Jun 252011
 

New York and California are in the early stages of an antitrust investigation of Google Inc., along with Texas and Ohio, said a person with knowledge of the matter who didn’t want to be identified because the probe isn’t public. Photographer Martin Oeser/AFP/Getty Images

June 24 (Bloomberg) — Matt Cutts, lead software engineer and head of the Web spam team at Google Inc., talks about yesterday’s announcement that the Federal Trade Commission has begun a review of Google’s business practices.
Cutts speaks with Emily Chang on Bloomberg Television’s “Street Smart.” (Source: Bloomberg)

Google Inc. (GOOG) said the U.S. Federal
Trade Commission has begun what’s likely to be a broad antitrust
investigation with a review of the business practices of the
world’s most popular search engine.

The company received a subpoena on June 23 “relating to a
review by the FTC of Google’s business practices, including
search and advertising,” according to a regulatory filing
yesterday. Google said it is cooperating with the probe.

U.S. and European investigators are stepping up their
scrutiny of Google, questioning whether its dominance in search
blocks competition or harms consumers. The company, much like
Microsoft Corp. (MSFT) in the 1990s, may spend years defending itself,
a management distraction that may also hinder acquisitions, said
Colin Gillis, an analyst with BGC Partners LP in New York.

“You have to be worried about this,” said Gillis, who
rates the stock a hold and doesn’t own it. “At the best case
scenario, it’s neutral. There are no positives here.”

FTC spokesman Peter Kaplan confirmed the investigation,
while declining to comment further. Andrew Kovacs, a spokesman
for Google said he couldn’t comment beyond a post yesterday on
the company’s blog.

‘Google is a Choice’

“Using Google is a choice,” Amit Singhal, a Google
fellow, said on the blog. “There are lots of other choices
available to you for getting information: other general-interest
search engines, specialized search engines, direct navigation to
websites, mobile applications, social networks, and more.”

Google had 66 percent of searches in the U.S. during May,
according to ComScore Inc. in Reston, Virginia. Yahoo! Inc. was
a distant second at 16 percent with Microsoft holding 14
percent. The two smaller search players formed an alliance last
year. Google had more than 80 percent market share in Germany,
France, Italy and Spain during May, according to ComScore.

Google, based in Mountain View, California, declined $5.34,
or 1.1 percent, to $474.88 in Nasdaq Stock Market trading
yesterday. The shares have dropped 20 percent this year.

The FTC should examine whether Google doctored search
results to “raise the cost of Google’s rivals, raise their
advertising costs, raise their development or operating costs,”
Melanie Sabo, an FTC official who is likely to play a leading
role in a Google probe, said at a panel discussion in December.

‘Decrease Eyeballs’

The FTC may also want to know whether Google tried “to
decrease the number of eyeballs” viewing competitors’ websites,
said Sabo, assistant director for the FTC’s anticompetitive
practices division. Sabo said at the time she was speaking for
herself and not the agency.

Already, the FTC alerted technology companies of plans to
gather information from them for the probe, three people
familiar with the matter said in April. The agency is likely to
examine whether Google tried to subdue rivals with threats and
jacked-up advertising rates, lawyers have said. The company’s
conduct in new sectors, such as mobile devices, also will
probably be a focus, they said.

New York and California are in the early stages of an
antitrust investigation of Google, along with Texas and Ohio,
according to a person with knowledge of the matter who didn’t
want to be identified because the probe isn’t public.

Officials at the European Union have also started
investigations into Google’s dominance of the Internet search
industry.

Admeld Review

The antitrust division of the U.S. Justice Department also
is reviewing the company’s $400 million purchase of Internet
advertising company Admeld Inc., two people familiar with the
matter said last week.

“Nothing like Google has ever existed before,” said Bert Foer, president of the American Antitrust Institute in
Washington. “We are working in new territory here. It’s good
that we have two agencies looking at various aspects of Google
and hopefully they are sharing some information and ideas.”

The government negotiated a settlement with Microsoft in
2001. Microsoft operated under U.S. court supervision during a
U.S. review period that ended last month, and included regular
checks to ensure the company gave computer makers freedom to
promote rival products.

Google officials may be able to respond effectively to
requests for information because “data is what they do,” said
Marc Schildkraut, a lawyer at Dewey & LeBoeuf LLP in Washington
and former assistant director of the FTC’s Bureau of
Competition.

‘Tipping Point’

While complying with an investigation can be burdensome,
the bigger challenge would come if regulators file a formal
complaint, Schildkraut said.

“Just because a company gets a subpoena doesn’t mean it’s
dead man walking,” Schildkraut said. “The tipping point is the
filing of a complaint. That’s when it really gets serious.”

As a defense, Google may want to show how consumers benefit
from its search service, said David Balto, a former Federal
Trade Commission official whose Washington-based public interest
law practice represents consumer groups.

“What Google does through its algorithm is protect
consumers from deceptive and fraudulent misuse of search,”
Balto said. “That is conduct the FTC should applaud. After they
plough through the data I think they will conclude there is no
wrongdoing.”

To contact the reporters on this story:
Brian Womack in San Francisco at
bwomack1@bloomberg.net;
Sara Forden in Washington at
sforden@bloomberg.net

To contact the editors responsible for this story:
Tom Giles at tgiles5@bloomberg.net;
Michael Hytha at mhytha@bloomberg.net

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