FTC launches investigation of Google

Running the world's most popular search engine has brought Google Inc. wealth, market share and now antitrust scrutiny.

After a chorus of complaints from rivals, federal regulators, state attorneys general and foreign governments are looking at whether its dominance of the Internet is harming consumers and shutting out competitors, much the way they scrutinized Microsoft Corp. a decade ago.

Google acknowledged in a regulatory filing Friday that the Federal Trade Commission had launched a formal investigation into its business practices, including search and advertising. The FTC confirmed that an investigation was underway but declined to comment further.

While Google has faced antitrust probes into its acquisitions of companies in recent years, it has never faced broad U.S. scrutiny of its search and advertising businesses, which generate nearly all of its revenue of about $29 billion a year. Google handles about two-thirds of Web searches in the U.S. and more than 80% in much of Europe.

The investigation may not result in Google facing charges of abusing its market power; a majority of the FTC commissioners decided only that there was enough evidence to launch a formal review.

But if the FTC found Google had illegally leveraged its share of the U.S. search market to funnel customers to its other services, the agency could force a dramatic change to the company's ever-expanding operations.

"You could limit Google to the search market. You could say Google may not go into these adjacent markets to unfairly leverage" its search dominance, said Robert Lande, an antitrust expert at the University of Baltimore School of Law.

The FTC investigation could become "of the caliber of the Microsoft case," he said.

The FTC has been making informal inquiries about Google's business practices for several months, said Silicon Valley antitrust attorney Gary Reback, who represents companies that have complained to the FTC about Google.

Google said it was not sure what the FTC's concerns were. But in an interview, Amit Singhal, one of Google's top search engineers, said the company would cooperate with the FTC and with the states investigating its business practices.

"We are here to answer all questions from all authorities," Singhal said. "We are going to answer everything they want to know."

Momentum has been building for months to investigate whether Google abuses its market power to favor its own services over those of competitors. In November, the European Commission began a formal investigation into allegations from several companies that Google had violated competition laws. Texas also launched an investigation into Google.

The gathering regulatory storm could pose a serious legal and business threat to the 12-year-old Internet company, similar to the impact on Microsoft in the 1990s when federal officials pursued a landmark antitrust case. Microsoft eventually reached a settlement with the Justice Department and a group of states after a judge ordered that the company be broken up.

A long-running investigation could distract Google executives just as the new chief executive, co-founder Larry Page, attempts to reenergize the company to counter rising competition from Facebook Inc. and gain ground in new businesses such as mobile advertising.

Google also faces rising scrutiny on privacy matters. In April, it agreed to submit to independent privacy audits for 20 years as part of a settlement with the FTC over allegations it violated its users' privacy with its social networking service Buzz.

"Google is going down the road plowed by Bill Gates," Reback said.

But observers said it would be tough for the FTC to prove any harm to consumers.

"Nobody really cares about harm to competitors," Lande said. "If there's no harm to consumers, the case is over before it begins."

Further, proving such harm could be challenging in an Internet marketplace where consumers can easily shift to another search engine, said David Balto, a senior fellow at the Center for American Progress and a former FTC official in the Clinton administration.

For that reason, Balto said the Google antitrust case "is not even a distant relative" of the Microsoft case.

"Competition is literally a click away. You can have three or four search engines on your computer at any time," Balto said. "If you didn't like Microsoft Windows, you had to uninstall it and pay $300 for an alternative.

"Any alleged power by Google is much more evanescent than the concrete power that Microsoft possessed."

Rivals argue that Google is the gateway to the Web and has the power to control — and choke — traffic to websites. They also complain that Google prioritizes its products in search results and uses content from other companies without permission. Fueling that criticism is Google's move in recent years to instantly answer searchers' questions rather than just direct them to the most relevant search results.

Yelp's chief executive, Jeremy Stoppelman, has spoken out against Google incorporating Yelp's user business reviews into Google's local business information service called Places. In 2009, talks for Google to buy Yelp for $500 million fell apart.

"There is no solution to the problem," Stoppelman told the Telegraph newspaper in Britain in a recent interview. "Google's position is that we can take ourselves out of its search index if we don't want them to use our reviews on Places. But that is not an option for us and other sites like us such as TripAdvisor as we get a large volume of our traffic via Google search."

Travel sites such as Microsoft's Expedia and TripAdvisor, health site WebMD and local reviews site Citysearch.com have also complained that Google doesn't subject its own content to the same rules it applies to others, placing its own on top of search results.

Google denied wrongdoing. It says its users rely on the search engine to deliver the exact information they seek — not just links — as quickly as possible.

"There should be no barrier between what they seek and what we return to them," Singhal said. "That has been the guiding principle behind Google. We are totally obsessed with the speed of getting answers to users."

The FTC and the Justice Department share antitrust jurisdiction and take turns on major cases. The two agencies can largely levy the same penalties for violations, which in this case could force Google to stop any actions that are found to harm competition.

Unlike in the European Union, the FTC can't levy huge fines to penalize an antitrust violator, though there can be fines if a company fails to comply with an order to stop illegal practices.

But the FTC has the ability to conduct a broader inquiry than the Justice Department, and it can investigate not just for violations of antitrust law but for unfair methods of competition that could lead to violations if allowed to continue, Lande said.

The FTC is also more insulated from White House interference than the Justice Department, a potential factor given Google's close ties to the Obama administration.

The FTC is an independent agency with three Democratic commissioners and two Republicans. President Obama elevated Jon Leibowitz to chairman in 2009 and appointed the other two Democrats. But unlike Justice Department officials, FTC commissioners can't be fired by Obama.

At least three FTC commissioners have to approve an investigation involving subpoenas. An FTC spokeswoman would not say how many commissioners approved the Google inquiry.

The Senate's antitrust subcommittee also is looking into Google's power in the Internet search market.

The committee plans a hearing this summer and could end up issuing a subpoena for Google's chief executive or its former CEO, Eric Schmidt, to testify.

The committee's chairman, Democrat Herb Kohl of Wisconsin, and top Republican member, Michael Lee of Utah, have derided the company for offering only its chief legal officer.

jessica.guynn@latimes.com

jim.puzzanghera@latimes.com

Guynn reported from San Francisco and Puzzanghera from Washington.

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