The Federal Trade Commission’s (FTC) investigation into Google for antitrust violations has expanded into its smartphone technology and the conduct of Motorola Mobility, a subsidiary of Google.

For the past 19 months, the FTC has been investigating Google for potential abuses of dominance as an Internet search engine; specifically, whether Google manipulates search results to favor its own business and if its exclusive agreements to provide search services to online publishers and other websites are hurting competition.  If the FTC decides to sue Google, as the most recent memo circulating indicates, it would be the most extreme action the US government has taken against a major technology company since Microsoft was challenged by the Department of Justice in the 1990s.

Although the FTC has been examining Google for almost two years, it was not until June of this year that the FTC began to publicly investigate Google’s policies for licensing standard-essential patents (SEPs) which are crucial to the operation of smartphones (specifically for 3G wireless, Wi-Fi and video streaming), and continue lawsuits against companies for patent infringements.  It seems as if the FTC is not confident with Google’s statement of its commitment to “license on fair, reasonable, and nondiscriminatory terms.”

The FTC is concerned with the overall buildup of patents, specifically SEPs, by giant technology companies because, as one FTC commissioner, Edith Ramirez, stated in her Senate testimony, the “[h]oldup and the threat of holdup can deter innovation by increasing costs and uncertainty for . . . participants.”  However, the FTC is not alone in this concern.  The Department of Justice, who only closed its investigation into Google’s acquisition of Motorola Mobility (providing 17,000 patents to Google) in February, stated that Google’s commitment to fair term licensing of SEPs, was “more ambiguous” and didn’t provide the “same direct confirmation” of its SEP licensing policies, unlike the “clear commitments” of Apple and Microsoft.

This investigation may not be a surprise since we are currently in a period of criticism against the use of SEPs as a “sword” to prevent competing products from entering the market.  In June, Judge Richard A. Posner, who normally sits on the Seventh Circuit Court of Appeals, dismissed, with prejudice, a lower court patent lawsuit between Apple and Motorola because of a failure to calculate a “reasonable royalty” for the alleged infringement.  More importantly, Posner expressed the position that companies should not be entitled to injunctions on patents involving SEPs that are part of an industry standard and that an “injunction that imposes greater costs on the defendant than it confers benefits on the plaintiff reduces net social welfare.”

Even though this investigation has just begun, it is likely that it will result in a dramatic change in industry practice regarding SEPs.  The issue of fair licensing of SEPs will likely continue and it will be interesting to see if courts side with Posner’s position or continue to allow injunctions preventing rival companies from entering the marketplace.

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