January 3, 2013
FTC More Or Less Gives Google A Pass On Search, Mostly Cares About Patents
The FTC announced a proposed settlement with Google today over various antitrust allegations made over licensing of patent standards that are essential to the mobile phone hardware industry. Google purchase Motorola earlier to acquire a substantial patent portfolio as legal capital in the patent cases surrounding its Android operating system. Apple, Microsoft, Samsung, Oracle, and others have initiated lawsuits globally claiming patent violations over features in their various systems. Some of it is motivated over money but more of seems to be designed to limit competition in various markets what with demands to exclude products from sale over violations.
The FTC’s proposed consent decree would require Google to license its essential standards patent portfolio on fair and reasonable terms, which is how the industry would normally work. The statement from the Commission, however, seems to put all companies on notice that the Commission is willing to step into the “patent wars” if competition is at stake:
We previously explained in the Commission’s unanimous filings before the United States International Trade Commission in June 2012 that the threat of injunctive relief “in matters involving RAND-encumbered SEPs, where infringement is based on implementation of standardized technology, has the potential to cause substantial harm to U.S. competition, consumers and innovation.” The threat of an injunction allows a SEP holder to demand and realize royalty payments reflecting the investments firms make to develop and implement the standard, rather than the economic value of the technology itself. In addition to harming incentives for the development of standard-compliant products, the threat of an injunction can also lead to excessive royalties that may be passed along to consumers in the form of higher prices. Alternatively, an injunction or exclusion order could ban the sale of important consumer products entirely. This type of “patent ambush” harms competition and consumers and is rightly condemned by the Commission.
We take this action pursuant to the Commission’s authority under Section 5 to prohibit unfair methods of competition, which both Congress and the Supreme Court have expressly deemed to extend beyond the Sherman Act. A stand-alone Section 5 unfair methods of competition claim allows the Commission to protect consumers and the standard-setting process while minimizing the often burdensome combination of class actions and treble damages associated with private antitrust enforcement. In a society that all of us recognize is overly litigious, the judicious use of Section 5 is a sensible and practical way for the Commission to bring problematic conduct to a halt. [footnotes omitted.]
I’m particularly interested in seeing how the Commission may investigate other claims of patent abuse by other companies in ways that it may harm competition. If Google is litigious in this area, it is far from the only company to go that route.
The two other areas where the Commission had investigated Google are how it treated advertisers conducting ad campaigns over multiple ad platforms and the claim of how it used content from other web sites in displaying search results. Google’s contracts with advertisers made it difficult for advertisers to evaluate the effectiveness of its ads. Google agreed to give advertisers more freedom in managing campaigns over multiple platforms without impacting their ranking in search results.
Other companies have complained that Google appropriates their web content such as reviews and rankings as part of their own search results. The Commission noted that this practice could conceivably “chill” a web site from creating product innovations. Another claim was that Google favored its own properties when producing search results. The FTC said this in the press release:
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. It therefore has chosen to close the investigation.
I have not seen that language in the Commission statement, but I’ll take the press release at face value. Closing the investigation with that conclusion should frost more than a few Google competitors. Microsoft recently and bitterly complained that Google refuses to license code to allow Windows 8 phone users to watch YouTube videos via an app. Google provided such an app for Android and iPhone users. Windows 8 phone users are limited to YouTube access via a browser which is substandard compared to native apps. This conceivably makes the Windows phone platform less desireable.
Fairsearch.org, which is an industry consortium of Google competitors, would like to see Commission action to diminish Google’s search dominance. They will be highly disappointed with this end to the investigation. Not only was there a “nothing to see here response,” there wasn’t even a fine. Beyond that, only the patent issues and conclusions are binding on Google. [MG]