June 24, 2011

FTC To Begin Google Antitrust Investigation

The US Federal Trade Commission (FTC) is preparing to open a formal antitrust investigation into whether Internet search giant Google has abused its dominance on the Web, The Wall Street Journal (WSJ) reported Thursday.

The FTC is slated to open the formal inquiry within the next several days. WSJ, citing a source familiar with the matter, said the five-member commission will send Google civil subpoenas and other companies were likely to receive requests for information about their dealings with Google.

The source declined to elaborate on the details of the investigations by the three attorneys general from California, Ohio and New York.

The Texas attorney general and the European Commission have already launched an investigation into whether Google uses its dominance as a major gateway to the Internet to suffocate its online competition. The EU launched its probe after competitors complained that their services were being buried in Google search results.

The Senate Judiciary Committee's antitrust subcommittee is also examining whether Google gives its own services favorable treatment in search results and is looking to have either Google Chairman Eric Schmidt or Chief Executive Larry Page testify before the panel.

Rivals of Google welcomed the FTC antitrust probe.

"Google's practices are deserving of full-scale investigations by U.S. antitrust authorities," FairSearch.org, a coalition of Internet travel sites including Expedia and Hotwire, said in a statement.

"Google engages in anti-competitive behavior across many vertical categories of search that harms consumers by restricting the ability of other companies to compete to put the best products and services in front of Internet users, who should be allowed to pick winners and losers online, not Google," said the group.

Gary Reback, a Silicon Valley lawyer who represents companies competing with Google, stressed that any antitrust investigation needs to take a good look not only at Google's "organic" search results -- which are based on relevance -- but also at "sponsored" results that advertisers pay for, reports the Associated Press (AP).

And because Google powers search functionality on many other Web sites, antitrust officials need to look at organic and sponsored search results on those sites as well, said Reback.

"The distraction that comes from a federal investigation should not be underestimated," Colin Gillis of BGC Partners told Reuters, noting that one of Google's best options to grow -- by moving into adjacent markets -- was being hampered by antitrust probes.

Gillis noted that the real cost of the FTC probe was not financial. "The issue comes down to management distraction, that's a real cost," he said.

Google has been in a stock slump recently. Shares in the company began the year just above $600, but have slid to below $500. Google shares closed at $480.20 on the NASDAQ on Thursday.

Google has been mired in other antitrust setbacks as well. It walked away from a search deal with Yahoo in 2008 after the Justice Department said it was prepared to challenge it. And a NY judge said that a deal Google had made with publishers and authors to create a digital library was illegal, partly because it gave Google the rights to books that are in copyright but whose authors cannot be located.

In April, the Justice Department approved Google's bid into the online travel industry with it $700 million purchase of flight data company ITA Software, but insisted Google meet a number of concessions first.

The deal was opposed by several online travel sites, including Expedia, Kayak, and Travelocity, claiming the deal would give Google too much power over the online travel market.

US Senators, Herb Kohl of Wisconsin and Michael Lee of Utah, in a letter, asked Google's CEO Larry Page or executive chairman Eric Schmidt to attend a hearing in Washington on competition issues in Internet search.

In response, Google said that chief legal officer David Drummond would be a better choice but the senators in another letter to Google, obtained by AFP, that they would "strongly prefer" for Page or Schmidt to attend the hearing.

"A hearing on this important topic would be incomplete without the direct perspective and views from one of Google's top two executives," they said.

The Senate panel could issue a subpoena compelling Page or Schmidt to testify but the senators said they would "very much prefer to work this out by agreement rather than needing to resort to more formal procedures."


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