By Brody Mullins, Rolfe Winkler and Brent Kendall
WASHINGTON--Officials at 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 rivals, a
far harsher analysis of Google's business than was previously
known.
The staff report from the agency's bureau of competition
recommended the commission bring a lawsuit challenging three Google
practices. The move would have triggered one of the highest-profile
antitrust cases since the Justice Department sued Microsoft Corp.
in the 1990s.
The 160-page critique, which was supposed to remain private but
was inadvertently disclosed in an open-records request, 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.
It is unusual for the commissioners to not take staff
recommendations. But in this case, they were wrestling with
competing recommendations, including a separate report from the
agency's economic bureau that didn't favor legal action.
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
that the FTC ultimately "agreed that there was no need to take
action on how we rank and display search results." He added:
"Speculation about potential consumer harm turned out to be
entirely wrong. 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 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 rivals.
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.
"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."
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.
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 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 FTC is an independent agency and we respect their
independent decision-making," said Jennifer Friedman, a White House
spokeswoman.
In its investigation, FTC staff 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.com Inc. 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. Spokesmen for
TripAdvisor and Amazon declined to comment.
When competitors asked Google to stop taking their content, it
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 publish 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 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 for
comment.
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 altered 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.
Write to Brody Mullins at brody.mullins@wsj.com, Rolfe Winkler
at rolfe.winkler@wsj.com and Brent Kendall at
brent.kendall@wsj.com
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