Google forges ahead with search, privacy changes despite regulatory scrutiny

Google is forging ahead with changes to its search engine and its privacy policy despite the risk of a crackdown by government regulators.

Earlier this month, Google began highlighting content from its social networking site Google+ in search results. Critics argue that by giving a preference to its own service over competitors like Facebook and Twitter, Google ran afoul of antitrust laws that ban anticompetitive behavior.

The Federal Trade Commission (FTC) was already investigating Google for potential antitrust violations, and a consumer group has urged the agency to include the search changes as part of its probe.

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Just as the furor over the search changes began to subside, Google announced an overhaul of its privacy policy, allowing it to share user information across its various services. The change means users could see ads in Gmail based on the videos they watch on YouTube, for example.

Both moves were bold considering Google is already under intense scrutiny for potential antitrust and privacy violations.

"They made the calculation that the response would be manageable," said Larry Downes, a fellow with think tank TechFreedom and an expert on corporate strategies and technology law. 

"They've been under so much scrutiny from the FTC and certain members of Congress, I think they made the decision we are going to just carry on as usual."

Both of Google’s moves make sense from a business perspective. Highlighting social networking content could make search results more personalized and relevant and could give a boost to Google+, which still lags far behind Facebook.

And merging the company's privacy policies will allow Google to tailor search results to individual users and could boost advertising sales, Google's primary source of revenue.

But the moves aren’t without their costs.

The privacy update sparked an outcry from lawmakers who worry about the detailed information Google is assembling on its users. 

GOP Rep. Marsha Blackburn (Tenn.), no fan of aggressive regulations, accused the Web giant of moving to "eradicate consumer choice" and warned it might "unilaterally and unnecessarily invite even broader government regulations on everyone else."

On Friday, Reps. Ed Markey (D-Mass.) and Joe Barton (R-Texas) asked the FTC to investigate whether the privacy changes violate Google's settlement last year over its now defunct social network, Google Buzz. The FTC accused Google of violating its own privacy policy by not allowing users to opt out of Buzz, and the settlement imposed a set of new privacy requirements on Google. 

In a blog post, Google emphasized users still have control over their privacy settings and said it will not collect any new data about users.

A Google spokesman said the update makes the privacy policy easier to understand and noted the company was already sharing some information between services. Google Calendar, for example, suggests names based on a user's contacts in Gmail. 

Downes said if Google tried to hold out for less scrutiny before changing its products, it could end up waiting forever.

He pointed to the case of IBM, which he said was so "paranoid" about antitrust issues in the 1980s that the company failed to make bold business moves and fell behind its competitors. 

Google's mindset is likely: "Until we're sued, we're just going to carry on running the company the way that we think is legal and is best for our users," Downes said. 

He said the antitrust allegations pose a far more serious threat to Google than the concerns about privacy violations.

"There's no real privacy law outside of medical records," Downes said. 

Antitrust law, on the other hand, can be used to break a company apart.

FTC commissioners, including Chairman Jon Leibowitz, have argued they have the power to bring a "pure Section 5" suit in which the FTC sues a company for anticompetitive conduct without having to prove the conduct harms consumers.

The FTC has never filed a pure Section 5 suit before.

Downes said Google would be a good test case for regulators because proving consumer harm is difficult when the company gives its products away for free, as Google does.

A sweeping antitrust case against Google could be devastating for the company.

The Justice Department's antitrust suit against Microsoft in the early part of the last decade "took a lot of wind out of their sails," Downes said.

In addition to the legal penalties, a drawn-out court battle can drain a company's resources and lead its best talent to leave.

"Antitrust is a potential bomb that can be thrown at any company," he said.

He added that if regulators plan to move against Google, it would likely come in the next few months.

"The next president, if there is one, might not have that same sweeping view about antitrust law," Downes said.