Silicon Valley finding Washington regulators uncomfortably close
SAN FRANCISCO — Google Inc. and other big tech firms may operate thousands of miles from the nation’s capital but they’re not beyond the reach of federal regulators.
That was the message Federal Trade Commission Chairman Jon Leibowitz delivered this week when he revealed during a swing through Silicon Valley that he had hired a prominent litigator to dig deeper into allegations that Google had violated antitrust laws.
Silicon Valley likes to hold itself out as a paragon of corporate virtue, but increasingly federal and state authorities are not buying the “don’t be evil†slogan.
Google has been accused by the Federal Communications Commission of stonewalling federal investigators. It’s being investigated for bypassing the privacy settings on Apple’s Safari browser. And now it’s facing the kind of antitrust scrutiny that befell Microsoft Corp. a decade ago.
Google isn’t the only tech company having a white-knuckle moment. Apple has been slapped with allegations that it conspired to drive up e-book prices. Facebook Inc. and Google each had to agree to 20-year settlements with the FTC over allegations that they breached users’ privacy. Mobile apps makers in February got a stern reprimand from California Atty Gen. Kamala D. Harris for getting caught downloading users’ entire address books.
Lawmakers have also gone on the attack. Rep. Edward J. Markey (D-Mass.), senior member of the House Energy and Commerce Committee, has called for congressional hearings into Google’s “Wi-Spy†scandal in which it got caught collecting and storing consumers’ personal information from its specially equipped Street View cars that roam U.S. streets taking pictures for its mapping service.
Sen. Mike Lee of Utah, the top Republican on the Senate’s antitrust panel, says he has serious concerns about Apple and the e-book market. And Sen. Al Franken (D-Minn.) has called on antitrust officials to keep a closer eye on not just Google but Facebook too.
Unlike oil or pharmaceutical companies that have to work hard to gloss their public image, Silicon Valley — filled with energetic young entrepreneurs building the next generation of gadgets and apps — is celebrated for driving the U.S. economy in tough economic times. But that high shine occasionally gets tinged.
This isn’t the first time that Silicon Valley has found itself in regulatory cross hairs. In 2006 Hewlett-Packard, the standard-bearer of business ethics symbolized by the “HP Way,†tried to plug leaks to the media by snooping on the private phone records of board members and news reporters.
And, at the same time, Apple was just one of more than 100 companies, many in Silicon Valley, that were suspected of rigging stock options to sweeten the paychecks of executives and employees.
The episodes helped reinforce Silicon Valley’s reputation for bending — if not breaking — the rules. And regulators in the U.S. and overseas are again taking a long hard look at the business practices of companies here.
“Saying ‘don’t be evil’ may be all well and good when you are a scrappy upstart, but once you become a behemoth, you get served your motto on a plate. Live by the platitude, die by the platitude,†said crisis management specialist Eric Dezenhall, author of “Damage Control.â€
“Everyone gets a honeymoon, especially in an industry credited with rescuing the American economy,†he said. “But some of these issues being raised such as privacy are not outrageous fears, they are legitimate questions.â€
High-tech companies can blame their own success for the blinding glare of the spotlight.
Google’s ubiquitous search engine and smartphones powered by its Android mobile software, Apple’s iPhones and iPads and Facebook’s giant social networking service used by nearly 1 in 7 people on the planet are wildly popular with consumers. A recent poll from ABC News and the Washington Post put Google’s favorable rating at 82%, Apple’s at 74% and Facebook’s at 58%.
“Regulators have trained their high beams on Silicon Valley for good reason. We are all spending more and more of our lives in cyberspace,†Silicon Valley futurist Paul Saffo said.
“This is a new area for everyone: consumers, companies, government,†he said. “What I worry about is if we are chasing after new companies with old theories that may or may not make as much sense in cyberspace as in the physical world.â€
For years Silicon Valley wanted nothing more than to be left alone by Washington regulators and lawmakers. But now companies, wary of increased rules and regulations that they say jeopardize an industry that has given the United States a competitive edge, are looking to gain more political clout in Washington.
The tech industry recently flexed its newfound muscle by defeating controversial online piracy legislation pushed by the entertainment industry through a powerful combination of grass-roots online activism and backroom lobbying. Observers say it marked a political coming of age for tech companies.
“As technology has moved from being a smaller, less-understood part of the national and global economy to a very big and very important part of the national and global economy, companies here are waking up and smelling the coffee,†Silicon Valley lawyer Scott Dettmer said. “More and more companies here are demanding a seat at the table.â€
As it comes under regulatory fire, Google has gotten even more aggressive. Its lobbying tab more than tripled to $5 million in the first quarter of 2012, more than the combined total of its four largest competitors, Microsoft, Apple, Yahoo Inc. and Facebook. Earlier this year, Google hired former congresswoman Susan Molinari to oversee its lobbying operations.
Google will need all the influence it can get in Washington as a showdown with federal regulators looms.
The FTC, which is investigating whether Google has abused its colossal share of the U.S. search market, has hired Beth Wilkinson — best known for helping convict Oklahoma City bomber Timothy McVeigh in 1997 when she was a Justice Department prosecutor.
She’s now a partner at Paul, Weiss, Rifkind, Wharton & Garrison in Washington. She is tasked with looking into allegations from rivals that Google has put competitors at a disadvantage by giving preference to its own products in search results.
The hiring of Wilkinson brings to mind a similar move that the Justice Department made 14 years ago, when it brought in high-powered litigator David Boies to represent it against Microsoft. It also substantially raises the stakes for Google and gives the FTC more leverage to negotiate a settlement.
A Google spokeswoman declined to comment specifically on Wilkinson’s hiring. The Mountain View, Calif., company has consistently maintained that it has done nothing wrong.
“Our success rightly generates interest, which is why we’ve worked hard to explain how our business works, cooperating with the FTC since they began their review,†the company said in an emailed statement. “We know there’s always room for improvement, so we are happy to have the opportunity to discuss their concerns.â€
The gathering regulatory storm could pose a real threat to Google, which controls about 66% of the market for Internet search in the United States.
The Microsoft antitrust case in the late 1990s hobbled technology’s most powerful company. Google arguably wields as much, if not more, power today and finds itself under the same regulatory microscope.
“Around Silicon Valley, we think this was a very bad day for Google,†said Silicon Valley antitrust lawyer Gary Reback, who represents companies that have complained about Google’s tactics.
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