Tech Law Journal Daily E-Mail Alert
June 30, 2011, Alert No. 2,252.
Home Page | Calendar | Subscribe | Back Issues | Reference
FTC Investigates Google

6/24. Google announced in a release that the Federal Trade Commission (FTC) notified Google that it "has begun a review of our business". Google did not release a copy of the FTC's notice, or other FTC documents.

Google stated that "It’s still unclear exactly what the FTC's concerns are". However, Google defended its business practices, and asserted that "we know they'll stand up to scrutiny".

The FTC may take no action. If it were to take action against Google, it is not now clear what business practices it would address, what economic arguments it would advance, what remedies it would seek, or under which statute(s) it would proceed.

Geoffrey Manne and Joshua Wright of the Tech Freedom stated in a release that "We are also troubled by statements by FTC Commissioners suggesting that the agency intends to pursue this case as a so-called ``Section 5´´ case rather than the more traditional ``Section 2´´ case. Commissioner Rosch has claimed that a Section 5 ``unfair competition´´ claim could address conduct that has the effect of "reducing consumer choice´´ -- even absent evidence that the conduct actually reduces consumer welfare."

Section 5 is a reference to Section 5 of the FTC Act, which is codified at 15 U.S.C. § 45. It is essentially an anti-fraud provision -- not an antitrust provision. Section 2 is a reference to Section 2 of the Sherman Act, which is codified at 15 U.S.C. § 2. It is an antitrust provision.

While the FTC gave notice that it might use Section 5 as an antitrust tool by asserting it in its settlement with Intel last year, Section 5 has otherwise only been used rarely and long ago for antitrust purposes.

For a detailed discussion of these sections, why the FTC may assert Section 5, how it was applied in the Intel matter, and why it may be considered an abuse of authority by the FTC, see stories titled "FTC and Intel Settle Antitrust Claims", "Reaction to the FTC Intel Settlement", and "Commentary on Antitrust Processes" in TLJ Daily E-Mail Alert No. 2,018, August 4, 2010, and stories titled "FTC Files Antitrust Charges Against Intel by Administrative Complaint Under FTC Act" and "Commentary: FTC Antitrust Procedure" in TLJ Daily E-Mail Alert No. 2,204, December 17, 2009.

Tech Sector Reaction. Tom Lenard, head of the Technology Policy Institute (TPI), and an economist, wrote a short piece for the TPI web site on June 29, 2011, in which he stated that "In theory, the antitrust laws do not penalize size, but it seems that virtually every firm that has become dominant in the technology sector -- IBM, Microsoft, Intel, and now Google -- ultimately becomes the subject of a major antitrust action."

He also stated that Google attained its current position by developing a search algorithm that consumers find useful, and that "there is no publicly available evidence that Google has violated the antitrust laws".

Ryan Radia of the Competitive Enterprise Institute (CEI) stated in a release that "Few modern markets are as vibrant and innovative as Internet search. Google and its rivals are engaged in fierce competition that has benefited consumers tremendously. Yet this FTC appears hell-bent on beating up on big, successful businesses, including Intel, Apple, and now Google. This investigation may be welcome news to Google's rivals, but it's bad news for consumers."

He added that "The FTC's investigation reeks of a desperate attempt to make headlines".

Ed Black, head of the Computer and Communications Industry Association (CCIA), stated in a release that "Big doesn’t automatically equate with bad. So far, it appears that Google is big enough to change the game for dominant players. But being big and disruptive is different from be being dominant and abusive."

Black also said that "increasingly, we’re seeing antitrust charges manufactured and wielded as a cudgel by companies hoping to find any way to hurt successful competitors. Their motives have less to do with the public interest than with a drive to protect their own entrenched business models, bloated margins and legacy revenue streams."

Gary Shapiro, head of the Consumer Electronics Association (CEA), stated in a release that the FTC "is obligated to ensure compliance with antitrust laws. However, the Commission must understand that our industry is characterized by disruptive innovation and constant change. Seemingly dominant market positions quickly erode as consumer preferences change and new competitors emerge. That is why, in the technology industry, competition regulation must occur with a very light hand."

Shapiro continued that "The fact that any given company is big or successful does not inherently make it bad. The real issue the FTC must address is consumer harm. In Google's case, it provides free services that tens of millions of Americans enjoy. Its search and advertising tools generated billions in revenue for small and large businesses. And if a user does not like Google’s services, there are no switching or lock-in costs -- a search engine competitor is just a mouse click away."

"Our international economic competitors promote and protect their crown-jewel companies", said Shapiro, without referencing any specific companies, such as Baidu, which is benefiting from the People's Republic of China's censorship efforts directed at Google. See, story titled "Commentary: Internet Censorship as Protectionism" in TLJ Daily E-Mail Alert No. 2,234, May 6, 2011.

"Unfortunately, in America it seems that our most successful and innovative firms attract the most intrusive regulatory scrutiny. These expensive, drawn-out investigations deter innovation, siphon money from productive uses, and place additional burdens on those trying to grow our economy. We urge the FTC to conduct its investigation narrowly and swiftly, and let Google get back to the critical business of innovation and job creation."

Incentives for Ad Supported Search Providers. Sergey Brin and Lawrence Page wrote a paper in 1998 titled "The Anatomy of a Large-Scale Hypertextual Web Search Engine" when they were graduate students at Stanford University.

They wrote then that "the predominant business model for commercial search engines is advertising. The goals of the advertising business model do not always correspond to providing quality search to users."

"For example, in our prototype search engine one of the top results for cellular phone is ``The Effect of Cellular Phone Use Upon Driver Attention´´, a study which explains in great detail the distractions and risk associated with conversing on a cell phone while driving."

"It is clear that a search engine which was taking money for showing cellular phone ads would have difficulty justifying the page that our system returned to its paying advertisers." Therefore, they concluded, "advertising funded search engines will be inherently biased towards the advertisers and away from the needs of the consumers".

Consumer Watchdog Asks Obama to Distance Himself from Google

6/23. Jamie Court and John Simpson, of the Consumer Watchdog, sent a letter to Kathryn Ruemmler, President Obama's White House Counsel, regarding "the Administration’s inappropriate relationship with Google". They request a "formal opinion" from her.

The Consumer Watchdog is a California based interest group that is, among other things, a frequent critic of the business practices and lobbying activities of Google.

The letter states that "Google is understood to be the target of an antitrust investigation by the Federal Trade Commission". In addition, "Google is under criminal investigation into allegations that it profited from selling online ads to illegal pharmacies. These illicit pharmacies may violate U.S. law by peddling expired or counterfeit prescription medication, or selling medicine without a physician's prescription".

Yet, "Eric Schmidt, Google's executive chairman, and Marissa Mayer, a Google vice president, were both guests at the recent State Dinner".

The two wrote that "We understand that President Obama has had a warm relationship with Eric Schmidt. He advised the campaign, was on the transition team and serves on the President’s Council of Advisors on Science and Technology. Nonetheless, given the current circumstances, the President and top Administration officials must distance themselves from Google until the serious allegations against the company are resolved."

They concluded, "We ask you to render a formal opinion that the President and other top Administration officials must step back and assume a neutral position so the various investigations into Google’s activities can be concluded in a fair and professional manner."

FTC Releases Guidance on Requesting Advisory Opinions on Competition Issues

6/23. The Federal Trade Commission's (FTC) Bureau of Competition (BOC) released a document [10 pages in PDF] that provides information on requesting an advisory opinion involving a competition issue. It is titled "Guidance From the Bureau of Competition on Requesting and Obtaining an Advisory Opinion".

The FTC's rules, at 16 CFR §§ 1.1-1.4, address advisory opinions generally.

The just released document states that there are "Commission advisory opinions" and "advisory opinions provided by the Commission staff", but that most "are issued by FTC staff ... even if a Commission opinion is requested".

Also, "Not all requests for an advisory opinion will be considered by the Commission or its staff."

"Advisory opinions are limited to proposed conduct, and will not be issued regarding ongoing conduct", conduct that has already begun, or hypothetical conduct. And, "the requesting party must intend to engage in the proposed conduct".

It states that a request for a Commission advisory opinion "will be considered if (1) the matter involves a substantial or novel question of fact or law and there is no clear Commission or court precedent, or (2) the subject matter of the request and consequent publication of Commission advice is of significant public interest".

This document continues that "a request for an advisory opinion will ordinarily be considered inappropriate where (1) the same or substantially the same course of action is under investigation; (2) the same or essentially the same course of action is or has been the subject of a current proceeding involving the Commission or another governmental agency; or (3) an informed opinion cannot be made, or could be made only after extensive investigation, clinical study, testing, or collateral inquiry."

Hence, as a practical matter, requests for advisory opinions are "best suited to situations where the important market facts are fairly clear and the legality of the conduct at issue is unlikely to turn on an analysis of market power".

And, a request regarding a "proposed merger or acquisition is unlikely to be appropriate".

As an alternative to a formal request, "Parties also may obtain less formal advice regarding a proposed course of action by contacting FTC staff to discuss issues relating to proposed conduct", "either in person or by telephone".

This document also addresses how to request an advisory opinion, what material to submit, requests for confidential treatment, withdrawals of requests for advisory opinions (which may be denied), deemed withdrawals, FTC requests for further information, duration of the process, and notice and issuance of advisory opinions.

Finally, this document addresses the effect of advisory opinions. It states that "Advisory opinions (like Department of Justice business review letters) normally do not directly opine on the legality of the proposed conduct. Instead, a Commission advisory opinion typically will set forth the Commission's enforcement intentions regarding the proposed conduct. Similarly, an FTC staff advisory opinion will typically state whether the FTC staff would recommend that the Commission initiate law enforcement action to address the proposed conduct, if it were to be undertaken."

Also, "because advisory opinions are based on the information provided by the applicant, they will be expressly conditioned on the accuracy and truthfulness of the representations made by the applicant".

Moreover, "The Commission issues an advisory opinion without prejudice to its right to reconsider the questions involved and, where the public interest requires, to rescind or revoke the opinion."

In This Issue
This issue contains the following items:
 • FTC Investigates Google
 • Consumer Watchdog Asks Obama to Distance Himself from Google
 • FTC Releases Guidance on Requesting Advisory Opinions on Competition Issues
 • Oldale Named Deputy Director of FTC's Bureau of Economics
 • More People and Appointments
Washington Tech Calendar
New items are highlighted in red.
Friday, July 1

The Senate will meet at 11:00 AM in pro forma session only.

Deadline to submit comments to the National Institute of Standards and Technology's (NIST) Computer Security Division (CSD) regarding its draft SP 800-57 Part 1 Revision 3 [143 pages in PDF] titled "Recommendation for Key Management: Part 1: General".

Monday, July 4

Independence Day.

This is a federal holiday. See, OPM list of 2011 federal holidays.

The House will not meet.

The Senate will not meet.

The National Press Club will be closed.

Tuesday, July 5

The House will not meet.

The Senate will meet at 2:00 PM.

EXTENDED TO AUGUST 4. Deadline to submit reply comments to the Federal Communications Commission (FCC) in response to its Notice of Inquiry (NOI) [46 pages in PDF] regarding how its rules and policies could be modified to provide greater economic, market entry, communication adoption opportunities, and incentives for Native Nations. This notice is FCC 11-30 in CG Docket No. 11-41. The FCC adopted it on March 3, 2011, and released the text on March 4, 2011. See, notice in the Federal Register, April 5, 2011, Vol. 76, No. 65, at Pages 18759-18761. See also, extension notice (DA 11-873).

Wednesday, July 6

8:00 AM - 3:00 PM. The National Science Foundation's (NSF) National Science Board will hold a closed meeting to discuss the NSF FY 2013 budget. See, notice in the Federal Register, Vol. 76, No. 123, Monday, June 27, 2011, at Page 37380.

10:00 AM - 12:00 NOON. The Heritage Foundation (HF) will host an event titled "Supreme Court's 2010 - 2011 Term". The speakers will include Neal Katyal (Principal Deputy Solicitor General). See, notice. Location: HF, 214 Massachusetts Ave., NE.

2:00 PM. The House Commerce Committee's (HCC) Subcommittee on Oversight and Investigations will hold a hearing titled "Federal Government Spectrum Use". See, notice. Location: Room 2123, Rayburn Building.

Thursday, July 7

10:30 AM. The House Commerce Committee's (HCC) Subcommittee on Oversight and Investigations will hold a hearing titled "The Views of the Independent Agencies on Regulatory Reform". See, notice. Location: Room 2322, Rayburn Building.

Deadline to submit initial comments to the Federal Communications Commission (FCC) in response to its 4th Further Notice of Proposed Rulemaking (NPRM) [16 pages in PDF] regarding out of band emission limits for mobile Broadband Radio Service (BRS) and Educational Broadband Service (EBS) devices operating in the 2496-2690 MHz band. This item is FCC 11-81 in WT Docket No. 03-66 and RM-11614. The FCC adopted this FNPRM on May 24, 2011, and released the text on May 27, 2011. See, notice in the Federal Register, Vol. 76, No. 109, Tuesday, June 7, 2011, at Pages 32901-32906.

Friday, July 8

10:00 AM. The House Homeland Security Committee's (HHSC) Subcommittee on Emergency Preparedness, Response and Communications will hold a hearing titled "Communicating With the Public During Emergencies: An Update on Federal Alert and Warning Efforts". See, notice. Location: Room 311, Cannon Building.

Deadline to submit reply comments to the Federal Communications Commission (FCC) in response to its Further Notice of Inquiry (FNOI) requesting information to assist it in preparing its annual reports to the Congress on the status of competition in markets for the delivery of video programming. 47 U.S.C. § 548(g) mandates that these reports be prepared annually. However, the FCC does not comply with this statute. See, notice in the Federal Register, May 4, 2011, Vol. 76, No. 86, at Pages 25345-25352. This FNOI is FCC 11-65 in MB Docket No. 07-269.

Deadline to submit comments to the Federal Communications Commission (FCC) in connection with its June 28, 2011, event titled "Helping Consumers Harness the Potential of Location-Based Services". This proceeding is WT Docket No. 11-84. See, FCC notice.

EXTENDED TO AUGUST 5. Deadline to submit comments to the Federal Trade Commission (FTC) in connection with June 21 event titled "Patent Standards Workshop". See, notice in the Federal Register, Vol. 76, No. 93, Friday, May 13, 2011, at Pages 28036-28038, and FTC release of May 9, 2011. See also, story titled "FTC to Hold Workshop on Standard Setting and Patents" in TLJ Daily E-Mail Alert No. 2,242, May 16, 2011. See, FTC's June 29, 2011, extension notice.

Oldale Named Deputy Director of FTC's Bureau of Economics

6/22. Alison Oldale was named Deputy Director for Antitrust in the Federal Trade Commission's (FTC) Bureau of Economics (BOE). See, FTC release.

Alison OldaleOldale (at right) will replace Howard Shelanski, who left the FTC to be a professor at Georgetown University's law school. Joseph Farrell remains the Director of the FTC's BOE. Tim Deyak is the acting Deputy Director.

Oldale has briefly worked as the Chief Economist for the United Kingdom's (UK) Competition Commission. Before that she worked for LECG, a consulting firm that was recently dissolved.

She has degrees from Cambridge University and the London School of Economics. The FTC stated that she will begin "in mid-July".

More People and Appointments

6/30. The Senate had been scheduled to go on recess next week. Senate Republicans urged the Senate to stay in session and address the federal budget. Senate leaders agreed to meet in pro forma session on Friday, July 1, take off Monday, July 4 (Independence Day), and return for legislative business on Tuesday, July 5. Whether the Senate nominally stays in session and holds only pro forma sessions, as in did around Memorial Day, or remains in session for legislative business, a consequence of not recessing is that President Obama is again denied the opportunity to make recess appointments of executive branch officials and judges.

6/30. The Public Knowledge (PK) hired Clarissa Ramon as Outreach and Government Affairs Associate, and Martyn Griffenis as Government Affairs Associate. Ramon previously worked by Rep. Charles Gonzalez (D-TX) and for the Congressional Hispanic Caucus. She started on June 27, 2011. Griffenis previously worked for former Rep. Vic Snyder (D-AR). He will start on July 5, 2011.

About Tech Law Journal

Tech Law Journal publishes a free access web site and a subscription e-mail alert. The basic rate for a subscription to the TLJ Daily E-Mail Alert is $250 per year for a single recipient. There are discounts for subscribers with multiple recipients.

Free one month trial subscriptions are available. Also, free subscriptions are available for federal elected officials, and employees of the Congress, courts, and executive branch. The TLJ web site is free access. However, copies of the TLJ Daily E-Mail Alert are not published in the web site until two months after writing.

For information about subscriptions, see subscription information page.

Tech Law Journal now accepts credit card payments. See, TLJ credit card payments page.

Solution Graphics

TLJ is published by David Carney
Contact: 202-364-8882.
carney at techlawjournal dot com
3034 Newark St. NW, Washington DC, 20008.

Privacy Policy
Notices & Disclaimers
Copyright 1998-2011 David Carney. All rights reserved.