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Google Settles with FTC, Promises to Change Some Business Practices

On Jan. 3, FTC Chairman Jon Leibovitz announced the FTC was closing its investigation of Google.

On Jan. 3, FTC Chairman Jon Leibovitz announced the FTC was closing its investigation of Google.

For almost two years now, the Federal Trade Commission (“FTC”) has been investigating Google for alleged anticompetitive conduct in the markets for popular devices such as smart phones, tablets and online search advertising.   In a press conference on January 3rd, 2013 the FTC announced Google has agreed to change some of its business practices and officially closed its investigation into the internet giant.

In particular, Google agreed to the following:

Google agreed to license MMI patents on FRAND terms and not seek injunctions preventing rivals from using standard-essential patents

In 2012, Google paid $12.5 billion for a suite of standard-essential patents owned by Motorola Mobility (“MMI”).  The FTC accused Google of reneging on FRAND (fair, reasonable, and non-discriminatory) licensing commitments related to those patents.  Google was also accused of pursuing injunctions against companies that needed to use MMI standard-essential patents in their devices and were willing to take a license on FRAND terms.

While a patent owner generally has no obligation to license its patents to competitors, that changes if the patent owner has participated in standard setting.  Generally speaking, if a patent owner contributes to standard development discussions, that patent owner must agree to license any of its patents that cover that standard on FRAND terms.  The FTC alleged that this type of patent hold-up could raise the prices paid by consumers for products including the patented technology and could also cause companies in technology industries to abandon the standard-setting process altogether, thus stifling investment in new technologies.

To remedy this concern, Google agreed to a Consent Order prohibiting it from seeking injunctions against a willing licensee to block the use of any standard-essential patents that Google previously committed to license on FRAND terms.

Google agreed to modify contractual restrictions related to their online search advertising platform

As another part of the settlement agreement, Google also agreed to remove restrictions on the use of its online search advertising platform, AdWords.  The FTC was concerned that Google’s contractual conditions governing the use of its Advertising platform interfaces made it difficult for an advertiser to simultaneously manage a campaign on AdWords and on competing ad platforms.  Therefore, Google’s restrictions had the possibility of diminishing competition in the search advertising market.

Google proposes to alleviate this concern by giving advertisers the ability to “opt out” of display on Google vertical properties such as Google Local or Product Shopping. Google also has promised to provide the advertisers the option to keep their content out of Google’s vertical search offerings, while still having them appear in Google’s general web search results.

FTC finds a pro-competitive reason for Google’s modifications of its search algorithms

The FTC also investigated allegations that Google had manipulated its search algorithms to engage in “search bias.”  The investigation focused on whether Google altered its search algorithms to demote certain vertical websites in an effort to reduce or eliminate a nascent competitive threat. The FTC concluded that the changes made to Google’s search algorithms could be plausibly justified as innovations that improved Google’s product and the experience of its users, and thus were not anticompetitive.

Conclusion

Given this settlement agreement, the FTC has closed its investigation, deciding not to take action against Google at this time.  However, should Google not abide by the proposed terms of the settlement, the FTC can reopen its investigation at a later point in time.  The European Commission, which has also been investigating complaints against Google, took note of the FTC’s findings, but stated that the American decision will not affect their investigation.

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