November 14, 2012 5:22 pm

Timing of FTC ‘Big Google’ case points toward settlement

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The Federal Trade Commission (FTC) is meeting with Google’s (NASDAQ: GOOG) smartphone competitors as the agency’s unfair competition investigation into the company grows ripe for action, but both sides expect a negotiated settlement, according to two FTC lawyers, a source close to the investigation, and four former government antitrust attorneys.

“Everybody at the FTC is operating on the belief that the ‘Big Google’ matter will be resolved by the time [Chairman Jon] Leibowitz leaves,” said one of the FTC lawyers.

The second FTC lawyer confirmed that commission staff expect Leibowitz to leave at the end of this year or near the time of President Obama’s inauguration on 21 January.

The chairman’s impending departure may be motivated in part by his daughter’s university matriculation next fall, several sources said.

Leibowitz’s daughter is rumored to be interested in attending a private college which is “quite costly”, said a person claiming knowledge of the matter.

Sources agreed that the FTC’s posturing, largely in the form of media leaks, also indicates a settlement is forthcoming.

“It seems to me this is a negotiating posture by the FTC. They clearly want to bring it to a head, and doing it in the form of an ultimatum is one way to get there,” said a second person claiming knowledge of the matter.

However, by floating their theory of competitive harm to the media, commission officials have imposed a certain degree of pressure upon the FTC itself, noted one of the former government litigators.

“When you’ve postured the way they have, that they’re about ready to go forward, it’s hard to stop the clock,” the litigator said.

The same former litigator added that the FTC and Google “each know what cards the other one is holding”, which means the discussions likely have “one or two more back and forths” before the FTC would need to signal a serious intent to litigate the case.

If the FTC plans to litigate ‘Big Google’, the commission can delay that decision only about two or three more weeks before beginning to lose credibility in the case, the former litigator continued. On the other hand, consent decree negotiations could proceed over the course of several months, as attorneys on both sides would be working toward agreement upon the exact settlement terms, the litigator said.

Several sources outside of the FTC said that media leaks have reflected the chairman’s approach to negotiating.

Leibowitz, who is married to a journalist, has been “very savvy about what’s printed and what’s in the press”, according to the first person claiming knowledge.

“I just assume that’s his attempt to look personally tough,” the source close to the investigation said of the chairman’s media strategy. “Leibowitz is a political operator.”

Certain aspects to flesh out, FTC looks for a ‘win’ on ‘scraping’ and API

According to the two FTC attorneys, the commission is continuing to flesh out certain aspects of the investigation, such as the fair, reasonable and non-discriminatory (FRAND) licensing of standard-essential patents (SEPs) by Motorola Mobility, which is owned by Google.

The FTC had been waiting for the decision in a lawsuit that Apple (NASDAQ: AAPL) filed against Motorola Mobility in a US district court in Wisconsin, the FTC attorneys said. The district court dismissed that case with prejudice during a hearing on 5 November.

Apple representatives visited the commission on 13 November to discuss the ‘Big Google’ investigation, of which the smartphone patent issue is a strong component, the FTC attorneys added.

The FTC attorneys agreed the commission has a reasonably solid case against Google on two other points: the compatibility of Google’s application programming interface (API) with other online advertising platforms; and “scraping”, which involves the uncompensated use of key information from other online sources, such as customer review sites.

The commission could also pursue charges of exclusive dealing and the promotion of Google’s own content in its organic, non-paid search results, the FTC attorneys said.

The FTC’s work in these areas was viewed with some skepticism by one former government antitrust attorney and Greg Neppl, an antitrust partner with Foley & Lardner. Neppl explained that the FTC does not have “the resources or expertise to become a regulator of Google’s search algorithms”.

In part because of these challenges, which multiple sources described as “an uphill battle” for the FTC, and in part because of the chairman’s impending departure from the commission, a negotiated settlement remains the most likely outcome, all sources agreed.

“Leibowitz wants to cut a deal,” said the source close. “Every bone in his body is about being able to claim this as a win. And it’s always been the case that the threat of a suit is the ultimate stick that he can use to get that win.”

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