FTC's settlement with Google: In brief

Not too long ago, talking on the phone, listening to music, and playing games required three clunky pieces of equipment.  Manage that wirelessly?  Fuhgeddaboutit.  But now we can do all that — and more — with a device smaller than a chocolate bar.  That took phenomenal feats of technology.  But it also took some ground rules to make sure companies had incentives to innovate and consumers could be assured what they bought would work glitch-free with other products.  Benefiting consumers by encouraging that kind of innovation is what the FTC’s settlement with Google is all about.

The patent law issues involved in the case may sound complicated, but they boil down to a simple idea.  To make sure products from different companies work together seamlessly — interoperability, as they call it — industry members sometimes establish certain technological standards.  But setting standards can have the downside of giving special market power to the owner of a patent that is necessary to the standard.  To avoid that, companies commit to license essential patents in a “fair, reasonable and non-discriminatory” manner — what tech types call FRAND terms.

Now to Google.  Recently Google paid more than $12 billion to buy Motorola Mobility (MMI).  One key asset was MMI’s portfolio of thousands of patents, many of which are essential to run the smartphones, tablets, and gaming consoles we use everyday.  According to the FTC, Google wasn’t honoring FRAND commitments and pursued (or threatened to pursue) injunctions against companies that need to use MMI’s standard-essential patents in their devices.  Examples cited in the pleadings:  actions Google filed in federal court and at the International Trade Commission to block companies like Apple and Microsoft from using standard-essential patents.

The FTC was concerned that patent hold-ups like that could cause companies to abandon the standard-setting process.  What would that mean for consumers?  Fewer new products and less interoperability.  Under the terms of the proposed consent order, Google won’t seek injunctions to block the use of standard-essential patents it had agreed to license on FRAND terms against companies willing to license those patents and will allow competitors’ access to patents needed for the devices consumers rely on.  (A picture being worth a thousand words and all, take a look at this graphic for another way of thinking about what the settlement means.)

Under a separate voluntary commitment to the Commission, Google has agreed to remove restrictions on the use of its online search advertising platform, AdWords, that might make it tough for some companies, especially small businesses, to coordinate online ad campaigns across multiple platforms.  Google also has agreed to change another business practice that raised concerns for the FTC.  Specifically, the FTC investigated whether Google took content — for example, user reviews and star ratings —from sites like Yelp, TripAdvisor, and Amazon to improve its own vertical offerings, like Google Local and Google Product Search.  As part of its voluntary commitment, Google will give websites the option to keep their content out of  Google’s vertical search offerings, while still having them appear in Google’s natural —  “organic” — search results.

Find out more about the FTC’s announcement, including practices the agency decided not to challenge.