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The Federal Trade Commission’s integrity is on the line over Google

By Simon Davies

The mandate of the US Federal Trade Commission (FTC) is emblazened across the agency’s website like the opening line of a Star Trek episode: “Our mission: to prevent business practices that are anticompetitive, deceptive or unfair to consumers”. It’s a powerful assertion, but I fear that in light of recent developments the FTC might need to consider prosecuting itself for making deceptive claims.

The agency’s rulings appear increasingly vacillating and timid – all too often governed by political negotiation rather than by an unequivocal Mission.

Generally speaking, the FTC is a force for good, and its rulings are critically important to the maintenance of fairness in American commerce. I have colleagues at all levels there who work tirelessly to change things for the better, and I know the agency is packed with talented staff who strive to fulfil their mandate. However in the face of complexity, austerity and internal politics the agency’s rulings appear increasingly vacillating and timid – all too often governed by political negotiation rather than by an unequivocal Mission.

This dynamic has not been lost on observers, with analysts and commentators frequently noting the overriding political imperative that can distort the FTC’s activities and leave it vulnerable to attack.

In short, the FTC finds itself squeezed between the demands of public expectation and the pressure of political browbeating, forcing it to adopt positions that are not as far-reaching as many in the agency would like. These constraints can result in measures that are temporary or half-baked, allowing industry to take a dismissive view of the agency. This is not good news for the stability of the fast-moving and complex digital economy.

In short, the FTC finds itself squeezed between the demands of public expectation and the pressure of political browbeating

I’ve made this point before in previous blogs in relation to the FTC’s dealings with Google. To be blunt, the relationship between the two has revealed the most troubling aspects of the agency’s current processes. Or – more precisely – the FTC has allowed itself to be exposed. As a result, the relationship increasingly invites a hemorrhage of public trust.

I’m not going to launch into an anti-Google rant here, nor am I engaging in a condemnation of the FTC. The issue at stake is greater than either entity – it goes to the heart of overall public trust in corporate governance and regulatory integrity. Google, however,  provides an immediate case study.

The stark reality is that the company has an abysmal track record with the FTC, most recently by failing to comply with the Buzz consent decree, and – remarkably – misrepresenting the full story with regard to its illegal WiFi collection activities.  As a result there appears to be a consensus among privacy and consumer advocates that the FTC should be wary of Google’s representations and that its activities should be subjected to even more rigorous and far-reaching scrutiny.

The issue at stake is greater than either entity – it goes to the heart of overall public trust in corporate governance and regulatory integrity.

The Safari incident demonstrated the company’s inability to comply with a consent decree and while the ink was barely dry on the Buzz consent decree, Google began violating it. True, Google is a vast corporation with many moving parts but the FTC should have seen the writing on the wall when Google refused to accept guilt or liability for any of its transgressions. Doesn’t the FTC understand that many people are watching these events and scratching their heads in disbelief?

President Obama’s nomination for the next FTC Commissioner vacancy – Joshua Wright – has added to this concern. Wright has openly opposed antitrust measures against Google. While Wright has told Congress that he will absent himself for two years from decisions involving Google the nomination has triggered increasing concern about the FTC’s future ability to deal impartially with industry.

Yes, in the manner of all regulation, the FTC faces a delicate balancing act. It cannot simply bulldoze its way through American industry. But having said that, the motto that sits astride the agency’s emblem is “Protecting America’s Consumers”, not “Negotiating Trust from American Industry”. At some point the FTC needs to decide who it is serving, otherwise it will lose trust on both sides. in many respects the Google situation will be the litmus test of trust in the FTC.

Trust – as the FTC keeps telling us in various fora – is the basis of a healthy and free economy. My fear is that trust in the FTC’s integrity may be irreparably damaged unless the organisation starts taking a stronger stand on the key issues that matter to American consumers.

At some point the FTC needs to decide who it is serving, otherwise it will lose trust on both sides.

The FTC’s problem is that it also needs to maintain this trust both with American business and with its political counterparts, which means the institution sometimes dodges complex issues that could open it up to criticism. In such cases the only pragmatic solution is to build political protection by nurturing public trust as a fearless and forward-thinking watchdog.

However with regard to Google the reverse seems to be happening. Anyone who has even casually watched events of the past few weeks relating to the FTC’s position on Google will have noted these trends.

The only pragmatic solution is to build political protection by nurturing public trust as a fearless and forward-thinking watchdog.

Last week FTC Chairman John Leibowitz met his European counterpart Joaquin Almunia. Predictably, Google came up in their dialogue. However to everyone’s surprise it was Almunia who ended up taking the stronger and more forward-looking position, arguing that the issue of Google’s alleged search bias needed immediate attention. The FTC has consistently refused to take action on this issue, despite internal advice to do so.

I’d be naive to imagine that this position by Europe is entirely driven by the highest motives. The EU’s competition authority is hardly a beacon of inspiration on regulation of global information services, and Europe clearly wants the FTC to make the first move. Having said that, the US really should make the first move anyway. Google is headquartered there and the US has traditionally been ahead of Europe in terms of take-up of information services. The problem is that the FTC isn’t currently adopting that leadership role.

Joining the dots I would assume that Almunia recognises that search is the core of the problem because it addresses Googles conflict of interest – a conflict recognized, ironically, by the young founders of the company when they decided that advertising would corrupt any business model because preference could be given to those who could pay.  There appears to be a growing concern in Europe and elsewhere that search – the gateway to the internet – is at risk of further bias and manipulation.

The FTC needs to get back into the driving seat. In 1969, a typical criticism was that the agency was “rudderless; poorly managed and poorly staffed; obsessed with trivia; politicized; all in all, inefficient and incompetent.”

We don’t want to risk a return to the bad old days.