Why Didn’t the FTC Charge Google with Antitrust Violations?

Posted on March 23, 2015 by Paul Thurrott in Cloud Computing with 0 Comments

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An inadvertently leaked memo reveals that the Federal Trade Commission determined that Google had violated US antitrust laws in abusing its monopoly search power to harm both competitors and consumers alike. But the FTC never revealed these findings and the search giant was allowed to continue its abusive behavior after voluntarily agreeing to make inconsequential changes to how it did business.

Google’s anti-competitive business practices illegally “helped it to maintain, preserve and enhance its monopoly position in the markets for search and search advertising,” the report notes. That behavior “will have lasting negative effects on consumer welfare.”

Why didn’t the FTC charge Google with antitrust violations?

At the time its investigation of Google ended in early 2013, the FTC wasn’t inclined to pursue a lengthy and expensive legal case against Google, as the US Department of Justice had with Microsoft over a decade earlier. That case—which the FTC had also declined to pursue after a close vote—dragged on for several years and hamstrung an otherwise dominant Microsoft enough to allow the rise of both (irony alert) Google and Apple.

Google’s voluntary changes—which I described at the time as less than a slap on the wrist—provided “more relief for American consumers faster than any other option,” according to then-FTC chairman Jon Leibowitz. And Google of course claims that “the ways people access information online have only increased since the investigation closed two years ago, giving consumers more choice than ever before.”

But the explosive internal FTC report—which inadvertently leaked in non-redacted form in response to a Freedom of Information Act request—very clearly shows that Google had a monopoly in Internet search in the United States, artificially massaged search results to harm competitors, and in doing so harmed consumers because it provided them with Google-centric results and not the sites and services that would best solve the questions and problems they were querying.

Indeed, the FTC investigated four areas of Google behavior and found abuse in each.

Content copying. Google routinely “scraped” competing web sites so that it could present that information without requiring the user to navigate off of Google’s web sites. It also copied useful competing features, such as an Amazon ranking system for online shopping. When these sites complained, Google threatened to remove them from its search results, an act that the FTC said gave it “strong concerns.”

Advertising restrictions. Google prevented advertisers from running ad campaigns on competing search engines like Bing and Yahoo by substantially raising the price for Google ads when they did so. Again, the FTC voiced “strong concerns” internally about this anti-competitive behavior.

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Search bias. Multiple rivals claimed that Google illegally favored Google services over those of the competition in its supposedly algorithmically-driven search results. The FTC agreed that Google engaged in this behavior, “harming many vertical [search] competitors” such as those for travel and shopping services. But Google argued that its only goal was to improve the quality of search results.

Exclusive deals. Google was thought to have illegally restricted its partners from working with competing search engines. But the FTC investigation was unable to uncover enough evidence to support this allegation.

These areas of abuse wouldn’t be a legal matter if Google didn’t have a monopoly. But in the period of time in question, Google’s internal data showed it owned up to 84 percent of the US market for Internet searches. This is much higher than public industry estimates, which put Google’s usage share at the time closer to 65 percent. 84 percent usage is a monopoly—and thus limits the company to more restrictive business practices—while 65 percent is not. Internally, Google said it was glad at the time “from an antitrust perspective” that estimates “underestimate [its] share.”

Google has long argued that concerns about a monopoly are overblown because the competition is “a click away” on the Internet. But governments, especially those in the European Union, counter that as the “gatekeeper to the Internet,” Google’s ubiquitous search engine can control which links consumers even see. And if Google is illegally preventing competition, only Google-sanctioned services are “a click away.”

Ultimately, FTC staffers agreed that Google was guilty of sweeping antitrust violations and recommended that the agency sue the search giant in order to restore lawful competition in Internet search. But as was originally the case in a years-long and similar case with the EU, the agency worked behind the scenes to get the firm to agree to voluntary changes rather than engage in a legal battle. And as was the case with the EU—though a change in leadership has reversed that outcome there—Google’s weak offer of behavioral changes was immediately accepted by the FTC.

Google’s changes only partially address those four original charges.

The search giant agreed to let competitors opt out of “special search results,” but has continued to scrape content for its “core search engine.” And it has given advertisers more leeway to run campaigns on rival search services. But it has not changed any policies with regards to search bias or exclusive deals, and Google continues to artificially promote its own services over those of rivals. Faced with these changes, the FTC dropped its investigation and never formally sought charges.

So, again. Why didn’t the FTC charge Google with antitrust violations?

Ultimately, it may have come down to the same difficult issues that we saw during Microsoft’s epic US antitrust trial: that some behavior, while clearly anti-competitive, can be justified in the name of improving the company’s products and services. That is, the FTC feared that Google would effectively argue that everything it did it did to make Google Search better. And while you might one hand decry its behavior, you could on the other argue that, ultimately, Google did in fact make its service better for consumers.

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“Google’s course of conduct was premised on its desire to innovate and to produce a high quality search product in the face of competition, blended with the desire to direct users to its own vertical offerings (instead of those of rivals) so as to increase its own revenues,” the report explains. “Indeed, the evidence paints a complex portrait of a company working toward an overall goal of maintaining its market share by providing the best user experience, while simultaneously engaging in tactics that resulted in harm to many vertical competitors, and likely helped to entrench Google’s monopoly power over search and search advertising.”

Given its market power—Google’s reach extends to nearly every connected device on earth—I do feel that Google should in fact be held to a higher and stricter standard than was Microsoft, whose products and services only impacted—and continue to impact—a far smaller audience. And if the US government—and the EU, and South Korea, and other world governments—felt the need to curb Microsoft’s behavior, as they did, doing so now with Google is all the more important. The EU gets this—it’s currently engaged in several high profile antitrust battles with the search giant—but the US clearly does not. And this FTC leak is an embarrassment, because the government found antitrust violations resulting in real world competitive and consumer harm. And then did absolutely nothing about it.

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