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The FTC’s internal memo on Google teaches companies a terrible lesson

Federal Trade Commission Chairwoman Edith Ramirez (AFP Photo/Paul J. Richards/Getty Images)

Many in Washington this week have been questioning whether the Federal Trade Commission made the right call when it rebuffed its own staff recommendation in 2013 to take Google to court over alleged anti-competitive practices. The debate was sparked by a Wall Street Journal story describing the FTC's internal staff memo on Google, which the agency inadvertently sent to the publication.

But all that second guessing of a two-year-old decision might be missing the real lesson here: The incident may send yet another signal to the nation's biggest companies that the government is leery of taking on a complex case that challenge their power.

FTC staffers spent enormous time pouring through Google's business practices and documents as well as interviewing executives and rivals. They came to the conclusion that Google was acting in anti-competitive ways, such as restricting advertisers' from working with rival search engines. But commissioners balked at the prospect of a lengthy and protracted legal fight, former FTC officials said.

Although then-FTC Chairman Jon Liebowitz was confident about suing Google, other commissioners such as Edith Ramirez, who now chairs the commission, and Thomas Rosch were more skeptical about the strength of the agency’s case, according to former senior agency officials.

“[Ramirez and Rosch] were some of the most experienced litigators on the commission,” said one former senior official, who spoke on condition of anonymity in order to speak more freely. “It is an accurate statement that Edith and Tom were extraordinarily concerned about the potential litigation risk.”

For a big company, that process may have been enlightening. Agency staffers might find evidence of anti-competitive behavior. But that doesn't mean the firm will face the music in the end.

Previous attempts to go after big companies -- such as the Justice Department's long-running antitrust case against Microsoft in the 1990s -- loomed large in regulators’ minds at the time of the Google probe, according to a former official who worked at the agency then.

“Even if we were in the right and could win," said the former official, "it could take a lot of resources away from other enforcement.”

The FTC ultimately ended the investigation by striking a voluntary agreement with Google, one that the company and the agency claimed would end problematic business practices. Since then Google appears to have abided by its commitments, said a senior FTC official, who spoke on condition of anonymity in discussing enforcement matters.

Google said it considers the matter closed. "Speculation about potential consumer and competitor harm turned out to be entirely wrong," said Google's general counsel, Kent Walker. "Since the investigation closed two years ago, the ways people access information online have increased dramatically, giving consumers more choice than ever before."

The inadvertently released staff memo on Google comes as the FTC is attempting to extend its reach over the tech industry. Whether the agency can confidently take the largest tech companies to court when they overstep their bounds — and win — holds major implications for the consumers, especially as technology begins to change more of their lives.

Analysts have taken to calling the agency the Federal Technology Commission, in reference to the body’s vast portfolio. Its far-reaching scope covers many aspects of mobile computing, privacy, data security and even the smart appliances that are beginning to appear in people’s homes. Recent proposals have sought to take oversight duties away from other agencies and concentrate more of it within the FTC.

The commission has also been more active in litigation, taking on companies such as Amazon, Apple and, yes, Google over in-app purchases. And, as some analysts noted, the FTC is hardly obligated to follow its staff's recommendations. In fact, the report accidentally released to the Journal was one of a several memos drafted by different parts of the agency, not all of whom came to the same conclusions.

“This type of news story makes for exciting fodder, but I think what you see reflected here is a pretty normal process in an agency between staff research and recommendations to the commission, and the commission's deliberative process,” said Diana Moss, president of the American Antitrust Institute.

But other antitrust experts said the commission's evident concern about litigation risk  calls some of that growing responsibility into question.

"This is not a good moment for the FTC to claim it needs expanded jurisdiction — that it is better positioned to do strong competition law enforcement than other agencies," said a former federal antitrust official, who asked not to be named because of the sensitivity of the Google investigation.