Why is FTC investigating Google?

The Federal Trade Commission is conducting an investigation of Google, although what it is investigaing isn't clear, the company claimed in a blog post June 24.

The FTC appears to be scrutinizing the Internet search company over possible antitrust or breach of consumer protection issues, but won't discuss the matter publically because the investigation is ongoing.

The current speculation is that Google may be headed for the same sort of competition inquiry with regard to its search-advertising business practices that Microsoft faced with its Windows business some years back. The U.S. government found Microsoft guilty of abusing its Windows monopoly position in 2002, but U.S. Department of Justice supervision of Microsoft only just ended in May.

Google's announcement states that it received a "formal notification from the U.S. Federal Trade Commission that it has begun a review of our business." The Mountain View, Calif.-based company also filed a statement with the U.S. Securities and Exchange Commission, confirming the FTC's investigation.

"On June 23, 2011, Google Inc. received a subpoena and a notice of civil investigative demand from the U.S. Federal Trade Commission (FTC) relating to a review by the FTC of Google's business practices, including search and advertising. Google is cooperating with the FTC on this investigation," the SEC statement read, which was filed as a Form 8-K.

Clues as to what the FTC may be investigating might be found with past litigation in Europe. In March, Microsoft announced that it had filed a complaint with the European Commission that Google's search-advertising service was anticompetitive by not providing information to other search providers. Microsoft's complaint followed earlier complaints lodged last year by three companies -- Foundem, ejustice.fr and Microsoft's Ciao! from Bing. Google alleged at that time that Microsoft worked behind the scenes to support those companies' complaints.

The European Commission announced an investigation of Google in November of last year. At that time, the EC indicated that it was investigating Google for "allegedly lowering the ranking of unpaid search results of competing services." It was also seeing if Google had "lowered the 'Quality Score' for sponsored links of competing vertical search services." In addition, the EC said it was investigating if Google was imposing "exclusivity obligations on advertising partners" that disallowed them from including competing ads on their Web sites or porting Google ad data to competing ad platforms.

Industry pressure group FairSearch.org -- supported by companies such as Microsoft, Tripadvisor, Travelocity and Kayak, among others -- outlined five points where Google allegedly competes unfairly the search-advertising business. In a blog post today noting Google's FTC response, FairSearch.org said that Google was "steering users to its own products." The organization also accused Google of search manipulation, stealing content from Web sites, buying companies that threaten Google's market grip, and treating its advertisers and partners unfairly by inflating ad prices.

FairSearch.org and Microsoft had opposed Google's plan to acquire ITA Software. ITA is a maker of search software that tracks commercial airline flights. In April, the U.S. Department of Justice cleared Google's purchase of ITA under certain conditions. Google had to license ITA's software at reasonable terms. It had to set up a firewall to prevent its use of commercially sensitive information obtained by the software. It also was prohibited from blocking access to booking and seating information by rivals.

The Wall Street Journal initially broke the story that Google was under FTC scrutiny, suggesting that the inquiry could potentially expand into the sort of antitrust scrutiny that Microsoft faced in the 1990s. In an article (subscription required), WSJ reporters described the inquiry as a "civil probe" into whether Google had abused its market dominance in Web-search advertising, citing "people familiar with the matter." Google's lawyers have previously met with FTC officials "several times" to explain Google's business, the WSJ article stated.

Google's business practices also are being investigated by state officials in California, Texas, New York and Ohio, according to the WSJ's account.

Worldwide use of the Google search service has near monopoly status. Yahoo's and Microsoft's search services regularly show up in search market stats as distant No. 2 and No. 3 competitors, respectively, compared with Google's search. Microsoft's deal with Yahoo, in which Yahoo's sites are powered by Microsoft' Bing search engine, hasn't made much of an impact on market share. However, so far, the Microsoft-Yahoo search integration is only in effect for the U.S. and Canadian markets.

A proposed search-advertising deal between Google and Yahoo was knocked down by the Justice Department in 2008, according to the WSJ.