Sue or Settle? Feds Face Crunch Time Over Google Antitrust Decision

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Gary Cameron / Reuters

The Federal Trade Commission building is seen in Washington on March 4, 2012.

The Federal Trade Commission is nearing a critical decision on the next step of its nearly two-year investigation into whether Internet search titan Google has used its market power to harm rivals. The FTC could file a lawsuit against Google, or the commission could reach a settlement with the tech giant. The decision about whether to sue or settle will likely help define FTC Chairman Jon Leibowitz’s legacy at an agency where he has served for more than eight years, including the last three as chairman. Leibowitz is expected to leave the FTC and enter the private sector soon.

Last month, Reuters reported that four of the five FTC commissioners had concluded that Google has used its search market dominance to harm its rivals. Agency investigators circulated a draft memo recommending legal action against Google. Last week, Bloomberg reported that the FTC has delivered “an ultimatum” to Google demanding that the search giant offer a plan to settle the investigation, or face a lawsuit. If no settlement is reached, the FTC will press ahead in the coming days with a vote that will determine whether the commission files a lawsuit. If that happens, the lawsuit would be the most dramatic action taken by the U.S. government against a major technology company since the Department of Justice challenged Microsoft in the 1990s.

(MOREU.S. Google Antitrust Probe Spurs Internet-Regulation Debate)

The FTC faces a very difficult decision, because it’s not at all clear that the commission would win the case, and a loss could harm the FTC’s credibility as it seeks to bring antitrust cases in the future. For Leibowitz, the priority for a settlement is achieving “a win” that would be a capstone in his long tenure at the FTC, according to a D.C. insider familiar with the investigation. But Leibowitz will only be able to declare victory if he is able to extract significant concessions from Google, the person said. Given that Google has adamantly denied wrongdoing throughout the probe, it’s unclear if Leibowitz will be able to acheive a settlement that would allow him to declare such a victory. If not, this case could be headed for a federal court.

On Monday, two prominent members of Congress who represent Silicon Valley, where Google is based, warned the FTC against charging Google with “unfair or deceptive business practices.” In a letter to the commission, Reps. Anna Eshoo (D-Calif.) and Zoe Lofgren (D-Calif.) said such an action would be “unwarranted, unwise and likely have negative implications for our nation’s economy.” The two lawmakers wrote that they “strongly urge the FTC to reconsider” taking any action that “could lead to overbroad authority that amplifies uncertainty and stifles growth. These effects may be most acutely felt among online services, a crucial engine of job creation, where technological advancement and small business innovation are rapid.”

As Google has come to dominate the search market — amassing roughly 70% market share — several of its competitors, backed by sympathetic interest groups, have urged federal action against the tech giant. The coalition opposing Google includes the FairSearch consortium, which is composed of several of Google’s competitors, most notably Microsoft, which has been waging a lobbying campaign against Google for years. FairSearch argues that Google has been using its search dominance to “foreclose competitors from the search marketplace,” particularly in high-traffic search categories like travel, jobs, health, and real estate. In essence, the consortium argues that Google unfairly demotes rivals in its search-engine results in order to steer users toward Google’s own competing products.

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For its part, Google has argued that its search engine is simply more useful to users than rival services, and points out that competition — including Microsoft’s Bing search engine — is just “one click away.” Google also emphasizes that the fundamental purpose of U.S. antitrust law is to protect consumers, and notes that most of the complaints directed against Google are coming from its competitors, not consumers. Several experts have characterized the FairSearch campaign as sour grapes. “It’s an old D.C. adage that if you cannot win in the marketplace, try to win through political influence,” Glenn Manishin, a partner at the law firm Troutman Sanders and a leading antitrust expert, wrote in a recent blog series exploring this issue.

On Monday, FairSearch issued a list of so-called “remedies” it says are designed to address what it calls Google’s “anti-competitive search and business practices.” The group wrote: “The remedies need to prevent violations in the future as well as to undo the harm to competition already inflicted by Google. More generally, the enforcers need to consider restoring and preserving competition in search and search advertising (including Google’s unlawfully acquired scale advantages), which can help ensure continued innovation and opportunity across online markets while reducing the need for competition agencies to monitor and enforce behavioral restrictions.”

Tom Barnett, counsel for FairSearch member Expedia, which operates a popular travel search engine, told Politico that, “Google’s own products should be subject to the same algorithm as other products.”

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In response, Marvin Ammori, a prominent First Amendment lawyer and Internet policy expert, wrote a blog post blasting the “remedies” proposed by FairSearch. “These flawed remedies demonstrate that Google’s competitors are not interested in competing in the marketplace to win over customers,” Ammori wrote. “Instead they want to use the power of government to handicap the strongest of the pack, to the benefit of the weaker competitors. That’s a raw deal for consumers, and a heavy blow against innovation.”

After nearly two years of investigating Google on antitrust grounds, FTC Chairman Jon Leibowitz is under intense pressure to deliver a result that will justify the time, money, and resources devoted to this probe. My guess is that neither Google nor the FTC really wants to embark on a protracted round of litigation, especially if Leibowitz has any hope of stepping down and joining the private sector any time soon. That’s why the most likely outcome here is a settlement, as I wrote last month.

The key question is whether Leibowitz will be able to extract enough concessions from Google to allow him to claim a victory in this case. From Google’s perspective, the company’s search engine is its golden goose, and I doubt it will agree to concessions that will significantly hobble its core business. As always in D.C., compromise must be the order of the day. Are Google and FTC negotiators skilled enough to reach a settlement that allows each side to save face? We’ll find out shortly.

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