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Google's lawyers under siege

(Guardian Web Via Acquire Media NewsEdge) Google is threatened by a "perfect storm" of litigation with the US Federal Trade Commission (FTC) and the European Commission both readying legal action over how it promotes its own services in search results, and the patent-wielding behaviour of its Motorola Mobility Inc (MMI) phone subsidiary.

Just as seriously, the EC is considering whether Google's Android mobile operating system needs to be regulated as it becomes increasingly dominant in mobile search and advertising. Rivals allege that the software, which is provided to handset makers for free, constitutes illegal predatory pricing intended to drive rivals out of the market.

The FTC's chairman, Jonathan Leibowitz, is widely reported to have given Google a deadline of a few days to sign a consent decree that would cover its future behaviour in the search space, or face a lawsuit similar to that which tied up Microsoft in 1998 and eventually saw it convicted of antitrust offences.

"To avoid potential ligitation, Google may opt to sign a consent decree," Bradley Shear, a US-based lawyer who specialises in technology, told the Guardian. "If Google refuses to settle and the FTC files a lawsuit, the FTC may also decide to open an investigation into Google's other practices, such as its privacy policy changes from earlier this year."
Meanwhile the European Commission's antitrust commissioner Joaquin Almunia could also move against Google within the next few weeks if the negotiations underway since the summer do not reach a satisfactory outcome. Like the FTC, Almunia is concerned that Google favours its own products – and that this keeps potential European competitors from flourishing because they are consigned to a position a long way down the list of search results while Google's own are prominently displayed on its first results page, which 90% of users never go beyond.

Almunia's team has been investigating Google since November 2010 and is understood to be readying a statement of objections to Google's behaviour in presenting search results that include its own products, such as Google Shopping, in preference to rivals'. Sources in Brussels indicated to the Guardian that the statement could be delivered by early December if the negotiations with Google, which have been going on since July, are not resolved soon.

Also in Almunia's sights is Google's Android mobile operating system and the position it holds in the smartphone market. In the third quarter of this year, Android devices made up 75% of smartphone shipments – though many of those were to the Chinese market.

The concern in Europe is that making Android free to handset makers constitutes a form of predatory pricing, said David Wood, a lawyer at Gibson Dunn who also advises Icomp, a lobbying group funded by Microsoft, which opposes Google's search dominance. "If you never expect to get the money you put into something back, then it's essentially a gift, commercially speaking," Wood said. "But if there's intent to recoup the cost, then behaviour relying on its cost to drive others out could be construed as predatory. It's a well-established form of abusive commercial behaviour." Microsoft charges handset makers for licences to its Windows Phone mobile software.

However Almunia's concern about Android is believed to be mainly about its dominance of the fast-growing mobile search advertising and mobile browsing markets.

In the US, Barack Obama's defeat of Mitt Romney to become president is understood to have put the FTC action – which follows more than 18 months' investigation – back to the top of the list of potential lawsuits. Had Romney been elected, any FTC action would have been put on indefinite hold but the reinstatement of the Democratic president has put a decision back on the agenda.

"There is no set time table for when the FTC may act," Shear says. "However, since Leibowitz may leave his position at the end of the year, this may be the unofficial deadline to wrap up the Google antitrust matter."
The Guardian understands that the FTC's staff has passed a file recommending action against Google to its five commissioners, who must make a majority decision whether to take legal action against the search giant or seek a consent decree.

If the action goes ahead, it would be one of a growing number against Google. The FTC has already acted against it twice, in March 2011 binding it to a 20-year oversight of its privacy policies for the rollout of its Buzz social network, and in August 2012, fining it $22.5m for intentionally circumventing the cookie protections in Apple's Safari browser.–At the time it was a record fine against a single firm.

Separately, the US Department of Justice fined the company $500m in August 2011 for knowingly displaying adverts for illegal Canadian pharmaceutical businesses on its US site between 2003 and 2010, even though it had been warned by the DoJ the ads would probably break the law.

Google is extremely concerned at the idea that an outside agency might decide how it should order its search results – so much so that it commissioned the law professor Eugene Volokh, of the University of California, to argue the case that because the results' order is determined by humans, they count as "free speech".

Search engine results, argued Volokh, "are all, at their core, editorial judgments about what users are likely to find interesting and valuable. And all these exercises of editorial judgment are fully protected by the First Amendment." And that, he says, should put them beyond US litigation.

More generally, Google has not accepted that it is distorting the search market by pushing its own products over rivals, including Foundem and Ciao, both of which complained to the EC about being pushed down its rankings. The chairman, Eric Schmidt, even insisted to the US Congress in November 2011 that the company "doesn't have separate products and services" such as news, images, video, and local business listings; instead it has one "universal search" product.

But Matt McGee of the Search Engine Land site calls that a semantic argument and says it's untrue – because Google often refers to separate products and services, and sometimes closes them down. "It's disingenuous, at best, for [Schmidt] to claim that YouTube, Google Maps, Google News and other Google products that appear as universal search results aren't actually separate products," McGee commented.

Whether through consent decrees and negotiation, or legal force, the FTC and EC are closing in on how Google presents its search results, so that it may at least become clear when Google is pushing its own products. The worst outcome for the search giant would be continued oversight by slow-moving regulatory bodies – anathema to a company that makes hundreds of changes to its search algorithms every year, at an average of more than one a day.

But that is only the beginning. Its MMI subsidiary is also under investigation in the US and Europe over its refusal to provide both Apple and Microsoft with licences for "standards-essential" patents used in mobile phones and the Xbox. MMI's aggressive use of those patents goes against the agreement it signed to make them become standard – which was that it would license them to anyone, on "fair, reasonable and non-discriminary" (FRAND) terms. Instead, MMI is accused of unilaterally withdrawing the licence for one patent in 2007 from a Chinese chip maker – because it made chips for Apple's new iPhone, a clear rival to MMI's ambitions in smartphones. Microsoft, meanwhile, faces import threats against the Xbox 360 into the US, apparently because it is trying to get MMI to pay a levy on the non-standard (and so not FRAND-licensed) patents it claims on Android smartphones.

MMI's problems with the EC and FTC predate Google's acquisition of the company. But Google, which controls MMI's legal moves, has done nothing to temper the legal aggression, with two lawsuits against Apple having been dismissed in the US and another that opened this week against Microsoft.

The prospect of governments on two continents moving against Google's dominance because of concerns that it is wielding its power in the market too much in its own favour would have seemed far-fetcheduntil recently. But in the wake of the criticism from European data protection commissioners – led by the French data protection agency CNIL – and its battles with book publishers who have claimed that it has trampled their copyright in its book scanning project, Google is fighting a number of legal battles that have affected its reputation as a disinterested selector of the best-regarded sites on the web, indexing the world's information.