Apple said to be subpoenaed on Google mobile search

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WASHINGTON -- The Federal Trade Commission has subpoenaed Apple as part of its antitrust probe of Google, seeking information on how the computer maker incorporates the search engine into its iPhone and iPad, two people familiar with the matter said.

The agency's request for documents includes agreements that made Google the preferred search engine on Apple's mobile devices, said the sources, who weren't authorized to speak publicly and declined to be identified. Google rivals such as Microsoft have criticized these agreements as anticompetitive.

The subpoena indicates that the FTC is intensifying its scrutiny of Google's business practices. Details of the Apple-Google relationship may show whether Google is abusing its dominance of Internet search capability to boost revenue in the mobile-phone advertising market, said antitrust lawyer Allen Grunes at the Brownstein Hyatt Farber Schreck law firm in Washington. "As mobile search gets more widespread, the default setting becomes more significant," said Mr. Grunes, who doesn't represent Google or its rivals.

The FTC has sent subpoenas to other handset makers and wireless carriers, said one of the sources, who declined to name the companies.

In its broader antitrust investigation of Mountain View, Calif.-based Google that began about a year ago, the FTC is examining whether the company unfairly increases advertising rates for competitors and ranks search results to favor its own businesses, such as its social-networking site Google+, two people familiar with the situation said in January.

Google has been the default search engine for the iPhone since Apple introduced the device in 2007, and on the iPad since its debut in 2010, as well as for the iPod Touch. Apple also uses Google Maps as a favored service on the iPhone and iPad.

The FTC probe of Google also is looking at whether the company is using its control of the Android mobile operating system to harm competition, two people familiar with the probe said last year. Apple and Google have been vying for leadership in the smartphone market since the first Android-based handset came out in 2008.

"It's very likely in the next few years we'll see mobile search outstripping desktop search," said Ben Schachter, a New York-based analyst with Macquarie Capital. Mr. Schachter estimated that by the end of the year, 25 percent to 30 percent of searches would take place on mobile devices, up from about 15 percent now. He said consumers usually leave the default settings on smartphones or other mobile devices.

"Most people don't even know what default search means," Mr. Schacter said. "They just know there's a box they can use to look for information."

Google's Android became the dominant mobile-phone operating system last year and led the market with a 50.9 percent share in the fourth quarter of 2011, compared with the iPhone's iOS mobile operating system's 23.8 percent share, according to a February report by the researcher Gartner Inc. of Stamford, Conn.

Kristin Huguet, a spokeswoman for Cupertino, Calif.-based Apple, the FTC's Cecelia Prewett and Google spokesman Adam Kovacevich declined to comment about the subpoenas.

Google last year earned $1.3 billion in search-related revenue on Apple products, according to a March 8 report from Macquarie Capital. Google paid Apple $1 billion to be the default search engine, keeping only $335 million of the total amount of revenue earned, the report said.

In January, eMarketer, a New York-based research firm, estimated that Google's share of U.S. mobile-ad revenue was 52 percent in 2011, driven by searches. Google earns about 95 percent of all U.S. mobile-search ad revenue, the firm said.

Google was the leader in U.S. Internet search in February, with 66.4 percent of the market, according to ComScore Inc., an Internet market research firm in Reston, Va.

Microsoft made a failed attempt in 2010 to wrest away the iPhone's default search engine position from Google, according to two people familiar with the matter.

Apple sold more than 183 million iPhones and more than 55 million iPads by the end of last year. The products together accounted for more than 70 percent of the company's last-quarter sales.

The FTC's subpoena is the latest twist in the relationship between Google and Apple. The two companies were linked for much of the past decade, with Google Chairman Eric Schmidt serving on Apple's board of directors. The dynamic changed when Google announced that it would introduce Android to compete against the iPhone.

Mr. Schmidt left the board in 2009, the same year the FTC said it was examining whether Apple and Google were violating antitrust laws by sharing board members. Mr. Schmidt said the FTC probe didn't prompt his decision to step down from Apple's board.

Conflict between the two companies intensified as Steve Jobs, Apple's late co-founder, opened a patent battle against companies whose mobile devices run on Android, including Samsung Electronics Co. and HTC Corp.

Joaquin Almunia, the European Commission's antitrust chief, said March 5 that he'll decide next month on the future of the EC's 18-month antitrust probe into Google and notify the company about any concerns.


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