U.S. Federal Trade Commission investigators are circulating an internal draft memo that recommends suing Google Inc. (GOOG:US) for abusing its dominance of Internet search in violation of antitrust laws, three people familiar with the matter said.
The more than 100-page memo has been distributed to the agency’s five commissioners, who will decide whether to sue, two of the people said. A majority of commissioners, including FTC Chairman Jon Leibowitz, have expressed concerns internally about Google’s practices, and are deciding how to proceed, two of the people said.
Separately, the FTC is considering a second lawsuit against Google for misusing patent protections to block rivals’ smartphones from coming to market, said four people familiar with the matter who asked not to be named because they weren’t authorized to speak publicly about the investigation.
The staff memo on the Internet search probe sums up the findings of the FTC’s 19-month investigation into whether Mountain View, California-based Google’s business practices stifle competition. Google and its rivals are starting to meet individually with commissioners to make their cases before a final vote by the FTC on whether to pursue the lawsuit, two of the people said.
“This is high-stakes antitrust poker and the FTC is upping the ante,” said Paul Gallant, a Washington-based analyst with Guggenheim Securities LLC. “Google is anxious to avoid a lawsuit but I also don’t think their mindset is ‘settle at any cost.’”
Peter Kaplan, an FTC spokesman, declined to comment on the draft memo or the possible suit on patent use.
“We are happy to answer any questions that regulators have about our business,” Niki Fenwick, a Google spokeswoman, said in an e-mail.
Regarding the patent probe, Fenwick said, “We take our commitments to license on fair, reasonable and non- discriminatory terms very seriously.”
The FTC staff has been examining whether Google unfairly ranks search results to favor its own businesses and whether exclusive agreements to provide search services to online publishers and other websites hurt competition, two of the people said.
The agency’s investigators have also studied whether the operator of the world’s most popular search engine increases advertising rates for competitors and makes it difficult for advertisers to compare data about campaigns running on rival sites by Yahoo! Inc. (YHOO:US) and Microsoft Corp. (MFST:US)’s Bing, the people said.
The agency also is examining whether the company is using its control of the Android mobile operating system to discourage smartphone and device makers from using rivals’ applications, two of the people said.
The FTC began making calls to high-tech companies to gather information for its probe in April 2011 and Google disclosed in June of that year that the FTC had begun a review of its business practices.
On the patent investigation, the agency is scrutinizing whether a strategy of seeking court orders to ban Apple Inc. (AAPL:US) and Microsoft from using mobile and video compression technology is anticompetitive, said the people.
The agency issued a civil investigative demand, which is similar to a subpoena, seeking to learn whether Google’s Motorola Mobility unit is honoring pledges it made to license industry-standard technology for mobile and other devices on fair terms, three people familiar with the situation said in June.
Industry-standard technology helps ensure that different manufacturers’ products, such as mobile phone antennas and global-positioning system software, work together. Companies that create technology that helps develop the agreed-upon industry standard pledge to license patents for those inventions on reasonable terms.
Google has continued litigation started by Motorola Mobility unit over industry-standard patents before Google bought the company. Those lawsuits have sought to block imports of popular consumer products such as Microsoft’s Xbox and Apple’s iPhone and iPad.
The patents in question relate to standards established by industry groups for video compression and Wi-Fi technology, one of the people said.
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