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FTC is right to leave Google alone

Published: 10 Jan. 2013, 19:37

The Federal Trade Commission has reached a landmark resolution of its long investigation into Google’s business practices.

The FTC’s settlement - to drop its antitrust inquiry after the company agreed to make voluntary commitments to change its practices - has provoked criticism that Google is getting off easy. These objections are wrongly placed. The FTC’s approach to resolving the Google case is innovative and pro-consumer. It skillfully uses the commission’s enforcement powers in a manner geared to fast action, flexible thinking and enforceable commitments, rather than to burdensome litigation and sclerotic consent orders. (We have represented Google, but not in this case.)

Since 1998, Google has gone from a fledgling start-up - built around an insight into how best to organize the vast quantities of information on the Internet - to a successful public company that is worth more than $230 billion and employs at least 30,000 people.

Google didn’t rest complacently on its success as a search engine; it reinvented itself many times over, giving us Gmail, Google Calendar and Google Docs, even as it has improved and refined its search technology. Users value the product Google offers: The search engine answers almost five billion queries a day.

The company’s success inevitably attracted the attention of regulators. A business that must change rapidly and innovate constantly in a field of quick and agile competitors presents a challenge. Old regulatory tools must be adapted to the fast-moving realities of the technology industry.

The FTC has done precisely that. Critics, however, have seized on the supposed voluntary nature of the arrangement, and argued that the commission should have insisted on a formal consent order or decree.

A lot was at stake in that legalese. A consent order would have required the FTC or a federal judge to monitor changes that Google wants to make to its business. Just imagine what a consent decree would have done to the dizzying speed with which the company has innovated over the past decade - and what it could have done to new technologies, from cars that drive themselves to virtual-reality displays mounted on eyeglasses. The last thing consumers and the U.S. economy needed was an order from the federal government freezing such a technology innovator in place.

This is particularly so because consent orders can last for decades. Even the most clairvoyant commissioner couldn’t have designed a consent decree in 1992 that could intelligently regulate the technology industry now. Back in the age of the dial-up Internet and floppy disks, it would have been impossible to have foreseen the immense changes on the horizon - Wi-Fi, Facebook, Google, YouTube and Twitter, to name just a few. There is no reason to think we are better prophets now.

Furthermore, consent orders often generate a flood of follow-up lawsuits by competitors and plaintiffs’ lawyers, even when the order has no admission of liability or evidentiary value in the subsequent suit. For example, in 2010, a few months after Transitions Optical, which makes eyeglasses with sun-activated tints, entered into a consent order with the FTC, a total of 16 class-action lawsuits were filed against the company across the country. Insisting on a consent order in Google’s case could have unnecessarily subjected it to years of burdensome litigation. Google should be spending its resources on innovations that benefit us all, not on defending itself against such lawsuits.

One argument raised against the idea of voluntary commitments by Google was the supposed threat that the company would simply renege on its commitments to the FTC. But the resolution allows the agency to enforce Google’s public commitments under Section 5 of the Federal Trade Commission Act, which is used to hold companies accountable for their statements to the public, such as their advertising claims and privacy policies. If Google breaks its promises, it will surely face an enforcement action by the FTC.

Moreover, if Google reneges, it will wind up back in the very same place it is now - with an investigation. And the FTC would have every option available to it at that point; the commission gives up not even a single arrow in its quiver as a result of this deal. It has used voluntary commitments rather than formal orders to conclude investigations before; for example, in 2001 it declined to take action against the merger of General Mills and Pillsbury based on voluntary commitments the parties made.

The only beneficiaries of an onerous consent decree would have been plaintiffs’ lawyers and competitors intent on winning business advantage by slowing Google’s innovations. As the Supreme Court has repeated many times, however, antitrust law is meant to protect competition, not competitors. The FTC’s innovative approach is the essence of smart regulatory intervention in a dynamic industry and is faithful to the commission’s ultimate purpose.

*Neal Katyal was acting solicitor general of the U.S. from May 2010 to June 2011, and J. Robert Robertson is a former chief trial counsel at the Federal Trade Commission. They are partners at Hogan Lovells, where they serve as outside counsel to Google.

by Neal Katyal