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Google Said to Face New Antitrust Probe Over Display-Ad Market

Google Inc. (GOOG) is facing a new antitrust
probe by the U.S. Federal Trade Commission into whether the
company is using its leadership in the online display-advertising market to illegally curb competition, people
familiar with the matter said.

The fresh inquiry, which follows the FTC’s decision to
close a review of Google’s search business in January without
taking action, is in the preliminary stages and may not expand
into a larger probe, said the people, who asked not to be named
because the matter hasn’t been made public.

FTC investigators are examining whether Google is using its
position in U.S. display ads — a $17.7 billion industry that
includes the sale of banner ads on websites — to push companies
to use more of its other services, a practice that can be
illegal under antitrust laws, the people said. Google has been
drawing regulatory scrutiny around the world as it bolsters its
market share of digital advertising.

Canada’s Competition Bureau is preparing to start a formal
inquiry into Google’s search practices, the company disclosed
last week. The European Union is investigating Google for the
way it operates the search business and also has opened a probe
into its handset unit, Motorola Mobility, over the licensing of
its patents to rival device makers. Antitrust agencies in
Argentina and South Korea are also scrutinizing the company.

Niki Fenwick, a spokeswoman for Google, and Peter Kaplan, a
spokesman for the FTC declined to comment on the probe.

Earlier Probe

Google, avoiding a potentially costly legal battle with
U.S. regulators, ended a 20-month probe in January of whether it
unfairly skewed search results by pledging to change some
business practices and settling allegations it misused patents
to thwart competitors in smartphone technology.

The company said it would voluntarily remove restrictions
on the use of its online search-advertising platform and offer
companies the option of keeping their content out of Google’s
search results.

The FTC’s resolution of its search-practices probe came as
a blow to Google’s competitors including Microsoft Corp., Yelp
Inc. (YELP)
and Expedia Inc. (EXPE) An alliance of such e-commerce and Web-search companies pressed the agency to bring a lawsuit, claiming
Google’s dominance of Internet search, combined with the company
favoring its own services in answers to queries, violates
antitrust laws.

Microsoft isn’t involved in the FTC’s review of the display
advertising market, one of the people said.

Justice Department

The FTC secured clearance to move forward with the new
investigation in the display-advertising market from the
antitrust division of the Justice Department under a process
that ensures the two agencies don’t investigate the same matters
at the same time, one of the people said.

For the past two years, the antitrust division and the FTC
have split investigations of the Mountain View, California-based
company, with the FTC conducting a broad probe of whether
Google’s business practices hurt competition and the antitrust
division reviewing its acquisitions (GOOG).

In the new probe, the FTC is exploring concerns about
Google’s growing market share with some of its digital
advertising tools and services, including technology that places
display ads on websites, the people said.

Competing Products

The FTC is looking at whether Google is using its tools to
force companies to bypass competing products and use other
Google properties, including a marketplace for buying and
selling Internet display ads, and features that help companies
maximize revenue, the people said. The agency is also reviewing
Google’s potential to use its dominance in search advertising to
squeeze out competitors in the display advertising market, the
people said.

Some of the advertising tools came from Google’s purchase
of DoubleClick Inc., which received antitrust approval at the
end of 2007. The FTC, which voted 4-1 to approve the merger,
said competition among display-ad networks was “dynamic,”
according to a statement at the time.

“We will closely watch these markets and, should Google
engage in unlawful tying or other anticompetitive conduct, the
commission intends to act quickly,” the FTC said in the
statement.

Market Share

Google’s share of the display ad market reached 24 percent
during the first quarter in the U.S. with its closest
competitors, Yahoo! Inc. (YHOO) and Facebook Inc., each holding less
than 10 percent market share, according to research firm IDC.

Facebook, the largest social-networking service, lost its
lead to Google last year and is expected to expand its market
share at a slower pace. Facebook will grab 16 percent in 2015,
up from 15 percent last year and less than 3 percent in 2008,
EMarketer, another research firm, estimates.

Google took 47 percent of total U.S. digital ad spending in
the first quarter of this year, according to IDC.

“The market positions of Google and DoubleClick suggest
that the combined firm could engage in a number of potential
anticompetitive strategies to further enhance its positions in
the various markets at issue,” the FTC wrote in its DoubleClick
statement.

The practice of tying, or bundling, products and services
together may be a violation of antitrust laws if the company in
question has the market power to force customers to acquire
products or services together that they might prefer to buy from
different providers, said Spencer Waller, an antitrust law
professor at Loyola University Chicago.

Microsoft Case

One of the most high-profile tying cases was the lawsuit
the U.S. brought against Microsoft (MSFT) in 1998, when it claimed the
company unlawfully protected its Windows monopoly by keeping
computer makers from promoting Web browsers that competed with
Microsoft’s Internet Explorer.

The government contended Microsoft hindered access to the
Netscape Navigator browser because its Java programming language
let programmers write applications that ran on any operating
system, not just Windows. The final judgment, a settlement in
which Microsoft agreed to end the anticompetitive conduct, put
the company under court supervision until 2011.

“Specialty producers may be very good at what they do, but
if they can’t get access to their customers, that’s a legitimate
harm that antitrust has addressed historically and should
continue to address,” Waller said.

To contact the reporters on this story:
Brian Womack in San Francisco at
bwomack1@bloomberg.net:
Sara Forden in Washington at
sforden@bloomberg.net

To contact the editors responsible for this story:
Tom Giles at
tgiles5@bloomberg.net;
Michael Hytha at
mhytha@bloomberg.net

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