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U.S. Said to Waver on Antitrust Case Against Google

By Sara Forden and Jeff Bliss
November 21, 2012 12:01 AM EST 19 Comments
Google Inc.’s argument, made publicly by Executive Chairman Eric Schmidt, is that its rankings help consumers who seek the best answer to a query rather than links to other information sources.
Photographer: Tony Avelar/Bloomberg
Google Inc.’s argument, made publicly by Executive Chairman Eric Schmidt, is that its rankings help consumers who seek the best answer to a query rather than links to other information sources.

Google Inc. (GOOG) may skirt the most serious antitrust allegations under investigation by the U.S. as regulators waver on whether they can prove consumers are hurt by the way the company ranks its search results, three people familiar with the matter said.

Federal Trade Commission officials are unsure they have enough evidence to sue Google successfully under antitrust laws for giving its own services top billing and pushing down the offerings of rivals, said the people, who asked for anonymity because the discussions aren’t public. Regulators are also looking at whether the ranking system’s benefits to consumers outweigh any harm suffered by rivals including NexTag Inc. and Kayak Software Corp. (KYAK), the people said.

The agency is under pressure to extract concessions from Google after winning a battle with the Justice Department’s antitrust division over which regulator would probe the world’s most popular search engine. The complaints about skewed search results represent a far greater threat to Google’s business than any of the FTC’s other concerns, said Keith Hylton, a Boston University law professor who has written several books on antitrust topics.

“The only part of the case that goes to the heart of what Google does is the search-biasing claim,” Hylton said. “If that drops out of the FTC’s case, then you have something that doesn’t seem to be all that interesting in terms of antitrust law.”

Antitrust Concerns

FTC Chairman Jon Leibowitz told Google to propose a resolution to a host of antitrust concerns in the coming days or face a lawsuit, two people familiar with the matter said last week.

The issues include Google’s exclusive agreements to provide search services to online publishers and allegedly misusing patents to try to block rivals’ smartphones from coming to market. The FTC also is treating seriously complaints that Google has used customer reviews from other websites without permission, the people said.

“We continue to work cooperatively with the Federal Trade Commission and are happy to answer any questions they may have,” said Niki Fenwick, a spokeswoman for Mountain View, California-based Google. She declined to comment specifically on the search allegations.

Peter Kaplan, an FTC spokesman, declined to comment on the probe.

Google rose $1.76, or 0.3 percent, to $669.97 at the close of trading in New York.

A final vote by the agency’s five commissioners on whether to file a lawsuit, and what its scope should be, is expected before the end of the month, the people said.

European Union

Separately, the European Union, now in settlement talks with Google over antitrust concerns, is pressing the company to make changes to its search practices.

Google’s ranking of search results should be part of any legal action the FTC brings, said Matthew Reilly, a former top FTC litigator who works with Fairsearch.org, a group whose members include Microsoft Corp. (MSFT)

“With Google being able to decide who the winners or the losers are -- and they always win -- it chills innovation and kills the incentive to produce the best content,” he said.

Google is putting its own restaurant reviews, maps and shopping services at the top of the results page, and the top three results garner 88 percent of users’ clicks, according to Fairsearch.org.

The group began an Internet and print-ad campaign Nov. 19 featuring web entrepreneurs complaining about Google’s search practices.

Search Algorithm

Reilly, a Washington-based partner at Simpson Thacher & Bartlett LLP, said the commission should make Google apply its algorithm, the complex mathematical formulas used to rank search results, equally to its own content and that of third parties.

Fairsearch.org also is pressing the FTC to force Google to sell off businesses that have benefited from what it claims is search manipulation and appoint a monitor who would ensure the company is ranking results fairly.

Google is “going to put up a big fight” before agreeing to cede any control of its algorithm, Hylton said.

Google’s argument, made publicly by Executive Chairman Eric Schmidt, is that its rankings help consumers who seek the best answer to a query rather than links to other information sources.

A Google search for a plane flight, for example, will produce a top-ranked list of Google-generated options ahead of links to online travel agencies such as Expedia Inc. (EXPE) and Kayak.com.

‘Relevant Answers’

“Our challenge is to return the most relevant answers first,” Schmidt said at a Senate hearing last year. “This means that not every website can come on top.”

The disadvantage is that consumers may not get information about the lowest ticket prices, rival travel agencies argue.

Courts have split on how to weigh consumer harm under antitrust law.

A 2001 opinion by a federal court in Washington in the government’s case against Microsoft established the idea in such lawsuits of balancing an innovation’s harm to competition against any benefits that consumers might derive from it.

In a 2010 case, Allied Orthopedic Appliances Inc. v. Tyco Health Care Group, the U.S. Court of Appeals in San Francisco said such so-called balancing tests are unnecessary.

“Search is the essence of Google’s monopoly,” said Gary Reback, an antitrust lawyer in Menlo Park, California, who represents companies that have complained about Google’s practices. “If the FTC is just going to walk away from it, it’s giving Google a free pass to push down rivals.”

To contact the reporters on this story: Sara Forden in Washington at sforden@bloomberg.net; Jeff Bliss in Washington at jbliss@bloomberg.net

To contact the editors responsible for this story: Michael Hytha at mhytha@bloomberg.net; Steven Komarow at skomarow1@bloomberg.net

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