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March 4, 2013

Expert Panel Reacts to Google’s Victory Over FTC

Experts at a recent _ Section of Antitrust Law panel discussion debated whether the results of the Federal Trade Commission’s investigation into certain Google business practices, including those related to search and search advertising, were fair.

After an investigation of nearly two years, the FTC in January declared that Google had not violated antitrust or anticompetition statutes in the way it arranges its Web search results.

The allegations were that, through an algorithm change, “Google unlawfully promoted its own products, or universal search results, on its search results page at the expense of its rivals and demoted rivals’ products on its search results page to maintain a monopoly over the fields of general search and search advertising,” said Barbara Blank, an attorney with the FTC.

The FTC voted 5-0 to close the investigation into the allegations of search bias without taking further action, Blank said. Now the commission is faced with some questions about the investigation.

The theory was that Google’s “vertical” rivals — websites that offer search capabilities in niche categories, such as products, local and travel — represented a nascent threat to Google’s alleged power over the fields of general search and search advertising, Blank said. “In other words, while none of these vertical rivals alone could constrain Google’s monopoly, collectively they served to threaten the most valuable parts of Google’s search portfolio: the areas of search that are typically the most lucrative from an advertising standpoint,” she said. “Pursuant to this threat, the story goes, Google thought to handicap these vertical websites and to extinguish future innovation in these areas.”

The FTC reviewed evidence from vertical competitors “that suffered as a result of Google’s algorithm changes,” Blank said. “Certain companies showed us that the rankings were clearly impacted by these changes as well as by Google’s positioning of its universal search results. In many cases, their search rankings went down, and they lost significant traffic from Google.

“But the criticism made by some competitors that we didn’t review enough evidence or seek to interview and subpoena every vertical player affected is without merit,” she added. “We reviewed evidence from many key players in several different vertical areas. At some point you’ve seen enough. We got the message: Some rivals’ search rankings went down.”

The FTC also found significant evidence that in implementing its changes, Google believed it was improving its product, and that according to its own internal measurements, it was creating search results that were more useful and desirable for consumers, Blank said. “In the antitrust area, that’s a pretty compelling business justification,” she said. “In some circuits, like the Ninth, where we might have ended up … that’s the end of the road for any monopolization challenge.”

The FTC’s conclusions were driven by an “adviser” view of search engines, said James Grimmelmann, professor of law at New York Law School. Users need “advisers to point them at different sources of information they can draw on,” he said. “So Google and other search engines function as advisers. The user consults with them by providing some information and receives back some suggestions about what content might be relevant to them and where it is.”

If a search engine adjusts its algorithms in a way that users find more relevant, giving them better results, the competitors who are harmed have no legitimate gripe, Grimmelmann said. “Users have been steered away from them to results that the users like better.”

Jonathan Kanter, a partner at Cadwalader, Wisckersham & Taft LLP, whose clients include Microsoft, shares a less sunny view of the results of the investigation. “I represent a number of clients who have concerns about Google’s conducts and are dissatisfied at the outcome at the Federal Trade Commission,” he said. “Now, I can’t speak for the commissioners, and I wouldn’t intend to do that, but I can observe that if you look at [their] statements, it does raise more questions than answers, and it certainly raises questions about whether the 5-0 vote is the clean bill of health that some suggest it may have been.”

Search engines are multisided platforms, Kanter continued. “In essence, it’s a matching service,” he said. “They’re technology or software that’s designed to match users to advertisers and websites to users. If you think about a search engine, in this case Google, as a matching service, then you need to undertake an antitrust analysis that understands whether it’s engaging in anticompetitive conduct, it’s engaging in conduct or altering or using its dominant platform in order to harm competition. And when assessing competitive effects, you need to assess whether the effects are on all sides of that market.”

Jeff Blattner, president of Legal Policy Solutions LLC, said any fair reading of the commission’s statement would conclude that the commission found that the justifications that Google offered were supported by ample evidence that other firms used similar practices. “Google’s design changes were developed and implemented to benefit users, not websites, users,” he said.

To say that search results are biased, you have to have some conception of what unbiased results would look like, Grimmelmann said. “This has gone by the name of search neutrality,” he said.

Search engines are neutral if they drive their results based on objective criteria based solely on relevance to users, he said. “If you mean by search neutrality that all sites should be ranked identically, that doesn’t make sense,” Grimmelmann said. “The point of search is to draw distinctions between websites. Really the claim is that search engines should make purely objective distinctions between results. The idea would be that Google ranks higher for its own flights than Kayak does just because it’s Google. That’s not objective, treating Google specially. It’s favoritism. That should be prohibited.”

The event was held at Wilson Sonsini Goodrich & Rosati in Washington, D.C.

Learn More About:  Antitrust