FTC under fire for passing on Google’s search practices

December 18, 2012

Google once was seen as such a ripe target for investigation that the nation’s antitrust enforcers battled over the right to claim it as their own, as a potential high-tech pelt to be hung on the wall alongside Microsoft and AT&T.

Yet after nearly two years of a high-profile probe, Google recently reached a tentative settlement deal that many observers called a slap on the wrist. And the agency that claimed the case in 2011, the Federal Trade Commission, began facing such withering criticism that the agreement was showing signs of fraying Tuesday night, according to people following the case closely.

Some industry officials and longtime FTC observers say the agency is in danger of weakening its credibility as an antitrust enforcer and as the nation’s most ardent overseer of the multibillion-dollar technology industry whose products are an increasingly pervasive — some say intrusive — part of Americans’ lives.

“The agency raised huge expectations about this case. You get in trouble in the policy world when you set expectations in the stratosphere and you deliver something less,” William ­Kovacic, a former FTC chairman who is now a George Washington University law professor. “The commission has painted itself into a bit of a corner.”

Recent news reports detailing the terms of the tentative agreement unleashed a torrent of opposition from companies that had complained, state attorneys general who felt cut out of negotiations, interested lawmakers and consumer advocates. Many have long said that Google was manipulating search results to hobble competitors and gain advantage for its own offerings in shopping, travel services and other lucrative businesses — and in the process, limiting consumer choice.

The announcement of the agreement, once expected this week, now has been pushed back to at least January, according to those following the case, bending a timeline publicly set by FTC Chairman Jon Leibowitz and raising the possibility that the terms of the deal may change. The agency is now keenly watching what concessions European antitrust regulators manage to extract from Google in a parallel investigation.

The E.U.’s top antitrust official, Joaquín Almunia, met with the company’s executive chairman, Eric Schmidt, on Tuesday and issued a statement reiterating his concerns, saying Google should “come forward with a detailed commitment” next month. Among the issues listed by Almunia was alleged ma­nipu­la­tion of search results, an issue once at the heart of the FTC’s investigation but one that was not addressed in the tentative deal Google reached with the agency.

Interagency jealousies

The FTC long has shared antitrust enforcement with the Justice Department under an uneasy arrangement that has featured fierce backroom negotiations and interagency jealousies. When the FTC’s commissioners deadlocked over pursuing the Microsoft case in 1993, the Justice Department eagerly took over what proved to be a historic case that reshaped the tech industry, leaving some at the FTC embittered by their agency’s inability to act.

One measure of the stakes in the current Google antitrust probe is that a vigorous postmortem debate has begun even before the FTC has announced its decision.

Those familiar with the case, speaking on the condition of anonymity to discuss matters not yet public, have said that the FTC’s tentative deal with Google includes several concessions from the company.

Among them are limits on using sections of restaurant reviews, hotel ratings and other “snippets” from rival Web sites. Google also would institute technical changes making it easier for marketers to move their advertisements to other online networks.

Google for weeks has declined to respond to questions about the negotiations with FTC officials, saying only that it is “happy to answer any questions they may have.”

Legal analysts are split on whether the way Google displays search results violates the law, with some saying the FTC would have been hard-pressed to win a case against Google under U.S. antitrust statutes. But there is wide agreement that the FTC’s failure to challenge the company on its core business practices has produced results far short of expectations. Some say it could embolden the search giant to push further into gray legal areas.

Those who have been pushing for aggressive action are particularly unhappy. “From the perspective of the Federal Trade Commission, I think it’s devastating for the whole enterprise,” said Silicon Valley lawyer Gary Reback, who represents several companies that say they have been hurt by Google’s practices. “It’s not like the problem goes away. It’s more likely that the Federal Trade Commission goes away.”

Good for consumers?

The FTC has its defenders, who argue that despite Google’s commanding position in the search market — nearly 70 percent of queries happen on its service — many of the changes that have enraged competitors have produced little harm to consumers using a free service.

Searching for airline flights on Google, for example, now produces a large box listing prices and destinations provided by airline Web sites, bypassing the online travel services that once claimed the most prominent links. That’s clearly bad for Expedia and Kayak, but offers what some consumers probably find to be a cleaner, more convenient search experience — even if it fails to yield the lowest possible price.

Some legal experts add that the FTC’s probe put Google on notice that it was being watched for possible monopolistic behavior. That alone, they say, may have discouraged abuses before they developed.

“For the FTC to have subjected Google to this scare and to end up with an agreement that holds Google’s feet to the fire seems like a pretty good outcome to me,” said Andrew McLaughlin, a Stanford University law fellow who was a former top Google policy official and White House technology adviser. “One of the best things the FTC can do is push companies toward the better angels of their natures.”

That is close to how FTC officials describe their approach to the technology industry, which has become a focus under Leibowitz and his top consumer-protection deputy, David Vladeck.

Both took their positions in 2009, and both are planning to leave soon. Under their leadership, the FTC has hired a team of technologists and created an off-site laboratory to test hundreds of mobile apps for privacy abuses and other problems.

The agency also has entered into legally binding consent decrees with several top technology companies, including ones that resolved alleged privacy abuses by Google and Facebook. (Leibowitz did not respond to requests for comment for this article.)

Vladeck, who had no direct role in the Google antitrust investigation, said that the FTC’s goal has been to establish broad principles while resisting the urge to be overly prescriptive in a fast-changing industry. The agency’s relatively small size and bipartisan nature — no more than three of the five commissioners can be of the same party — make it unusually nimble and effective by the standards of the federal government, he said.

“The point of these things is to try to use our bully pulpit to compel enforcement through very soft means,” said Vladeck, who is returning to the faculty of Georgetown University Law School in January.

The FTC has broader legal authority to enforce antitrust laws than the Justice Department. But critics say the agency lacks the staff resources and prosecutorial instincts to handle a huge, powerful, international company such as Google, which has numerous allies on Capitol Hill and in the White House.

In Washington’s tight-knit regulatory community, critics say Leibowitz should not have lobbied so hard for the case if he didn’t already see a path toward an aggressive legal challenge of Google’s most controversial practices.

Many said the case appeared to move slowly, even after the FTC hired a renowned outside litigator, Beth Wilkinson, to prepare for a possible court battle. They say the agency was less aggressive, for example, than the state attorney general in Texas, which sued Google for documents it refused to turn over.

The FTC is expected to announce a more forceful action in an unrelated Google case involving its use of patents to block rival companies from bringing products to market, though critics have said that the settlement over that matter also falls short of expectations.

Craig Timberg is a national technology reporter for The Post.
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