RPT-Google: American phenomenon and antitrust target

Thu May 7, 2009 7:10am EDT

(Repeats May 6 item to additional subscribers)

By Diane Bartz

WASHINGTON May 6 (Reuters) - Google (GOOG.O) is more than a fabulously successful company -- it is a cultural phenomenon facing increasing U.S. government scrutiny despite its chief executive's campaign support for President Barack Obama.

The No. 1 Internet search company and provider of text-based search ads is finding size attracts attention from antitrust enforcers still party to a settlement with personal computer operating system giant Microsoft Corp (MSFT.O).

"In some ways people think of them as potentially becoming the next Microsoft," attorney Beau Buffier, with Shearman and Sterling LLP, said of Google.

With high tech one of the few industries where the United States remains the world leader, care needs to be taken to ensure that the market remains competitive, said Evan Stewart of Zuckerman Spaeder LLP.

"The point is that if we're going to maintain that competitive position, it can't be because we allow one entity to become a complete monopolist," Stewart said.

In one investigation, the Justice Department is looking at Google's settlement with the Authors Guild and Association of American Publishers that would allow it to create a massive, online digital library.

That deal has come under criticism because it assigns Google access to so-called orphan works, those whose copyright owners are unknown. Libraries also fear the product will become a must-have and extraordinarily expensive.

Amendments to the deal, such as excluding orphan works or spelling out pricing, could go a long way toward defusing these concerns, critics have said.

And the Federal Trade Commission has reportedly opened an inquiry into whether the ties between the boards of Apple Inc (AAPL.O) and Google Inc violate antitrust laws. Google Chief Executive Eric Schmidt and former Genentech CEO Arthur Levinson are directors of both companies.

"Neither Microsoft nor IBM was ever the cultural phenomena that Google is," said Sandy Litvack of the law firm Hogan & Hartson. Litvack headed the Justice Department team that was prepared last year to fight Google's since-abandoned deal with Internet rival Yahoo Inc (YHOO.O).

Google spokesman Adam Kovacevich said competition on the Internet was just a click away. "We understand that any time a company is successful, there's a certain degree of scrutiny that comes with the territory."

BOOKS AND BOARDS

Google and Apple could be construed as rivals, experts say, since the iPhone has been a huge hit for Apple while Google's Android operating system is used on T-Mobile's G1 smartphone.

Stewart said he fully expected that if regulators decided that Schmidt and Levinson's presence on both boards was inappropriate, that the men would step down from one without a fight. "These are fixable," said Stewart.

For its part, Google has shown little appetite for a fight with regulators. It walked away from a search advertising partnership with Yahoo in November when the Justice Department indicated it planned to oppose the plan in court.

Google had earlier succeeded in buying rival DoubleClick despite concerns that the deal would give Google too much power in the search advertising market.

"It's not that Google has necessarily done anything wrong," said Bert Foer, head of the American Antitrust Institute.

"It's not that it's bad or poorly intentioned," said Foer. "It's playing such a large role in the flow of information and has so much free cash to play with and so many creative and aggressive ideas that it presents potential problems regarding... privacy and competition."

Some Washington cynics had predicted that Google might get an easier ride because Google's Schmidt was an outspoken supporter of Obama during his election campaign.

But before her nomination to head the Justice Department's antitrust division, Christine Varney said that Google was a company to watch because of its market power, said Foer.

"That's a danger when you get too close to the crown, the crown is put in a position where it has to assiduously maintain its lack of bias," Foer said. "The Obama people can't do any favors for Google, especially an administration that said it was not going to be bought by anybody." (Reporting by Diane Bartz; Editing by Tim Dobbyn)

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