By Brody Mullins, Rolfe Winkler and Brent Kendall
WASHINGTON--Key staff of the Federal Trade Commission concluded
in 2012 that Google Inc. used anticompetitive tactics and abused
its monopoly power in ways that harmed Internet users and
competitors, a far harsher analysis of Google's business than was
previously known.
The staff report from the agency's bureau of competition, which
hasn't before been disclosed, recommended the commission bring a
lawsuit challenging three separate Google practices, a move that
would have triggered one of the highest-profile antitrust cases
since the Justice Department sued Microsoft Corp. in the 1990s.
The 160-page critique concluded that Google's "conduct has
resulted--and will result--in real harm to consumers and to
innovation in the online search and advertising markets."
The findings stand in contrast to the conclusion of the FTC's
commissioners, who voted unanimously in early 2013 to end the
investigation after Google agreed to some voluntary changes to its
practices. Staff recommendations, which are supposed to remain
private but were inadvertently disclosed in an open-records
request, usually carry significant weight with the agency's five
commissioners.
At the time of the vote, FTC commissioners were grappling with
competing viewpoints, including a separate staff report from its
economics bureau that recommended against a lawsuit.
Then-Chairman Jon Leibowitz said in a written statement at the
time that Google's voluntary changes deliver "more relief for
American consumers faster than any other option."
Google General Counsel Kent Walker said in a statement Thursday,
"After an exhaustive 19-month review, covering nine million pages
of documents and many hours of testimony, the FTC staff and all
five FTC Commissioners agreed that there was no need to take action
on how we rank and display search results."
"Speculation about potential consumer harm turned out to be
entirely wrong," Mr. Walker added. "Since the investigation closed
two years ago, the ways people access information online have only
increased, giving consumers more choice than ever before."
On one central issue--whether Google used anticompetitive
tactics for its search engine--the competition staff recommended
against a lawsuit, although it said Google's actions resulted in
"significant harm" to rivals. In three other areas, the report
found evidence the company used its monopoly behavior to help its
own business and hurt its competitors.
The report undercuts Google's oft-stated contention that the FTC
found no evidence of wrongdoing. "The conclusion is clear: Google's
services are good for users and good for competition," said David
Drummond, Google's senior vice president and chief legal officer,
when the FTC closed the matter.
It could prompt new complaints from some Google competitors,
such as Yelp Inc., who allege the company still engages in
anticompetitive behavior, and renewed focus by antitrust
authorities in Europe, who are pursuing their own look into Google.
European regulators are looking into similar issues examined by the
FTC.
"This document appears to show that the FTC had direct evidence
from Google of intentional search bias," said Luther Lowe, the vice
president of public policy for Yelp.
The Wall Street Journal viewed portions of the document after
the agency inadvertently disclosed it as part of a Freedom of
Information Act request. The FTC declined to release the
undisclosed pages and asked the Journal to return the document,
which it declined to do.
"Unfortunately, an unredacted version of this material was
inadvertently released in response to a FOIA request," an FTC
spokesman said in a statement to the Journal. "We are taking steps
to ensure this does not happen again," the statement said.
Embedded in the document and in detailed footnotes are an array
of previously unknown details about Google's business, many of
which come from senior officials such as Executive Chairman Eric
Schmidt, former executive Marissa Mayer and co-founders Larry Page
and Sergey Brin.
It was well known that Microsoft had complained about Google,
but the document shows the agency also received testimony from some
of the largest U.S. Internet companies, including Amazon.com Inc.
and eBay Inc. Spokespeople from eBay and Amazon declined to
comment.
Data included in the report suggest Google was more dominant in
the U.S. Internet search market than was widely believed. The
company estimated its market share at between 69% and 84% during a
period when research firm comScore put it at 65%.
"From an antitrust perspective, I'm happy to see [comScore]
underestimate our share," the report quoted Google Chief Economist
Hal Varian as saying, without specifying the context.
An antitrust suit against Google would have been one of the most
high-profile in recent history and would have pitted Obama
administration appointees against one of the White House's closest
corporate allies. Google was the second-largest corporate source of
campaign donations to President Barack Obama's re-election effort.
Google executives have visited the White House scores of times
since Mr. Obama has been in office, according to visitor logs. The
White House didn't immediately return a request for comment.
In its lengthy investigation, FTC staff collected nine million
pages of documents from Google and other parties and took the sworn
testimony of Google executives.
The staff report said Google's conduct "helped it to maintain,
preserve and enhance Google's monopoly position in the markets for
search and search advertising" in violation of the law. Google's
behavior "will have lasting negative effects on consumer welfare,"
the report said.
Google has long disputed any characterization that it is a
monopoly, saying that competition is "just a click away."
In discussing one of the issues the FTC staff wanted to sue
over, the report said the company illegally took content from rival
websites such as Yelp, TripAdvisor Inc. and Amazon to improve its
own websites. It cited one instance when Google copied Amazon's
sales rankings to rank its own items. It also copied Amazon's
reviews and ratings, the report found. A spokesmen for TripAdvisor
didn't immediately return a request for comment.
When competitors asked Google to stop taking their content,
Google threatened to remove them from its search engine.
"It is clear that Google's threat was intended to produce, and
did produce, the desired effect," the report said, "which was to
coerce Yelp and TripAdvisor into backing down." The company also
sent a message that it would "use its monopoly power over search to
extract the fruits of its rivals' innovations."
In its final agreement, the commission secured a promise that
Google would allow websites to opt out of having their content
included in its competing search products.
The staff said Google also broke antitrust law by placing
restrictions on websites that syndicate its search results from
also working with rivals such as Microsoft's Bing and Yahoo
Inc.
The commission made no mention of this issue in its final
report, nor did it secure any commitments from Google to change its
policies.
In a third area, the FTC staff said Google violated antitrust
law by restricting advertisers' ability to use data garnered from
Google ad campaigns in advertising run on rival platforms.
The FTC report cited a Google employee who said that the company
once wanted to do away with the unnecessary restriction but was
overruled by Mr. Page, who is now Google's chief executive. A
Google spokeswoman declined to make Mr. Page available.
Ultimately, Google changed this policy voluntarily in 2013 at
the behest of the agency.
On the most important issue, that of Google's prized search
engine, the FTC report said Google manipulated it to benefit its
own services at the expense of rivals. The report said Google
"adopted a strategy of demoting or refusing to display, links to
certain vertical websites in highly commercial categories."
In what it termed "a close call," the staff said the FTC
shouldn't issue a complaint against the company because of legal
hurdles and Google's "strong procompetitive justifications."
The "evidence paints a complex portrait of a company working
toward an overall goal of maintaining its market share by providing
the best user experience, while simultaneously engaging in tactics
that resulted in harm to many vertical competitors, and likely
helped to entrench Google's monopoly power over search and search
advertising," the staff said.
On Jan. 3, the five FTC commissioners voted to close the
investigation. A few months later, now FTC Chairwoman Edith Ramirez
told a Senate committee that a majority of commissioners didn't
support a case against Google on any of the allegations under
investigation.
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