the five-member commission guarantees that consumers will continue to be steered toward Google’s own related services when they search for something that they want to buy, like airline tickets or appliances. It also validates Google’s position as the leading search engine on the planet. Google accounts for more than 70 percent of consumer searches in the United States and an even bigger share in some overseas markets.
By allowing Google to continue to present search results that highlight its own services, the F.T.C. decision could enable Google to further strengthen its already dominant position on the Internet.
Google agreed to make some minor changes to its search practices related to search advertising. The F.T.C. said those commitments were enforceable if the company violated them, but the agreement avoids a formal consent decree or litigation, weapons that the F.T.C. had available.
It also enables Google to avoid a costly and lengthy legal war of attrition like the antitrust battle that Microsoft waged in the 1990s. That fight took an enormous toll on Microsoft and opened the door for competitors like Google to become the technology sector’s new leaders. Now, a weakened Microsoft was among those most vocal in complaining that Google was unfairly abusing a monopolistic position to thwart its rivals.
And in a decision that has a smaller impact on consumers, the commission found that Google had misused its broad patents on cellphone technology and ordered Google to make that technology available to rivals. That order may benefit other phone manufacturers, like Apple and Samsung, that make phones using either Google’s Android operating system or competing systems.
Google, which attracts 70 percent of all search queries in the United States, has used its search business, which generates billions of dollars in profit annually from advertising, to expand into businesses that include maps, restaurant reviews and travel bookings. Competitors worry that the F.T.C.’s decision will allow Google to continue to make inroads at their expense.
But the broadest impact of the F.T.C.’s action is to present more competitive challenges to companies that do specialty searches for things like travel or shopping. Consumers will continue to see what has now become a familiar sight on Google — the presence of search results that link to Google’s other businesses. When a consumer searches for “airfare to Los Angeles,” for example, the most prominently displayed results are generated by Google’s own travel business, rather than by competitors like Expedia, Priceline or Kayak.
The decision sets up a potential conflict with European officials, who are working with Google to resolve similar concerns about the way the company operates its search engine in Europe, where it is even more dominant than in the United States.
Google’s competitors, including Microsoft, have pressed vigorously for federal officials to bring an antitrust case over that practice, saying that Google uses its own business to push results from competitors further down the page — making them less likely to be seen by consumers. The competitors also have charged that Google manipulates the formula that produces the results.
Web search has become vital to the success of many businesses. Being ranked higher in search results can mean a great deal more traffic and revenue; being ranked lower can hurt both. Google has long claimed that it uses a neutral algorithm for search queries, something that competitors disputed.
But the F.T.C., in its decision, said it found that Google’s aim in those practices was to improve its search results for the benefit of users, and that “any negative impact on actual or perceived competitors was incidental to that purpose.”
But Jon Leibowitz, chairman of the F.T.C., said that “While not everything Google did was beneficial, on balance we did not believe that the evidence supported an F.T.C. challenge to this aspect of Google’s business under American law.”
A telling aspect of the F.T.C.’s investigation, said Jon Leibowitz, chairman of the commission, was that Google’s rivals “engaged in many of the same product design choices that Google did, suggesting that this practice benefits consumers.”
The five-member commission voted unanimously to close its investigation without bringing charges, although some staff members argued vigorously that Google should face sanctions for using online search results to draw consumer traffic to its own services. The F.T.C. said it had found that Google’s practices improved its search results for the benefit of users and that “any negative impact on actual or perceived competitors was incidental to that purpose.”
“While not everything Google did was beneficial,” he said, “on balance we did not believe that the evidence supported a F.T.C. challenge to this aspect of Google’s business under American law.”
Google did agree to make some minor changes to its search practices related to search advertising. The F.T.C. said those commitments were enforceable if the company violated them, but the agreement avoided a formal consent decree or litigation, weapons that the F.T.C. had available.
Google agreed to address what Mr. Leibowitz called “the most troubling of its business practices related to search and search advertising.” The company agreed to stop taking content of its rivals, particularly online reviews of things like restaurants or consumer products, for use in its own specialized search results. For example, Yelp, the consumer review site, complained that Google took parts of its reviews and placed them in its own results. When competitors objected, Google threatened to remove them entirely from its search results, something Mr. Leibowitz said “is clearly problematic and potentially harmful to competition because it might harm incentives to innovate.”
One F.T.C. commissioner, J. Thomas Rosch, said in a partial dissent that the commission would not be able to hold Google to its promises in any meaningful way, as it might do through a contempt proceeding or a fine.
Competitors said the war was not over. Fairsearch.org, a group of Google rivals including Microsoft, said Thursday’s action left the F.T.C. “without a major role in the final resolution to the investigations of Google’s anticompetitive practices by state attorneys general and the European Commission. The F.T.C.’s inaction on the core question of search bias will only embolden Google to act more aggressively to misuse its monopoly power to harm other innovators.”
In a less-watched part of the investigation, which will have a less direct impact on consumers, the commission found that Google had misused its broad patents on cellphone technology, and it ordered Google to make that technology available to rivals. That order may benefit phone manufacturers that use either Google’s Android operating system or competing systems. Some F.T.C. officials said that in the long run, the sanctions could be a bigger victory for consumers, encouraging the development of more innovative devices.
But the broadest impact of the F.T.C.’s action is to present more competitive challenges to companies that do specialty searches, for things like travel or shopping. Consumers will continue to see what has now become familiar on Google — the presence of results that link to Google’s other businesses. When a consumer searches for “airfare to Los Angeles,” for example, the most prominent results are generated by Google’s own travel business, rather than by the likes of Expedia, Priceline or Kayak.
On the company’s Web site, David Drummond, a senior vice president at Google and its chief legal officer, wrote, “The conclusion is clear: Google’s services are good for users and good for competition.”
Mr. Leibowitz, the F.T.C. chairman, called Google’s lifting of content from other Web sites “the most troubling of its business practices related to search and search advertising.” The company agreed to stop taking its rivals’ content, particularly reviews of things like restaurants or consumer products, for use in its own specialized search results.
Yelp, a consumer review site, complained that Google took parts of its reviews and placed them in its own results. When competitors objected, Google threatened to remove them entirely from results, something Mr. Leibowitz said “is clearly problematic and potentially harmful to competition because it might harm incentives to innovate.”
Google also agreed to stop contractual restrictions that prevented small businesses from advertising on competing search platforms.
Google also agreed to stop contractual restrictions that prevented small businesses from advertising on competing search platforms.
In the patent decisions, the commission voted 4-1 to order Google to stop seeking to exclude competitors from using essential patents that Google purchased recently from Motorola. Google had promised, but then refused, to license those patents on “fair and reasonable terms.”
Last year, some F.T.C. staff members pushed hard in reports to the commission that the company’s actions constituted “unfair methods of competition,” an area that, like that of antitrust, is policed by the F.T.C. But the trade commission faced a struggle in proving malicious intent — that Google changes its search algorithm to purposely harm competitors and favor itself.
The patents involved are what are referred to as “standard essential patents,” involving processes or designs that are critical to electronic devices like laptops, tablet computers, smartphones and gaming systems. Google agreed not to pursue injunctions against competitors for patent infringement for those items.
Antitrust lawyers say anticompetitive behavior cannot be proved simply by showing that a change in the algorithm affects other Web sites and causes sites to show up lower in results, even though studies have shown that users rarely look beyond the first page of search results.
The trade commission’s inquiry has been going on for at least a year and a half. Google disclosed in June 2011 that it had received formal notification from the commission that it was looking into Google’s business practices. Last year, some F.T.C. staff members pushed hard in reports to the commission that the company’s actions constituted “unfair methods of competition,” an area that, like that of antitrust, is policed by the F.T.C.
Google’s troubles with government regulators are not over yet, however. The decision sets up a potential conflict with European officials, who are working with Google to resolve similar concerns with the way the company operates its search engine in Europe, where it is even more dominant than in the United States.
Last month, the E.U. competition commissioner, Joaquín Almunia, granted Google more time to come up with changes to ease the concerns.
Google has long defended its search business, saying that it offers results that are most relevant to consumers and that the “competition is just a click away.” It contends that users who believe a Google search is not meeting their needs can easily move to another search engine, like Microsoft’s Bing.
Google has also said that the barriers to entry into the search business are so low that it cannot abuse its market power, even though it has more than a 70 percent share of the search business in the United States.
On the company’s Web site, David Drummond, a senior vice president at Google and its chief legal officer, wrote, “The conclusion is clear: Google’s services are good for users and good for competition.” He added: “As we made clear when the F.T.C. started its investigation, we’ve always been open to improvements that would create a better experience.”
Mr. Drummond said Google was making two voluntary product changes, allowing companies to remove content like user reviews from specialized search pages, like travel and shopping, and letting advertisers use data regarding its advertising campaigns on Google in advertising on other sites.
The trade commission faced an uphill battle in proving malicious intent — that Google changes its search algorithm to purposely harm competitors and favor itself. Antitrust lawyers say anticompetitive behavior cannot be proved simply by showing that a change in the algorithm affects other Web sites and causes sites to show up lower in results, even though studies have shown that users rarely look beyond the first page of search results.
The commission was pressing to wrap up its case before Monday, when a new commissioner will be sworn in, a development that could have affected the result of the Google investigation. Joshua D. Wright, a professor at George Mason University, was confirmed by the Senate this week to take one of the two Republican spots on the five-member commission. Mr. Wright had previously said he would recuse himself from any Google matters for two years, because he has done work for or about the company including as co-author of a paper arguing that Google had not violated any antitrust statutes.
Mr. Wright will succeed J. Thomas Rosch, a commissioner since 2006. If the Google case were not settled by Monday, the commission faced the prospect that a vote on whether to charge Google could deadlock at 2-2.
The trade commission’s investigation has attracted both supporters and detractors on Capitol Hill, but in recent weeks, more lawmakers began to weigh in, some questioning the commission’s motives and criticizing it for leaks that have allowed the negotiations to play out, in part, in the news media.
“The F.T.C.’s credibility is eroded when confidential details of internal discussions are revealed to the media, as has continually been the case in the investigation of Google,” Senator Ron Wyden, Democrat of Oregon, said in a Nov. 26 letter to Mr. Leibowitz, the commission’s chairman. Mr. Wyden also said there was plenty of evidence that adequate competition existed in the search business. He cited the recent introduction of competitors like DuckDuckGo, which has a no-tracking privacy policy inspired by some consumers’ complaints about the tracking of consumer behavior that Google and other search engines perform.
“Compared to almost any other market in the history of antitrust regulation, online search has effectively zero barriers to entry,” Mr. Wyden said.
