Investigating Google Beyond Search - Smartphone Software

My colleague Claire Cain Miller and I wrote an article on Sunday that looked at the experience of Web companies that depend on Google and at times find themselves competing with the search giant - and the potential antitrust issues that arise.

These issues have come up in a wide-ranging investigation of Google by antitrust officials in Europe, Washington and six states. Regulators are scrutinizing the search and search advertising market, but they are also looking at related markets and technologies, where Google's behavior could affect the search business.

Smartphone software is a prime example. The first phone using Google's free Android operating system was sold in October 2008, more than a year after Apple's iPhone, the innovative pioneer. Sales of Android-powered phones started gradually, but then took off and now account for more than two thirds of smartphones sold worldwide.

Android is Google's gateway technology to a lucrative new arena for searc h and mobile advertising. The antitrust concern is that Google could use its free Android software as both a sword and shield to protect its dominance in search and grab an unfair advantage in new mobile services.

Indeed, the Federal Trade Commission has sent subpoenas to Google rivals, cell network operators and handset makers seeking information and documents that relate to “any restriction or limitation placed upon the freedom” of other companies “to remove, replace, insert or modify any Google Products or Services” on smartphones and tablets. That language was in two subpoenas that people representing the recipient companies allowed a reporter to read, on the condition that the companies not be identified.

A lawsuit in Massachusetts points to the issue â€" and how tricky it may be for antitrust regulators.

Skyhook Wireless, a start-up in Boston founded in 2003, was an early innovator in location-based services for use in mobile phones, developin g a technique for combining location data from Wi-Fi hotspots with other sensors to pinpoint a user's location. Two years ago, Skyhook sued Google, saying the search giant had used its control over Android to undermine competition.

In 2010, Skyhook, according to documents in the case, reached agreements with two smartphone makers, Samsung and Motorola Mobility, to use the Skyhook service on their Android phones. But after protests from Google, both smartphone makers terminated their contracts with Skyhook.

The Boston company then filed its suit. It said Google had improperly interfered with Skyhook's agreements with handset makers. The case was not based on antitrust law, but was a contract claim. Yet it raises competition issues, and F.T.C. investigators have reviewed the court documents and talked to Skyhook's chief executive, Ted Morgan.

Google provides its operating system free to handset makers, and they can tailor the open-source software somewhat. Bu t Android phones must conform to a “compatibility” standard determined by Google. In an internal Google e-mail, which became part of the public record in the case, a manager in the Android group noted that it was obvious to phone makers that “we are using compatibility as a club to make them do things we want.”

That was a single e-mail, taken out of context, and not the issue at all, according to Google. In court, Google said that Skyhook was interfering with Google's “contractual rights to collect end-user data,” and that Google had pointed that out to Samsung and Motorola (acquired by Google last year). Google also said there were genuine concerns with how well Android would work with the Skyhook technology plugged into its operating system.

A recent paper presented to investigators, and prepared by Fairsearch, a coalition of Google rivals including Microsoft, Oracle, Nokia and TripAdvisor, called the Skyhook litigation “emblematic” of Google's use of Android to thwart competition.

But in late September, the Massachusetts state court sided with Google. In her ruling, Judith Fabricant, a superior court justice, found that “Google's contract did give it the right to insist that its applications, if loaded at all, be fully operational, including data collection functions.” She concluded that Google had “exercised its contractual right” and done so “for legitimate business purposes.”

Today, Skyhook is a profitable company with 30 employees, said Mr. Morgan, the chief executive. Skyhook licenses its mobile location technology to several major companies including Apple, which is “a huge customer for us,” Mr. Morgan said. Samsung is another licensee, using Skyhook technology on its smartphones powered by a different operating system, Bada, which runs on inexpensive smartphones, mostly sold in Europe.

But Samsung is the giant among smartphone makers in the Android camp. “Samsung sold a l ot of smartphones we should have been on,” Mr. Morgan said. “It definitely hurt us.”