As expected, the Federal Trade Commission’s Chairman Jon Leibowitz just announced at a press conference in Washington, D.C., that the agency has settled with Google to resolve the 20-month antitrust probe into the company’s alleged anticompetitive behavior. While Google voluntarily agreed to make a number of changes to its business practices, the FTC did not levy any fines. It’s hard to look at today’s decision and not see Google as the clear winner.
Google is making two voluntary product changes:
It’s not clear how exactly this opt-out will work, but chances are that Google will offer a tag that competitors can use to tell Google’s search algorithm to exclude their content from certain Google products.
Interestingly, the FTC decided not to take any action in connection with the allegation that Google unfairly biased its own products over competing products, something that will likely upset many of its competitors.
Google also agreed with the FTC (PDF) that it “will seek to resolve standard-essential patent disputes through a neutral third party before seeking injunctions. This agreement establishes clear rules of the road for standards essential patents going forward.” Essentially, this means that Google has agreed to license certain patents to its mobile phone rivals.
The FTC says that “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 also notes that “this agreement establishes clear rules of the road for standards essential patents going forward.”
“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.”
This is, of course, not the first time the FTC has settled with Google and given the company a slap on the wrist. In August 2012, the FTC also settled with Google when the company knowingly bypassed Safari’s privacy settings in oder to place tracking cookies on users’ machines. Back then, Google paid $22.5 million to settle the charge.
When the FTC started its investigation, Google said that it would cooperate, but the company never admitted any wrongdoing. Instead, Google always argued that its actions have always been guided by “what’s best for the user” and worked to create loyal customers without locking them into its products.
After a similar investigation in Europe, Google is expected to also settle with the European Commission after it made a number of concessions over the summer.
Here is the FTC’s description of the changes Google has agreed to:
Google will not seek injunctions to block rivals from using patents essential to key technologies
In 2012, Google paid about $12.5 billion to acquire Motorola Mobility (MMI), including MMI’s patent portfolio of over 24,000 patents and patent applications. These patents have been a significant source of revenue for at least a decade, and hundreds of MMI’s patents are essential to industry standards used to provide wireless connectivity and for internet-related technologies. These standards are essential for smartphones, tablets, gaming systems, operating systems, and the increasing number of devices offering wireless connectivity or high definition video.
Development and use of these types of standards is a cornerstone for many high-tech markets, and encourages innovation and investment in high-tech products, according to the FTC’s complaint. By agreeing to standards, companies can ensure that the numerous components of a device or a technology network can work together seamlessly, often called “interoperability.”
Setting a standard, however, can have the effect of giving market power to the owner of a patent that is deemed essential to the standard, according to the agency. That patent – even if it is only on a small component of a much larger and more complex device – can be used to “hold up” a licensee for an excessive royalty. To avoid this problem, technology companies involved in setting a standard commit to license standard-essential patents on “fair, reasonable and non-discriminatory” terms – known as FRAND terms.
The Commission’s complaint alleges that Google reneged on its FRAND commitments and pursued – or threatened to pursue – injunctions against companies that need to use MMI’s standard-essential patents in their devices and were willing to license them on FRAND terms. Specifically the company pursued injunctions in federal district court and at the United States International Trade Commission (“ITC”) to block competing technology companies from using MMI standard-essential patents.
The FTC alleged that this type of patent hold-up is what the standard setting organizations sought to prevent by instituting FRAND licensing requirements. According to the FTC, if left unchecked, this type of patent hold-up can lead to higher prices, as companies may pay higher royalties for the use of Google’s patents because of the threat of an injunction, and then pass those higher prices on to consumers. This may cause companies in technology industries to abandon the standard-setting process and limit or forgo investment in new technologies, according to the agency.
To remedy this concern, 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
Under a separate commitment, 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.
Advertisers who wish to use a search advertising platform spend considerable time, effort, and resources preparing extensive bids, including keywords, price information, and targeting information. Once an advertiser has entered the information necessary to create a search advertising campaign, the advertising platform sends critical data back to the advertisers that they need to evaluate the effectiveness of, and to further manage, their campaign. Advertising platforms use application programming interfaces, known as APIs, to give advertisers direct access to these advertising platforms so they can develop their own software programs to automatically manage and optimize their advertising campaigns.
Some FTC Commissioners were concerned that Google’s contractual conditions governing the use of its API made it more difficult for an advertiser to simultaneously manage a campaign on AdWords and on competing ad platforms, and that these restrictions might impair competition in search advertising.
Google will give websites the ability to “opt out” of display on Google vertical properties
Under the same commitment, Google also has promised 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. The FTC investigated allegations that Google misappropriated content, such as user reviews and star ratings, from competing websites in order to improve its own vertical offerings, such as Google Local and Google Shopping. Some FTC Commissioners were concerned that this conduct might chill firms’ incentives to innovate on the Internet.
FTC’s investigation into allegations of search bias
The FTC conducted 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. It therefore has chosen to close the investigation.