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Updated Tuesday, July 19, 2011 11:39 pm TWN, ANALYSIS By Alexei Oreskovic, Reuters

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Google's antitrust probe drives speculation

SAN FRANCISCO The U.S. antitrust probe into Google Inc. could hem in its growth ambitions for years, even if regulators do not unleash their most formidable weapons: Seeking a breakup of the Internet giant or exerting control over its cherished search algorithm.

The U.S. Federal Trade Commission's (FTC) probe into business practices at Google, announced last month, puts it in the company of Microsoft Corp., IBM and other businesses that landed in the government's crosshairs. In perhaps the most drastic case, the process led to the breakup of AT&T Corporation.

Some analysts and investors believe Google will strike a settlement with the government to avoid the distraction and business risk that would come with a prolonged court fight.

But they also note that a worst-case outcome could curtail Google's growth prospects and undermine its position at the top of an increasingly competitive Internet industry.

David Balto, a former policy director for the FTC, said government efforts to oversee Google's day-to-day operations could cramp its ability to innovate.

“It would be like putting mittens on Da Vinci's hands,” he said. “We'd still get paintings but they would be nowhere as brilliant.”

Balto and other legal experts say a breakup of Google is nearly inconceivable, however. Forced divestitures of business are considered an extreme measure that regulators are loath to take for fear of hurting innovation and business efficiencies.

Nor is it easy: a federal judge sided with the regulators in 2000 and ordered software giant Microsoft split into two companies, but the decision was overturned on appeal.

“An antitrust investigation like this is of the utmost importance to a company like Google,” said Robert Lande, a director at the American Antitrust Institute (AAI), who formerly worked for the FTC's bureau of competition. “The worst-case scenario could be very dramatic consequences.”

He stressed however that at this stage it's impossible to predict how the FTC will act and noted that the agency drops many investigations without ever bringing charges. The AAI has said it supports the government investigation into Google but has not taken a position on whether any remedies are required.

Easier than dismantling mergers, in which Google could argue that extricating acquired technology from its services would cause severe disruption, is preventing new mergers, say legal experts.

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