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Google This: A Look at the Antitrust Suits Facing the Tech Giant


With an FTC decision pending, will Google find itself deleted?

MINYANVILLE ORIGINAL There is chatter all over the Web indicating that the Federal Trade Commission's decision on whether or not it will slap Google (NASDAQ:GOOG) with an antitrust suit is imminent.

The FTC has been investigating Google for a year and a half, trying to determine if claims that Google has given its own services precedence over competitors in search results are true. If they are, this would mean Google has been listing services like YouTube, Google Drive, and Google Maps above competing products in search results.

Competitors say Google should not be able to use its search engine, which has 67% market saturation, to manipulate search results in Google's favor: This chokes competition.

On top of the search engine manipulation claims, the FTC launched a probe in June into accusations that Google's effort to block imports of products made by Apple (NASDAQ:AAPL) and Microsoft (NASDAQ:MSFT) was an unfair practice. Google has stood behind its claim that its competitors' devices infringe on Google's Motorola Mobility patents. The patents, however, most likely fall under the category of 'industry-standard technology,' which functions to help mobile products from different manufacturers work together.

The question for the FTC is, then, has Google offered its technology on fair and reasonable terms in accordance with a preexisting, industry-wide pledge to license these types of patents?

The Hill reports that with Mitt Romney's loss, Google's last chance to escape antitrust charges are gone. Romney would have appointed a new FTC chairman, and Republicans would have held three of the five commissioner seats. It's a little antithetical when considering the $3.92 million Google spent lobbying the US government in Q2, up 90% year-over-year, and then finding out Google was the third largest corporate donor to the Obama campaign.

Sources close to the case have said FTC staffers have found evidence Google is violating antitrust laws, and have recommend the commissioners to file suit.

In the scenario that Google does find itself in court, it will be pressed to license its patents at a cheaper price. That's easy to do. However, making changes to Google's extremely complex search algorithm presents a multitude of problems -- one of which is the incredible amount of resources needed for a federal agency to monitor Google's programming practices.

The Most Likely Outcome?

Back in October, CNET took a look at one potential outcome of an antitrust lawsuit against Google. Thomas Barnett is a DC-based lawyer who runs the coalition, a lobby against Google for fair search practices -- Hotwire, Nokia (NYSE:NOK), and Oracle (NASDAQ:ORCL) are members. The article quotes his opinion on one alternative outcome of an Google antitrust lawsuit.

"Another option, Barnett said, would be a breakup involving 'cutting, severing, certain parts' of the Mountain View, Calif.-based company. 'I'm not saying that's necessarily what's called for here -- but be careful,' he said." That's right: A possible Google breakup is in the cards, albeit at the bottom of the pile.

Google couldn't really fall victim to modern day trustbusters, could it?

Way back in 1998, Microsoft found itself in a similar seat, when the US Justice Department ruled the software company was in violation of the Sherman Antitrust Act. Microsoft was accused of unfairly restricting the market for competing Web browsers by bundling its own Internet Explorer software with its Windows operating system. After Microsoft was found guilty of monopolizing the personal computer software market, it appealed, and this appeal led to a settlement.

What's so interesting about the settlement is that Microsoft was neither forced to rewrite its code, nor to stop packaging its IE software with Windows. The settlement only required Microsoft to make its source code and records openly available to third-party companies.

As pointed out by the Wall Street Journal, a Google antitrust case would be the country's biggest since Microsoft. The article also brings up an earlier antitrust case against IBM (NYSE:IBM), in the 1960s.

Wall Street Journal contributor L. Gordon Crovitz writes:

IBM spent more than $4 billion in today's dollars defending itself beginning in the 1960s, producing 750 million documents for the government. As the case dragged on, technology changed so much that IBM's dominance in mainframe computers became a liability. Likewise, Microsoft's operating system and Web browser diminished in importance during the company's time in court in the 1990s as new competitors, including Google, emerged.

IBM mainframe dependency is an interesting point to bring up. Any sort of Google breakup would likely prove to be a logistical nightmare when considering the permeation of Google's products. But, even if Google, like Microsoft before it, moves out of whatever legal actions the US government takes unscathed, does it leave enough wiggle room for the 'next Google' to wedge itself in?

In terms of direct costs the antitrust suit could have on Google, Crovitz writes, according to the FTC commissioners he has spoken to, fines could reach into the billions, carving a significant chunk out of Google's roughly $10 billion in yearly profits.

Europe's Case Against Google

Back in May, a European Commission released the results of a two-year antitrust investigation of Google's practices, and expressed concerns over the four following findings:

1. Google gives preference to its own specialized search results.
2. It displays other companies' information in search results without permission.
3. It retains control over search advertising on websites that utilize Google's search technology.
4. It makes it harder for competitors to design and execute platforms other than Google's platform for advertisers.

But, as outlined by Tech Freedom, a non-profit, non-partisan technology think tank, the Europeans' case has a few weak points:

Despite these concerns, the commission will likely find it difficult to prove that Google has done anything wrong, even under Europe's heavy-handed antitrust laws. Moreover, it remains unclear what Google could actually do to allay the EC's concerns or whether time itself would simply outpace even the best-intentioned regulatory remedy aimed at supplanting Google's market position.

Among the arguments against the EC's case, the result of a 2003 ruling against Microsoft, which forced the software giant to offer a version of its Windows XP OS without a Windows Media Player application installed (sound familiar?), and offer users a choice in setting a default browser, stands out. Sales for a refitted Windows XP product were abysmal, and there was no clear sign that offering a browser choice changed consumer behavior. This seriously undermined the grounds on which the case was judged, and raised the question as to whether Microsoft needed to offer consumers a choice at all.

Other problems with the EC's case include claims that Google search hinders competition by giving its content preferential treatment. But hindering a competitor's business by offering your own product differently is not necessarily the definition of shutting it out of competition completely. It is not necessarily an unfair practice.

Twitter: @brokawbrokaw
No positions in stocks mentioned.
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