FTC: Google Must License Mobile Patents, No Search Violations

Google FTC Antitrust Ruling

Google has agreed to license its standards-essential mobile technology patents in response to a finding Thursday by U.S. Federal Trade Commission (FTC) that the Mountain View company had abused its ownership of them by refusing to share the patents with competitors under reasonable terms. Google’s decision to change its policy on the patent licensing issue, as well as the resolution in its favor of a separate inquiry into the company’s Web search practices, effectively brought to an end Google’s 18-month saga with the 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,” the FTC said Thursday. “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.”

Google, which acquired most of the patents at issue with its purchase of Motorola Mobility in 2011, was refusing to license some of its patents to competitors such as Apple on reasonable terms, or at all.

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.

Many of these patents were deemed to by “standards-essential” patents (SEPs), which is a patent on a process or technology so critical that it is required in order for a product or service to comply with a standard. In the case of Google, its patents were related to the mobile device and communication industries, and were found to be essential to the proper functioning and competitiveness of that field.

The very nature of SEPs result in most standards organizations and regulating bodies requiring that companies under their jurisdiction license these patents on grounds that are fair, reasonable, and non-discriminatory (FRAND). In the absence of such requirements, single companies or patent holders could potentially cripple entire industries by denying access to critical technology.

The requirement that companies license their SEPs is therefore presented as an important consumer protection issue, as Google’s decision was by FTC Chairman Jon Leibowitz:

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. 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. This decision strengthens the standard-setting process that is at the heart of innovation in today’s technology markets.

FTC Announces Google Antitrust DecisionThe FTC Announces the Google Decision
Image via CNET

Following Thursday’s events, the value Google’s purchase of Motorola Mobility, which was an effort to by the company to protect itself during the mobile patent “arms race,” is less clear. The cost to Google of the acquisition was US$12.5 billion, and the FTC’s pressure has forced the company to give up a significant amount of power and control.

In the words of Asymco’s Horace Dediu: “‘Google buys Motorola for its patents.’ How is that working out?”

The second issue involving Google and the FTC was related to the company’s Web search practices. Google operates by far the dominant search engine, with over 75 percent of U.S. search market share. The company also operates a number of related services, such as mapping, shopping, and, its most lucrative business, advertising.

When it launched its investigation, the FTC was concerned that Google was abusing its market dominance to unfairly promote its own services at the expense of competitors, something that may be illegal in the United States if done by a company with monopoly power.

In its decision on the matter Thursday, the FTC issued warnings but took no formal steps, finding that the way Google arranges and displays its search results does not violate antitrust regulations. Beth Wilkinson, outside counsel for the FTC, explained the Commission’s reasoning:

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.

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 FTC’s concerns, Google agreed to change the way it handles its advertising service, AdWords, giving individual advertisers more control about how their ads are displayed and coordinated between multiple campaigns across the Web. The company will also give websites the option to opt-out of its “vertical” web offerings, which automatically appropriates content, such as user reviews and star ratings, from other websites into Google’s search listings. However, companies that opt-out of the vertical listings will still appear in Google’s standard search results.

Despite the FTC’s strong stance on the patent issue, the Commission’s other rulings on search and advertising practices were seen as a major victory for Google, drawing the harsh criticism of Google rival Microsoft.

Recalling its own protracted battles with regulatory agencies in the past, Microsoft claims that the FTC’s ruling “falls short of the mark” and that nothing in the Commission’s ruling regarding Google’s Web practices can prevent the company from reverting to its old behavior in the future.

Google cannot put the matter entirely behind it following Thursday’s events, however. The company is still facing investigations for similar conduct in the European Union, which has yet to make a determination on the complaints.