(Source: VentureBeat)
Did Google get away with corporate crime? The evidence is intriguing, but lacks any sort of smoking gun

A report in the Wall Street Journal last week cited internal U.S. Federal Trade Commission (FTC) documents which reveal that investigators with the FTC felt that there was a clear cut case that Google Inc. (GOOG) violated federal antitrust laws.  But in the end the probe was abruptly tossed aside and Google was allowed to "voluntarily"  modify its business practices.

How did that happen?  A followup WSJ report suggests that Google's may have parlayed lobbyist cash into an effective campaign to scuttle the probe.

I. The Big Getaway

In their report, the FTC competition unit investigators suggest suing Google.  The team noted what appeared to be a clear pattern of abuse of Google's dominant position in the search and web services markets.  For example, is accused of artificially downranking its competitors services in its search listing.  Another claim that appeared to be substantiated was the allegation that Google circumvented browser settings to track users online traffic.

FTC Google Probe Recommendation by jasonmick

The WSJ summarizes:

[T]he FTC’s competition staff concluded that Google used anticompetitive tactics and abused its monopoly power in ways that harmed Internet users and rivals.  The staff recommended a lawsuit, which would have triggered one of the highest-profile antitrust cases since the Justice Department sued Microsoft Corp. in the 1990s. [But] FTC commissioners voted unanimously to end the probe.

The outcome came a shock to investigators.  Rather than an expensive and damaging lawsuit, the probe wrapped up with a thud in Jan. 2013.  Google was allowed to make "voluntary changes" -- a veritable slap on the wrist.

Many had expected a big fine.  Even Google itself set aside $500M USD to cover a potential loss in the case, an apparent acknowledgment that it might not be able to obtain a favorable outcome.

Google signage
[Image Source: Getty Images]

So how did Google get off so easy?  The new followup report in The Wall Street Journal presents evidence suggesting that the power of influence may have saved Google from being sued or being forced into more serious modifications to its business tactics (as it European Union regulators have mandated).

In his report, WSJ investigative reporter Brody Mullins reveals the frenzied pace of Google lobbying in Washington, D.C. during the course of the probe.

White House visitors logs and emails obtained under the Freedom of Information Act of 1966 (FOIA) indicate Google was able to engage in what Mullins characterizes as an unusually direct line of communication with the White House, FTC, and other federal government agencies during the crucial stages of the antitrust probe.  Mullins implies that contact may have swayed the outcome.

II. Hard Influence, Soft Influence

Part of Google's strategy in recent years has been simply to ramp up lobbyist spending.

Google can afford them, though. [Image Source: Occupy Austin]

Google is hardly alone in the tech industry when it comes to lobbying the U.S. federal government hard.  As I wrote in Oct. 2013:

Today in the U.S. cash is king and nowhere is that more true then in Washington D.C.  Spend a dollar on bonds and you get roughly 5 cents back over the course of a year.  Spend that same dollar on stocks and you get roughly ten cents back for a year, on average [source].  But spend that same dollar on paying off a federal politician, and you receive an estimated $220 USD, on average, according to peer-reviewed study by Raquel Alexander and Susan Scholz of the University of Kansas School of Business.

Looking at data from the Center for Responsive Politics (maintainer of OpenSecrets) other rivals such as Microsoft Corp. (MSFT) and Apple, Inc. (AAPL) we see that Google's lobbying budget has grown far faster than that of its rivals.  In fact, looking at rival tech firms only Comcast Corp. (CMCSA) has seen a similar sort of rapid rise in lobbying spending.

Google Tech lobbying
Google (bright green) has emerged out of nowhere to become a top lobbying powerbroker.
[Image Source: Jason Mick/DailyTech]

Last year Google contracted 20 lobbying firms and employed 100+ individual lobbyists, spending a grand total of $16.8M+ USD.  Google's lobbying spending peaked at $18.2M USD during the crucial period where FTC officials were deciding what to do with Google.

Google lobbying push

[Image Source: The Wall Street Journal]

Aside from that hard influence, Google also has been leveraging softer forms of influence on the Hill, including:
Obama plotting
Google enjoys a close relationship with President Obama and played a pivotal role in getting him elected.
[Image Source: The White House/Peter Souza]

So it's clear that Google has been increasingly cultivating the means to influence decision makers in Washington, D.C.  And as the old adage goes, "The squeaky wheel gets the grease."

III. A Curious Tale

Here's the timeline of events he uncovered:

  • According to visitor logs Google averaged roughly a visit a week (230 total) to the White House since President Obama was elected.
  • Within a week of the FTC announcing its probe, Google hired 12 new lobbying firms.
  • Top Google lobbyist Johanna Shelton has visited the White House 60 times since 2008.
  • Comcast's top lobbyist has only visited the White House 20 times since 2008.

Obama and Eric Schmidt
President Obama (left) is pictured with former Google CEO Eric Schmidt (center) during a 2010 brainstorming session. [Image Source: Geek Daily]

  • 2011
    • Aug. 2011
    • Dec. 2011
      • "On Dec. 12, 2011, [Shelton], the Google lobbyist, and Google General Counsel Kent Walker met with Jason Furman, the chairman of the Council of Economic Advisers."
      • Furman met with FTC chairman Leibowitz later in the day discussing "copyright issues" and "pharmaceutical industry" according to the WSJ's sources.
      • Also on Dec. 12 Eric Schmidt and Google’s chief legal officer, David Drummond met at the White House with then-White House Chief of Staff Bill Daley.
      • On Dec. 13 Daley met with the FTC chairman.
      • Also on Dec. 13 Shelton and Drummond met with "Obama senior adviser Valerie Jarrett"
Google Chrome
[Image Source: Bloomberg]
  • 2012
    • August 2012
      • FTC competition unit staffers suggest an antitrust lawsuit be filed against Google over three kinds of violations, according to documents.
    • Nov. 2012
      • On Nov. 6, 2012 "Mr. Schmidt was personally overseeing a voter-turnout software system for Mr. Obama."
      • On Nov. 7, 2012 Google’s chief legal officer, David Drummond submitted a brief in defense of Google's business dealings.
      • Later that day he requested by email that FTC Chairman Jon Leibowitz call him to chat, writing, "Am traveling back home but had a quick question.  Do you have five minutes to chat over the weekend?”
      • Nov. 13 -- Shelton meets with a senior Obama administration official, reportedly to discuss Motorola's patent litigation.
      • In late Nov. 2012 "a senior antitrust lawyer at Google" and Shelton met at the White House with "one of Mr. Obama’s technology advisers."
      • On Nov. 27 In Google cofounder and new CEO Larry Page met with FTC officials to discuss settlement options, according to emails and visitor logs.
      • By the end of Nov. 2012 "internal emails" show that "the FTC had decided not to file an antitrust lawsuit against [Google]."
  • 2013
    • Jan. 2013
      • The FTC votes unanimously (5-0) to close the probe after Google promises minor changes in certain business strategies.
Google bot
[Image Source: Modern Life is Rubbish]

But is there any definitive proof that Google used its pull to scuttle the FTC antitrust probe?

It's hard to say. 

IV. Unusual Behavior?

Mullins makes his perspective on these meetings clear throughout the piece.  He notes, for example that the the White House's meetings in 2011 and 2012 with Chairman Leibowitz and certain other U.S. Deparment of Justice officials with the FTC was considered unusual given the active investigation.  Mullins declares:

It is unusual for White House aides to talk with officials at a company or agency about law-enforcement matters involving the company or agency. Officials in the Justice Department’s Antitrust Division typically don’t meet with the White House during major investigations.

Google Sign
[Image Source: Triple Helix Online]

He adds:

As the federal government was wrapping up its antitrust investigation of Google Inc., company executives had a flurry of meetings with top officials at the White House and Federal Trade Commission, the agency running the probe... Google’s knack for getting in the room with important government officials is gaining new relevance as scrutiny grows over how the company avoided being hit by the FTC with a potentially damaging antitrust lawsuit.
While it is common for companies to communicate with government agencies, especially as investigations near a conclusion, the records reviewed by the Journal suggest more contact than was previously known publicly.

Mullins tries diligently to paint the picture of Google as a sly insider and he has plenty of evidence to do it.  The problem is most of this evidence is anecdotal and less than conclusive.  

White House at dusk
The White House denies meddling with the FTC investigation on Google's behalf.
[Image Source: Outside the Beltway]

For example, he writes "Mr. Obama has mentioned [Google] in half of his State of the Union addresses."

But does that prove wrongdoing?

V. Plausible Deniability

Indeed there's plausible deniability in virtually every detail accounted in the in-depth investigation.  Google spokeswoman Niki Christoff says that Google has every right to exercise an active lobbying presence to protect its customers.  She states:

We think it is important to have a strong voice in the debate and help policy makers understand our business and the work we do to keep the Internet open, to build great products, and to fuel economic growth.

On the probe, Google added in a statement:

We understand that what was sent to the Wall Street Journal represents 50% of one document written by 50% of the FTC case teams. Ultimately both case teams (100%) concluded that no action was needed on search display and ranking. Speculation about consumer or competitor harm turned out to be entirely wrong. On the other issues raised, we quickly made changes as agreed with the FTC.

The FTC also denies any sort of complicity. [Image Source: The Next Web]

FTC spokesperson Justic Colle comments:

The FTC is an independent law enforcement agency. Its enforcement decisions are driven by the applicable law and evidence in each case.

FTC Chairman Leibowitz scoffed at the idea that Google had secretly held a series of proxy discussion with FTC officials to end the probe.  Leibowitz comments:

The FTC is an independent agency and Commissioners take their obligations of independence and confidentiality very seriously... [we] would never discuss any investigative matter with anyone at the White House, including the Google investigation.

White House spokeswoman Jennifer Friedman echos that strong denial, commenting:
[The FTC] is an independent agency and we respect their independent decision-making.  White House officials meet with business executives on a range of issues on a regular basis. These meetings help keep the White House apprised of outside perspectives on important policy issues. Our staff is cognizant that it is inappropriate to discuss issues relating to regulatory enforcement.

Ultimately Mullins reported is a fascinating read.  Reading the timeline of events and details of some of these meetings will get the gears turning.  It's difficult not to wonder whether Google indeed may have used hard money -- and a softer touch -- to "get away" with antitrust abuses.  Indeed openly the EU mocked the FTC efforts as weak, saying it wouldn't let Google off so easily.

Google money
[Image Source: Jason Mick/DailyTech]

But at the end of the day the reader is left wondering.  There's no smoking gun here.  So for now all we have is the word of the White House, FTC, and Google that there was no wrongdoing to weigh against the piecemeal, but troubling records Mullins presents.  That said, one positive is that if there is more compelling dirt -- a true smoking gun that proves Google inappropriately tampered with the probe -- the investigation may help that information come to light in months to come.

Sources: FTC [Scribd], via the WSJ

"Nowadays, security guys break the Mac every single day. Every single day, they come out with a total exploit, your machine can be taken over totally. I dare anybody to do that once a month on the Windows machine." -- Bill Gates

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