FTC Announces ‘Agreement’ in Google Search Dispute

by Dan Holden | January 3, 2013

David Drummond

The Federal Trade Commission (FTC) said today that Google Inc. has agreed to change some of its business practices to “resolve FTC concerns that those practices could stifle competition in the markets for popular devices such as smart phones, tablets and gaming consoles”, as well as the market for online search advertising. The commission said the resolution gives competitors “access to standard-essential patents…advertisers will get more flexibility to use rival search engines.”

Under a settlement – characterized by both sides as an “agreement” – Google will meet its prior commitments to allow competitors fair access to patents on critical standardized technologies needed to make popular devices, primarily smart phones, but also laptops, tablet computers and gaming consoles.

Separately, in a letter of commitment to the Commission, Google has agreed to give online advertisers more flexibility to simultaneously manage ad campaigns on Google’s AdWords platform and on rival ad platforms; and to refrain from misappropriating online content from so-called “vertical” websites that focus on specific categories such as shopping or travel for use in its own vertical offerings.

“The changes Google has agreed to make will ensure that consumers continue to reap the benefits of competition in the online marketplace and in the market for innovative wireless devices they enjoy,” said FTC Chairman Jon Leibowitz. “This was an incredibly thorough and careful investigation by the Commission, and the outcome is a strong and enforceable set of agreements.”

Google Chief Legal Officer David Drummond (pictured above) was particularly pleased with the outcome.

“The conclusion is clear: Google’s services are good for users and good for competition,” wrote David Drummond on a company blog post.

The agreements effectively close an 18-month FTC investigation that was expected to result in landmark restrictions on the search company’s power. Observers said most of Google’s competitors, who had lobbied aggressively for action from the FTC, would be far from satisfied with the final deal.

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 most significant aspect of the FTC settlement concerns the patents that Google acquired when it bought Motorola Mobility for $12.5 billion last spring, said The National Law Journal. Motorola owned key, standard-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 allegedly continued after the acquisition. “Google’s unfair conduct threatened to block consumer access to critical electronic devices,” Leibowitz said. “Today’s landmark enforcement effort will become what we hope will be a template for resolution of 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.

The FTC also extensively investigated allegations that Google biased its search results to disadvantage certain vertical websites; and that Google entered into anticompetitive exclusive agreements for the distribution of Google Search on both desktop and in the mobile arena. The agency decided not to take any action in connection with these allegations.

“Undoubtedly, Google took aggressive actions to gain advantage over rival search providers,” said Beth Wilkinson, outside counsel to the Commission. “However, the FTC’s mission is to protect competition, and not individual competitors. The evidence did not demonstrate that Google’s actions in this area stifled competition in violation of U.S. law.”

Under the settlement, Google has agreed to the following terms:

Google will not seek injunctions to block rivals from using patents essential to key technologies

Google has agreed to a Consent Order that prohibits it from seeking injunctions against a willing licensee, either in federal court or at the ITC, to block the use of any standard-essential patents that the company has previously committed to license on FRAND terms.

Google will remove restrictions hampering advertisers’ management of their ad campaigns across competing ad platforms

Google has agreed 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.

The agreement also revises Google’s contractual conditions to enable advertisers to simultaneously manage a campaign on AdWords and on competing ad platforms.

Google will give websites the ability to “opt out” of display on Google vertical properties and promises to provide all websites the option to keep their content out of Google’s vertical search offerings, while still having them appear in Google’s general, or “organic,” web search results.

Search Bias Left on the Table

The FTC conducted what it described as “an extensive investigation” into allegations that Google had manipulated its search algorithms to harm vertical websites and unfairly promote its own competing vertical properties, a practice commonly known as “search bias.”

In particular, the FTC evaluated Google’s introduction of “Universal Search” – a product that prominently displays targeted Google properties in response to specific categories of searches, such as shopping and local – to determine whether Google used that product to reduce or eliminate a nascent competitive threat.

Similarly, the investigation focused on the allegation that Google altered its search algorithms to demote certain vertical websites in an effort to reduce or eliminate a nascent competitive threat.

According to the Commission statement, however, the FTC concluded that the introduction of Universal Search, as well as additional changes made to Google’s search algorithms – even those that may have had the effect of harming individual competitors – could be plausibly justified as innovations that improved Google’s product and the experience of its users. The commission then closed this aspect of the investigation without taking any action.

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