Google said to be under U.S. antitrust scrutiny over Android

Google is back under U.S. antitrust scrutiny as officials ask whether the tech giant stifled competitors' access to its Android mobile-operating system, said two people familiar with the matter.

The Federal Trade Commission reached an agreement with the Justice Department to spearhead an investigation of Google's Android business, the people said. FTC officials have met with technology company representatives who say Google gives priority to its own services on the Android platform, while restricting others, added the people, who asked for anonymity because the matter is confidential.

The inquiry is in its early stages, and it could end without a case against the company. Regardless, it shows the FTC is again turning its attention to one of America's biggest companies, two years after it closed a separate investigation into Google's Internet search business. The FTC's handling of the earlier probe left some technology companies skeptical of the agency's willingness to bring a case, according to the people.

Spokesmen for the FTC and Google declined to comment.

The latest FTC scrutiny comes after Europe's antitrust chief challenged Mountain View, California-based Google earlier this year over its dominance of Internet search. The European Union has also started its own investigation into Google's Android platform following complaints, including from a group representing Microsoft Corp., Expedia Inc. and Nokia Oyj. It isn't clear to what extent EU and U.S. antitrust investigators are cooperating.

Google's Android operating system accounted for 59 percent of the U.S. smartphone market in the second quarter, while Apple Inc.'s iPhone software had 38 percent, according to International Data Corp., a Framingham, Massachusetts-based market research firm. Microsoft's Windows Phone platform was third with 2.35 percent.

The Android mobile platform ties together several Google products, including search and maps, into one bundle, echoing the even more dominant Microsoft Windows platforms of nearly two decades ago. In 1998, the U.S. claimed Microsoft unlawfully protected its Windows monopoly by keeping computer makers from promoting Web browsers that competed with its Internet Explorer. Microsoft agreed, in a settlement four years later, to end the anticompetitive conduct.

The practice of bundling products and services together may violate antitrust laws if a company dominates the market for a product that customers need, and then forces them to buy a complementary product or service, said Harry First, a law professor at New York University. If consumers can go to other manufacturers to avoid the bundled product, there's likely no antitrust violation, First said.

"The question for Android is do they really have sufficient market power, particularly in a world where there are other mobile-phone operating systems?" he said.

With its latest Google probe, the FTC returns to the arena of one of its most bruising battles of the past half-decade.

The FTC reached a so-called clearance agreement with the Justice Department to review the Android platform, said the two people familiar with the matter. That decision was made in the past few months, according to one of them. The FTC and the Justice Department, which both have mandates to enforce antitrust laws, use the clearance process to decide which one is best suited to lead a particular investigation.

The FTC led the U.S. investigation into Google's search business that started around 2011. That probe, which also touched upon the Android system, ended in early 2013 with the commission voting 5-0 not to bring a case. Then-FTC chairman Jon Leibowitz, announcing the close of the investigation, said the agency lacked evidence to bring a case.

To companies that had hoped the FTC would challenge Google's practices, the decision came as a disappointment. The sentiment turned in some cases to disillusionment earlier this year, after the FTC inadvertently released a confidential document as part of a public records request. Staff members had recommended bringing an antitrust case against Google, arguing it had unlawfully maintained a monopoly over Internet search that harmed consumers, according to the document.

The report also included the names of companies that had lodged complaints against Google, which until then had remained anonymous. The leak of the confidential document has made some companies more hesitant to come forward now for fear of exposure, according to one of the people familiar with the matter.

After the document went public, Google lobbied the FTC to mount a more spirited defense of its decision to drop the case, according to an e-mail posted on the FTC's website.

Google's competitors were using the leaked document to "sow confusion and undermine the FTC's conclusions," Google's director of public policy, Johanna Shelton wrote to the FTC on March 23. Shelton urged the FTC to "defend its reputation, showing that it followed a thorough process," according to the e-mail.

Two days later, FTC Chairwoman Edith Ramirez and two commissioners defended the decision to close the investigation, saying it had been in accord with recommendations from staff in the competition and economics bureaus. Ramirez later said at a congressional hearing that the leak was "unfortunate" and that the agency had taken steps to make sure it didn't happen again.

"The FTC comes to this with a lot of baggage," said Gary Reback, a lawyer with Carr Ferrell LLP, who filed a Google- related complaint with European antitrust officials on behalf of a startup that makes applications that block online tracking.

"When we say we're concerned, it's not only because they didn't do a good investigation the first time around, or the fact that they didn't protect the confidentiality of the people who complained," Reback said, "but also because they seem to take directions from Google."

In the last two years, the FTC has shown it will pursue big technology companies in consumer-fraud cases. It has accused Google, Amazon.com Inc. and Apple Inc. of wrongly billing consumers for unauthorized purchases made by children on mobile applications. Google and Apple settled the FTC complaint and agreed to refund money to consumers. Amazon said it would fight the lawsuit.

The EU's Android investigation focuses on Google's strategy of bundling software such as YouTube, Maps and Chrome with its Android operating system. The EU is asking whether the practice harms developers of rival applications, as well as device manufacturers that have to take the whole package. They are also examining whether handset makers are blocked from developing their own versions of Android, adding to Google's worries in a region that makes up one-third of its revenue.

The EU's European Commission, which has the power to levy fines, has been gathering information by sending out a series of requests for information to original equipment manufacturers, application providers and network operators, said people familiar with the probe. Regulators are still going through the information, said the people, who requested anonymity because the matter isn't public.

The Brussels-based EU regulator declined to comment on the U.S. probe when asked Friday. The commission's own "investigation is ongoing," said spokesman Ricardo Cardoso in an e-mail.

If the commission moves ahead with the case, it would have to lay out its main concerns in a so-called statement of objections, which gives the company an opportunity to respond.