Inside Google

News broke over the weekend that Federal Trade Commission staff is calling for the Commission to bring an antitrust case against Google for abusing its dominance in search,

an action Consumer Watchdog first called for more than two years ago.

Our original call was aimed at the U.S. Department of Justice Department. Both the DOJ and FTC have antitrust jurisdiction. Our letter asked for a broad antitrust action against Google seeking remedial action that could include breaking the Internet giant into separate companies.

“Such action could include breaking Google Inc. into multiple separate companies or regulating it as a public utility,” I wrote at the time. “Google exerts monopoly power over Internet searches, controlling 70 percent of the U.S. market. For most Americans – indeed, for most people in the world – Google is the gateway to the Internet. How it tweaks its proprietary search algorithms can ensure a business’s success or doom it to failure.”

Detailed reports on Friday from Reuters, Bloomberg and The New York Times quoted unidentified sources and said that a 100-page staff report urging antitrust action against the Internet giant was being circulated to the Commission. Four commissioners were reported to be in favor of antitrust action; one was said to be skeptical. A decision on how to proceed could come next month.

The FTC was reported also to be considering action around whether Google is exerting illegal monopoly power with its Android smartphone operating system. Also under investigation is whether it abused patents in an illegal anticompetitive way. The patents were acquired when Google bought Motorola Mobility.

The news stories late Friday were clearly the result of deliberate leaks, more than likely from the FTC. That’s a sign that the Commission is trying to ratchet up pressure on Google, perhaps in an effort to bring about a settlement, rather than taking the case to court. Already the FTC has hired an outside litigator and economist for a possible case, again perhaps as much to signal seriousness and push toward settlement.

On the other side of the Atlantic, the European Commission is in talks about a possible antitrust settlement with the Internet giant. EU Competition Commissioner Joaquin Almunia said last month that the negotiations are “not there yet.” He warned that if Google does not offer “effective solutions” to the complaints he “will be obliged to continue with our formal proceedings.”

Given Google’s track record in the way it has stiffed regulators and one-upped them on both sides of the Atlantic, I’d urge regulators to forget about early settlement talks and file a formal case. They’ll have more leverage to talk after it’s filed. As we said in April 2010, remedies could include:

— Breaking Google into different companies devoted to different lines of business. Search could be separated from advertising. Gmail and its new social networking service, Google+, could be spun off as a separate entity as could YouTube, a Google acquisition that should have been denied at the time of merger. Enterprise applications could be another separate business.

— Google’s importance as a gateway to cyberspace requires a maximum degree of openness and transparency with the potential for government regulation. Arguably Google’s monopoly position and importance to the Internet means that the company should be regarded as a public utility and regulated. Regulations could be designed to open up Google’s ad platform to enable other competitors to compete. Rules could be crafted to create greater transparency in the operation of Google’s ad platform to enable parties to negotiate more effectively – for example: by providing greater visibility into the maximum amount of the highest bid, how many search terms are shown per page, and how Google’s “quality score” is derived and applied. Little, if any, of this information is currently public and openness would contribute to consumer choice and options as well as foster competition.

— Forcing Google to disgorge its monopolistic gains through the imposition of financial penalties. The payment would have to be significant enough to impact Google’s future behavior. Perhaps the amount could be tied to paying back consumers for monetizing their private information and content without compensating them.