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FTC Concludes Its Investigation of Google

January 3, 2013. The Federal Trade Commission (FTC) filed and simultaneously settled an administrative complaint against Google regarding its abuse of standards essential patents (SEPs) for which it was bound by FRAND commitments. Google admitted neither wrongdoing, nor relevant factual allegations. An accompanying order imposes some limitations on its ability to abuse these SEPs.

Second, the FTC announced in a statement [4 pages in PDF] that it will take no action against Google with respect to search bias.

FTC Chairman Jonathan Leibowitz said in a statement that "There are two aspects to the settlement we announce today. The first involves Google’s misuse of patent protection to prevent competition. We stop that abuse. The second concerns allegations that Google unfairly biases its search results to harm competition. We close that investigation, finding that the evidence does not support a claim that Google’s prominent display of its own content on its general search page was undertaken without legitimate justification. But we do accept Google’s binding commitment to stop the most problematic business practices relating to its search and search advertising business."

Google's David Drummond stated in a release that "The conclusion is clear: Google's services are good for users and good for competition."

Microsoft's Dave Heiner stated in a release that "The FTC's overall resolution of this matter is weak and --frankly -- unusual. We are concerned that the FTC may not have obtained adequate relief even on the few subjects that Google has agreed to address."

Patent Abuse. The SEP complaint [6 pages in PDF] alleges that Google "engaged in unfair methods of competition and unfair acts or practices by breaching its commitments to standard-setting organizations (``SSOs´´) to license its standard essential patents (``SEPs´´) on fair, reasonable, and non-discriminatory (``FRAND´´) terms. Google violated its FRAND commitments by seeking to enjoin and exclude willing licensees of its FRAND-encumbered SEPs."

This complaint further alleges that "Google's conduct will harm consumers by either excluding products from the market entirely as a result of an injunction, or by leading to higher prices because manufacturers using Google’s SEPs would be forced, by the threat of an injunction, to pay higher royalty rates which would be passed on to consumers."

Also, "Motorola breached its FRAND obligations by seeking to enjoin and exclude implementers of its SEPs, including some of its competitors, from marketing products compliant with some or all of the Relevant Technology Standards. Google continued Motorola's exclusionary campaign after acquiring Motorola. Google used these threats of exclusion orders and injunctions to enhance its bargaining leverage against willing licensees and demand licensing terms that tended to exceed the FRAND range."

This complaint alleges violation of only Section 5 of the FTC Act, which is codified at 15 U.S.C. § 45. It does not allege violation of the Sherman Act.

Section 5 provides, in relevant part, that "Unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce, are hereby declared unlawful." This has two components. First, there is the clause, "Unfair methods of competition", which sounds like an antitrust provision, but has hardly been so invoked for decades. Also, there is no body of law that gives it meaning. Second, there is the clause, "unfair or deceptive acts", which the FTC has frequently invoked to fight fraud.

Commissioner Thomas Rosch wrote in a separate statement that "I do not agree to invoke a standalone unfair methods of competition claim under Section 5 because it is not clear what the ``limiting principles´´ of such a claim would be."

Commissioner Maureen Ohlhausen wrote in a dissenting statement that "I disagree with my colleagues about whether the alleged conduct violates Section 5 but, more importantly, believe the Commission’s actions fail to provide meaningful limiting principles regarding what is a Section 5 violation in the standard-setting context".

The FTC and Google simultaneously entered into an Agreement Containing Consent Order [4 pages in PDF]. It is a shell document. Google admits no wrongdoing or liability. Google does not admit any of the factual allegations, other than those pertaining to the jurisdiction of the FTC. It imposes no fine or other financial penalty. It merely requires Google to submit periodic reports to the FTC regarding its compliance with the Decision and Order [29 pages in PDF].

This document prohibits Google from revoking or rescinding the relevant FRAND commitments. It also provides that Google shall cease and desist from directly or indirectly making any future claims for injunction relief based upon alleged infringement of a relevant FRAND patent, except as permitted by this document.

Moreover, this document's limitations upon Google's future conduct is long and complex. It limits some abuses of relevant SEPs, but allows other abuses. Google will still be allowed to seek certain exclusion orders and injunctive relief from the U.S. International Trade Commission (USITC) and U.S. District Courts.

Search Bias. The search bias statement concludes that the FTC decided "to close the portion of its investigation relating to allegations that Google unfairly preferences its own content on the Google search results page and selectively demotes its competitors’ content from those results".

This statement notes that complaining entities alleged that Google "unfairly promoted its own vertical properties through changes in its search results page" and "manipulated its search algorithms in order to demote vertical websites that competed against Google’s own vertical properties."

The FTC concluded that "the evidence presented at this time does not support the allegation that Google’s display of its own vertical content at or near the top of its search results page was a product design change undertaken without a legitimate business justification. Rather, we conclude that Google’s display of its own content could plausibly be viewed as an improvement in the overall quality of Google’s search product. Similarly, we have not found sufficient evidence that Google manipulates its search algorithms to unfairly disadvantage vertical websites that compete with Google-owned vertical properties. Although at points in time various vertical websites have experienced demotions, we find that this was a consequence of algorithm changes that also could plausibly be viewed as an improvement in the overall quality of Google’s search results.

The FTC wrote this about applicable law. The FTC may "challenge business practices if it has reason to believe that such practices violate Section 5's prohibition on unfair methods of competition, and create a likelihood of significant injury to competition, including monopolization or attempted monopolization actionable under Section 2 of the Sherman Act. To determine whether Google violated Section 5 with respect to these search bias allegations, the Commission considered whether Google manipulated its search algorithms and search results page in order to impede a competitive threat posed by vertical search engines."

The FTC sent a no action letter to Susan Creighton (Wilson Sonsini), who previously headed the FTC's Bureau of Competition, and now represents Google.

Google sent a letter to the FTC in which it made two sets of commitments, effective for five years. First, Google commits that it will provide "website owners with the option to opt out from display on Google's Covered Webpages of content from their website that has been crawled by Google". Also, Google commits to remove restrictions on the use of its online search advertising platform, AdWords, that may make it more difficult for advertisers to coordinate online advertising campaigns across multiple platforms.

Congressional Reaction. Sen. Patrick Leahy (D-VT) is the Chairman of the Senate Judiciary Committee (SJC) which has jurisdiction over antitrust matters. He stated in a release that "I am pleased that the FTC conducted an important inquiry into whether the Nation’s dominant Internet search company engaged in ‘search bias’ in a manner that constituted a violation of the Federal Trade Commission Act. I am disappointed, however, that it relied on simple, voluntary commitments from Google to end certain practices that a majority of Commissioners found to have raised strong concerns about impeding innovation."

Sen. Leahy added that "I understand that other antitrust authorities are continuing to examine related search practices, and I support the Commission’s decision to continue to monitor Google for conduct that may harm competition and consumers."

He also addressed patent abuse. He wrote that "I remain skeptical that exclusion orders or injunctions are appropriate in any circumstance other than when the infringer is unable or unwilling to pay a reasonable royalty."

Sen. Mike Lee (R-UT), the ranking Republican on the SJC's antitrust subcommittee, praised in a release Google's "commitment to allow advertisers to export ad campaign data to other platforms" and its "promise not to misappropriate content from other websites".

However, he continued that the agreement "does not address all the concerns about anticompetitive conduct raised at our Subcommittee hearing. We will continue to work with antitrust authorities to help ensure robust competition in the Internet search arena so that consumer welfare is maximized."

Rep. Anna Eshoo (D-CA) and Rep. Zoe Lofgren (D-CA), who represent Silicon Valley districts in the House, issued a joint release in which they praised the FTC's action.

Rep. Eshoo stated that "the FTC’s settlement with Google strikes an appropriate balance that protects consumers and preserves innovation ... At a time when the market for smartphones, tablets and other wireless devices continues to flourish, the settlement ensures that competitors will have access to the patents essential to powering these key technologies." Furthermore, "despite a thorough investigation into allegations of search bias, the FTC ultimately decided against taking action that could hinder innovation and consumer choice. I applaud this decision, which recognizes the evolving Internet search market and the exciting innovations that have been the hallmark of the Internet to date".

Rep. Lofgren stated that "I'm pleased the FTC chose to complete its investigation of Google’s search practices with an enforceable agreement to protect consumers without impermissibly expanding the jurisdictional reach of the FTC ... It’s good that the consent agreement between the FTC and Google on patents will help ensure consumers continue to benefit from new and innovative products and services that connect them to the Internet. Providing entrepreneurs and companies with greater access to standard technologies will help keep this key marketplace strong and diverse -- creating jobs and growing our economy".

Praise for the FTC. Ed Black, head of the Computer and Communications Industry Association (CCIA), stated in a release that "The FTC’s decision not to proceed with a search case against Google was the right call. Over the course of its far-reaching 19-month investigation, the FTC thoroughly reviewed the facts and the applicable law and made its decision accordingly. This is exactly how law enforcement is supposed to work. This was a prudent decision by the FTC that shows that antitrust enforcement, in the hands of responsible regulators, is sufficiently adaptable to the realities of the Internet age."

Black said, regarding patents that the "CCIA has long expressed concern with how the patent system operates. A limited set of incentives intended to encourage invention has morphed into a system that too frequently impedes innovation, particularly in high-tech markets. The settlement with Google on standard essential patents attempts to address one of the grey areas of patent policy and we will monitor it closely. Given that SEP issues are minor compared to the major abuse that goes on elsewhere in the patent system, we hope that the FTC does not stop here. The agency’s historical expertise in this area gives it both the resources and the cachet to inject competition concerns into the greater debate around patent reform.”

Tom Lenard, head of the Technology Policy Institute (TPI), stated in a release that "After investigating Google’s search practices for almost two years, the Federal Trade Commission and its staff undoubtedly wanted more than the few voluntary modifications to which Google has agreed. But the Commission demonstrated its professionalism by concluding that the evidence did not support bringing an antitrust case and that no additional remedy was likely to benefit consumers.

He added that "Some of Google’s competitors, unhappy with the FTC’s findings, wanted the Commission to wait for the European Union, which has a parallel investigation, and is reportedly obtaining bigger concessions from Google. But the EU's antitrust regime puts more weight on competitors and less on consumers than the U.S. does. The Commission is correct in resisting pressures to follow Europe."

Berin Szoka of the Tech Freedom stated in a release that "The FTC's decision is a victory not just for Google but for regulatory humility and the freedom of product design -- two bedrocks of Internet Freedom. The FTC has rightly set a high bar for restricting companies' ability to tweak their own products by requiring clear proof that product changes are demonstrably anti-competitive."

Criticism of FTC Settlement with Google. David Heiner, Deputy General Counsel of Microsoft, wrote a short piece titled "The FTC and Google: A Missed Opportunity".

He argued that the order in the patent proceeding imposes only weak requirement upon Google. He wrote that "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 that are imposed on the licensee. 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 non-standard essential patents against the company."

He added that "The good news is that other antitrust agencies, within the United States and overseas, are still examining Google’s conduct. In Europe Vice President Almunia has made clear that he will close his investigation of Google only with a formal, binding order that addresses search bias and other issues. We remain hopeful that these agencies will stick to their established procedures, ensure transparency, and obtain the additional relief needed to address the serious competition law concerns that remain."

Fair Search stated in a release that "As the dust settles after the Federal Trade Commission's disappointing announcement of its settlement with Google, it is clear that the FTC will not have the last word in determining whether Google’s practices are illegal, and whether the company will have to change them."

Fair Search's members include Microsoft, Oracle, Nokia, Expedia, Kayak and other companies.

It added that "FairSearch and its members will continue to work with authorities in the U.S., Europe and elsewhere who continue to look closely at Google’s biased display of search results and other anti-competitive practices. The fight for a more competitive online marketplace and the innovation it produces will continue."

The Consumer Watchdog's John Simpson stated in a release that "Google clearly skews search results to favor its own products and services while portraying the results as unbiased. That undermines competition and hurts consumers ... The FTC rolled over for Google. They’ve accepted Google executives’ promises that they will change two practices without even requiring a consent agreement, but Google has a track record of broken promises. Don’t forget, this fall the FTC fined Google $22.5 million for violating its most recent consent agreement. Why would the FTC take Google at its word?"

(Published in TLJ Daily E-Mail Alert No. 2,504, January 7, 2012.)