FTC Announces Google Settlement; Blocks Patent Enforcement and Closes Investigation

Related: Google, FTC

Google Inc. has agreed to change some of its business practices to resolve Federal Trade Commission concerns that those practices could stifle competition in the markets for popular devices such as smart phones, tablets and gaming consoles, as well as the market for online search advertising.

Under a settlement reached with the FTC, Google will meet its prior commitments to allow competitors access - on fair, reasonable, and non-discriminatory terms - to patents on critical standardized technologies needed to make popular devices such as smart phones, laptop and tablet computers, and gaming consoles. In a separate letter of commitment to the Commission, Google has agreed to give online advertisers more flexibility to simultaneously manage ad campaigns on Google's AdWords platform and on rival ad platforms; and to refrain from misappropriating online content from so-called "vertical" websites that focus on specific categories such as shopping or travel for use in its own vertical offerings.

"The changes Google has agreed to make will ensure that consumers continue to reap the benefits of competition in the online marketplace and in the market for innovative wireless devices they enjoy," said FTC Chairman Jon Leibowitz. "This was an incredibly thorough and careful investigation by the Commission, and the outcome is a strong and enforceable set of agreements."

"We are especially glad to see that Google will live up to its commitments to license its standard-essential patents, which will ensure that companies willing to license these patents can compete in the market for wireless devices," Leibowitz added. "This decision strengthens the standard-setting process that is at the heart of innovation in today's technology markets."

Google is a global technology company with more than 32,000 employees and annual revenues of nearly $38 billion. The FTC also conducted an extensive investigation into allegations that Google biased its search results to disadvantage certain vertical websites; and that Google entered into anticompetitive exclusive agreements for the distribution of Google Search on both desktop and in the mobile arena. The agency decided not to take action in connection with these allegations.

"The evidence the FTC uncovered through this intensive investigation prompted us to require significant changes in Google's business practices. However, regarding the specific allegations that the company biased its search results to hurt competition, the evidence collected to date did not justify legal action by the Commission," said Beth Wilkinson, outside counsel to the Commission. "Undoubtedly, Google took aggressive actions to gain advantage over rival search providers. However, the FTC's mission is to protect competition, and not individual competitors. The evidence did not demonstrate that Google's actions in this area stifled competition in violation of U.S. law."

In response to the agency's concerns about several of its business practices, Google has agreed to take the following steps:

Google will not seek injunctions to block rivals from using patents essential to key technologies

In 2012, Google paid about $12.5 billion to acquire Motorola Mobility (MMI), including MMI's patent portfolio of over 24,000 patents and patent applications. These patents have been a significant source of revenue for at least a decade, and hundreds of MMI's patents are essential to industry standards used to provide wireless connectivity and for internet-related technologies. These standards are essential for smartphones, tablets, gaming systems, operating systems, and the increasing number of devices offering wireless connectivity or high definition video.

Development and use of these types of standards is a cornerstone for many high-tech markets, and encourages innovation and investment in high-tech products, according to the FTC's complaint. By agreeing to standards, companies can ensure that the numerous components of a device or a technology network can work together seamlessly, often called "interoperability."

Setting a standard, however, can have the effect of giving market power to the owner of a patent that is deemed essential to the standard, according to the agency. That patent - even if it is only on a small component of a much larger and more complex device - can be used to "hold up" a licensee for an excessive royalty. To avoid this problem, technology companies involved in setting a standard commit to license standard-essential patents on "fair, reasonable and non-discriminatory" terms - known as FRAND terms.

The Commission's complaint alleges that Google reneged on its FRAND commitments and pursued - or threatened to pursue - injunctions against companies that need to use MMI's standard-essential patents in their devices and were willing to license them on FRAND terms. Specifically the company pursued injunctions in federal district court and at the United States International Trade Commission ("ITC") to block competing technology companies from using MMI standard-essential patents.

The FTC alleged that this type of patent hold-up is what the standard setting organizations sought to prevent by instituting FRAND licensing requirements. According to the FTC, if left unchecked, this type of patent hold-up can lead to higher prices, as companies may pay higher royalties for the use of Google's patents because of the threat of an injunction, and then pass those higher prices on to consumers. This may cause companies in technology industries to abandon the standard-setting process and limit or forgo investment in new technologies, according to the agency.

To remedy this concern, Google has agreed to a Consent Order that prohibits it from seeking injunctions against a willing licensee, either in federal court or at the ITC, to block the use of any standard-essential patents that the company has previously committed to license on FRAND terms.

Google will remove restrictions hampering advertisers' management of their ad campaigns across competing ad platforms

Under a separate commitment, Google has agreed to remove restrictions on the use of its online search advertising platform, AdWords, that may make it more difficult for advertisers to coordinate online advertising campaigns across multiple platforms.

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