By Brendan Sasso - 06/02/12 02:52 PM EDT
Federal regulators are weighing whether to sue Google for engaging in anti-competitive conduct, an action that could prove devastating for the Internet giant.
The Federal Trade Commission (FTC) is investigating whether Google manipulates its search results to ensure that its own services, such as YouTube, Google Maps and Google Plus, appear above its rivals.
The company says there is nothing unfair about its search rankings. Even if the results did boost Google products, the company says, it wouldn’t be illegal.
The FTC's antitrust investigation, which began about one year ago, has been heating up.
Investigators have been interviewing Google officials and plan to speak with company Chairman Eric Schmidt in the coming days, according to Bloomberg News.
In a sign that the FTC could be preparing for a high-stakes trial, the agency in April brought on a prominent litigator, Beth A. Wilkinson, to help with its investigation. Wilkinson’s background isn’t in antitrust issues, but she is an experienced prosecutor who presented the closing argument that resulted in the death penalty for Oklahoma City bomber Timothy McVeigh.
Google is used to taking flak from regulators and lawmakers for privacy issues, but antitrust concerns pose a much a more serious threat to the business.
There are few laws in the United States for how companies must handle their customers' personal information, so there is little regulators can do to punish Google on privacy issues.
Antitrust regulators, on the other hand, have the authority to tear a company apart.
Consumer Watchdog, a vocal anti-Google advocacy group, has urged regulators to consider breaking up Google. The group says the company’s search engine is a "gateway" to the Web and that it should be forced to spin off some of its businesses to ensure that it doesn't have an unfair advantage.
Bill Kovacic, a law professor at The George Washington University who served as an FTC commissioner when the agency first launched its probe of Google, said it is "exceedingly unlikely" that the FTC would try to dismantle the company.
He said it is more likely that the agency would force Google to adjust its search algorithm to put its own services on a level playing field with its competitors.
But Google's algorithm is extremely sophisticated and is constantly evolving. Google says it made a total of 520 changes to the algorithm last year alone.
"Can you even imagine a public institution engaged in routine oversight of those choices?" Kovacic asked.
He said a drawn-out court battle could become a "tremendous distraction" for Google but that the company has to be "wary of accepting a settlement that encumbers them in ways that would have the same result."
Geoffrey Manne, a professor at Lewis and Clark Law School and a fellow at the libertarian-leaning think tank TechFreedom, said the case poses a "huge risk" to Google.
"You can think of a lot of ways in which Google will be a less valuable resource depending on what the remedy looks like," Manne said. "And you can think of a lot of ways in which Google would have continued to improve their product, but they either won't be allowed to or will be afraid to."
Google wouldn't be the first technology company to become embroiled in antitrust litigation. The Justice Department's lawsuit against Microsoft in the late 1990s drained the company of resources and led to an exodus of talented employees. In an ironic twist, Microsoft's misfortune helped pave the way for Google's rise.
Google is clearly taking the threat of its own antitrust case seriously.
The company now has a spokesman in Washington dedicated to handling antitrust and competition issues. It has also hired some of the top legal scholars in the country to write papers defending its business practices.
In one paper, Eugene Volokh, a legal blogger and professor at the University of California, Los Angeles, argued that Google has a First Amendment free speech right to organize its search results however it wants.
Google is also facing antitrust scrutiny in Europe. The European Commission's top antitrust official told Google recently that it has a "matter of weeks" to address a set of complaints.
The European regulatory process is especially dangerous for Google because the commission has the authority to impose penalties without a court order.
Kovacic said there is a "high level of certainty" that the FTC and its European counterparts are talking extensively.
"My hunch would be that's almost a daily conversation," he said.
Kovacic said that if European regulators act against Google, it would increase pressure on the FTC to file suit. He explained that the agencies have a "friendly rivalry" and that the world's competition enforcement system "doesn't look good if the agencies come up with widely dissimilar results based on similar facts."
He also said the high visibility of the yearlong Google investigation puts pressure on the FTC to do something.
"You feel sheepish about saying, 'never mind,'" he said.