Google weighs mobile-patent antitrust settlement

Google Inc. is weighing whether to settle a potential claim by U.S. authorities that it violated antitrust law in the way it handles mobile-device patents, according to a person familiar with the matter.

At issue, according to two people familiar with the matter, is whether Google improperly refused to grant patent licenses to some mobile device competitors and sought court injunctions against them to stop their products from being sold.

A broader probe of the company's search business is continuing separately, but no decisions have been made to press a case against Google.

The U.S. Federal Trade Commission, which has been conducting an antitrust investigation of the Internet giant's business for more than a year, in recent months began probing Google's handling of patents that it acquired when it closed the $12.5 billion purchase of device-maker Motorola Mobility in May, these people said.

Google inherited a slew of lawsuits filed by Motorola against competitors for violating its patents as well as cases in which Motorola is being sued for refusing to license patents. Courts and antitrust authorities around the world have been grappling over the proper handling of patents regarded as "essential" to particular technologies. Groups that set technical standards often require companies to license such patents on reasonable financial terms.

In Google's discussions with the FTC, the agency's lawyers have threatened to bring a case against it under Section 5 of the FTC Act—which governs unfair or deceptive business practices—for using Motorola's wireless-technology patents as a weapon against competitors such as Apple Inc. and Microsoft Corp., said one of the people familiar with the situation.

The FTC believes it has evidence that some people at Google admitted to colleagues that the company's conduct with such patents was wrong, this person said.

Assuming the FTC presses the matter with the company, it remains unclear what any settlement would require. Possibilities include an agreement by Google to modify its conduct.

A Google spokeswoman said the company would cooperate with authorities' inquiries but declined to comment further. An FTC spokeswoman declined to comment.

The patent issue is separate from that of whether Google's ubiquitous Web-search engine has harmed Internet competitors. The FTC faces challenges in figuring out appropriate legal remedies to solve antitrust allegations against Google, aside from prescribing some cosmetic changes to the look of the search-engine results, one of the people familiar with the matter said.

Google's competitors, including business-listings site Yelp Inc., have contended that Google unfairly promotes its own Web properties—rather than show links to competing sites—in search results, while Google has repeatedly argued that its search engine should be treated as an opinion and protected by constitutional free-speech rights.

One oft-discussed solution involves Google creating a labeling system so that people will know which search results are determined by an algorithm that ranks websites based on how relevant they are to the search query and which ones are separately selected by Google in order to promote its own specialized services, said one person who has been briefed on the matter.

Google could potentially agree to similar concessions in Europe, where EU antitrust authorities also have been probing Google since late 2010, this person said.

The patent issue involves those associated with a term called FRAND, which stands for an obligation to license intellectual property on a fair, reasonable and nondiscriminatory basis. Motorola and others have sought to prevent the sale of products that allegedly infringe on FRAND patents, claiming that the alleged violators didn't agree to pay royalties. Those being sued by FRAND patent holders have argued that the holders were unwilling to license the patents on reasonable financial terms.

In discussions with Google, FTC lawyers have cited several cases in which the Motorola unit may have violated its duties as a FRAND patent holder, said one person with direct knowledge of the matter.

For its part, Google has argued to FTC lawyers that competitors that own FRAND patents, including Apple, have acted improperly by suing Motorola and others rather than licensing the patents fairly. Google also said to FTC lawyers that if it settles the agency's claims, it effectively would be disarmed while competitors continue their abuse, this person said.

When it announced the Motorola deal last year, Google said it was interested in Motorola's giant patent trove as a defensive weapon amid widespread litigation over mobile devices.

The Justice Department cleared Google's Motorola purchase in February of this year but said its commitments to use its patents fairly "were more ambiguous" than those of Apple and Microsoft, who had acquired standard-essential patents from Nortel Networks Corp. and Novell Inc. Bloomberg earlier this year reported that the FTC had begun investigating Google's use of Motorola patents.

(Published by WSJ - October 19, 2012)