Google's Dominance in Washington Faces a Reckoning -2-

Google's parent company, Alphabet Inc., made a big bet on Hillary Clinton winning the 2016 presidential election. Employees donated $1.6 million to her campaign, about 80% more than the amount given by workers at any other corporation, and Executive Chairman Eric Schmidt helped set up companies to analyze political data for the campaign. Mr. Schmidt even wore a badge labeled "STAFF" at Mrs. Clinton's election-night bash.

His support of the losing side didn't go unnoticed among the victors. As President-elect Donald Trump was preparing for a meeting with tech executives at Trump Tower not long before his inauguration, he asked strategist Stephen Bannon whether Mr. Schmidt was "the guy that tried to help Hillary win the election," according to someone who heard the conversation.

"Yes," said Mr. Bannon. "Yes, he is."

Google, one of the most powerful players in Washington in recent years, is now facing the consequences of its lost political clout -- and is moving mountains to regain it. During the Obama years, Google held sway with both parties in Congress and members of the administration. Mr. Schmidt often met with President Barack Obama at the White House through advisory boards and other events. The company defeated an antitrust probe by U.S. regulators and secured favorable rules on net neutrality, online liability and copyright issues.

Today, the search-and-advertising giant has come under attack from Republicans on all those fronts, as well as a new challenge over consumer privacy. Democrats, for their part, are rethinking their attitude toward regulating the company amid allegations that Russia used Google and other internet platforms in an attempt to influence the 2016 presidential election.

For the past two decades, Washington has taken a largely hands-off role in regulating the internet, helping winners such as Google and Facebook Inc. grow to spectacular size and influence. Today, the rise of populist movements in both parties has forced a reckoning around the concentration of economic power in big businesses. Populist conservatives are particularly hostile to big tech, given its size and pervasive influence, as well as its support for immigration rights and other causes that clash with their economic nationalism.

"For the populist right, this is a major, major issue of the 2018 election," Mr. Bannon said in an interview. "We're going to make it a big deal. I can already tell it resonates."

Hearings on Tuesday and Wednesday are scheduled in the Senate on the Russia issue, in a rare public grilling of the tech giants that could focus rising concerns. Democratic senators Mark Warner of Virginia and Amy Klobuchar of Minnesota have introduced a bill along with Arizona Sen. John McCain, a Republican, that would require internet firms to disclose the financial backers of political ads on the internet.

Google, which commented only on specific policy issues, said in a written statement: "We support efforts to improve transparency, enhance disclosures and reduce foreign abuse. We're evaluating steps we can take on our own platforms and will work closely with lawmakers, the [Federal Election Commission] and the industry to explore the best solutions."

Google has found that Russian-linked entities bought tens of thousands of dollars worth of politically motivated ads on its platform around the presidential election, according to people familiar with the matter. But, "the further they dig, the more they come up with," said another person familiar with the matter.

Google executives, including general counsel Kent Walker, met with Facebook and other tech firms in northern California earlier this month to map out possible joint strategies to address worries raised by the hearings, according to a person familiar with the matter. Tech executives were particularly concerned that once-friendly congressional Democrats were suddenly criticizing them. No clear solutions emerged from the meeting, the person said.

Google's rivals in old-line media companies are encouraging this new scrutiny in Washington and have in recent years dubbed their effort "Project Goliath," according to emails among the companies that were hacked and posted online in 2014. Some companies have criticized the way Google surfaces news stories, including News Corp, owner of The Wall Street Journal.

Telecom AT&T Inc. suggested it might accept some legislation that Google opposed, and lobbyists for software company Oracle Corp. held a series of briefings behind the scenes for Capitol Hill aides and reporters designed to show how much information Google's Android phones collect.

One of the primary reasons for Google's political muscle in Washington has been its ability to forge ties, particularly with Democrats. After working closely with the Obama administration to craft technology policy, Mr. Schmidt threw his full support to Mrs. Clinton early in the campaign.

"He's ready to fund, advise, recruit talent, etc.," Clinton confidant John Podesta wrote in April 2014, referring to Mr. Schmidt, in a hacked email that was posted online by WikiLeaks. Mr. Schmidt "clearly wants to get going," Mr. Podesta said in the email to Robby Mook, the campaign manager for Mrs. Clinton. "He's still in DC tomorrow and would like to meet with you if you are in DC in the afternoon."

Mr. Schmidt personally helped start companies that analyzed political data and did other election work for Mrs. Clinton. One, named The Groundwork, was originally based a few blocks from her Brooklyn headquarters and eventually was paid $700,000 by the Clinton campaign.

Since the elections, Google has tried make more connections with the Republicans now in charge. It contributed $285,000 to Mr. Trump's inauguration. It funded a party to welcome back the Republican-controlled Congress. Attending the party, held at Washington's Smithsonian Arts and Industries Building, were more than 70 members of Congress and other officials, including political advisers to Mr. Trump.

Within days of the election, Google posted a help wanted notice for an employee in Washington who could manage the firm's outreach to conservative organizations, and ultimately hired someone from the staff of Sen. Ted Cruz, the Texas Republican.

The company also ramped up its public-service events with members of Congress back home in their districts. Those events, focusing on constituent-pleasing topics such as online safety for children and computer-science education, have often involved key members of committees that are important to Google and its corporate siblings.

Overall, Alphabet has spent $13.6 million on lobbying this year as of October, compared with 2016's full year total of $15.4 million, according to lobbying-disclosure records compiled by the nonpartisan Center for Responsive Politics. Cumulatively over the past five years, only Boeing Co. has spent more on lobbying in Washington than Google.

Google and other tech companies also publicly pledged $50 million each to complement a Trump administration effort to strengthen computer-science education.

Even before Mr. Trump was sworn in Jan. 20, Google faced its first tough policy challenge of the new era. During the transition, opponents of the company began pushing to install a Google adversary, Utah Attorney General Sean Reyes, as the new chairman of the Federal Trade Commission, which enforces antitrust laws.

In 2016, Mr. Reyes had called for the FTC to reopen a closed antitrust investigation into Google -- a major threat to the firm, which controls more than 80% of the business for internet search by some measures. Earlier this year, European officials imposed a groundbreaking $2.7 billion antitrust fine on Google for unfairly steering web searchers to Google's own shopping platforms.

Earlier, Mr. Reyes had joined with a half-dozen other state attorneys general in battling with Google over what some viewed as the company's facilitation of internet ills such as online sex trafficking. The company says it has made extensive efforts to combat such harms.

Google responded to the threat of potentially unfriendly policies from Mr. Reyes by engaging a squadron of GOP lobbyists to press the incoming Trump administration not to name him to the position, and instead pick another candidate who was viewed by some as more Google-friendly, according to several people familiar with the matter. The lobbyists argued that if Mr. Reyes were tapped, the company would flex its muscles in the Senate to block his confirmation.

"Google plays hardball beyond what most companies are willing to do," said Jon Bruning, the former Nebraska attorney general who was part of the battle against Google. Google's effort helped keep Mr. Reyes from being nominated, according to people familiar with the matter.

President Trump recently named another candidate for the job, seasoned antitrust lawyer Joseph Simons, a former FTC competition official during the George W. Bush administration. The White House announcement emphasized Mr. Simons's aggressive antitrust enforcement record.

"We're looking forward to collaborating with Chairman-nominee Simons...on a range of important issues that matter most to consumers, including combating online fraud, staying safe online, and fighting scams that impact our users," a Google spokeswoman said.

As it its lobbyists fought to take down Mr. Reyes, a new challenge emerged over consumer privacy -- key for a company that makes the bulk of its money selling targeted advertisements based on data they collect about consumers' online behavior.

The Obama-era Federal Communications Commission in late 2016 created rules that tightened consumer-privacy rules for cable and wireless companies such as AT&T and Comcast Corp., which provide internet connections and are trying to challenge Google's dominance in online advertising.

The FCC rules gave internet firms such as Google or Facebook, which operate under the generally friendlier rules of the FTC, a potentially huge advantage over telecoms, in the view of many experts.

In March, Republicans in Congress rolled back the FCC's 2016 privacy rules. Online consumer activists, which congressional Republicans viewed as allies with internet firms, protested.

Within weeks, Rep. Marsha Blackburn (R., Tenn.), who chairs a House subcommittee with jurisdiction over the internet, proposed new legislation that would effectively reimpose the Obama-era privacy rules, but on all the firms, including Google and other internet companies.

Google and its allies launched an all-out lobbying blitz to block Ms. Blackburn's legislation. "The act undermines the business models of all companies that provide online services and threatens the widespread availability of free services that provide enormous benefits to Americans," Google said in talking points distributed to conservative allies.

The bill so far hasn't been scheduled for a vote.

On Friday, the Republican chairman of the House Energy and Commerce Committee, Rep. Greg Walden of Oregon, raised questions on online opinion website Medium about consumer privacy and the business practices of tech companies, including Google. He said he plans a series of hearings in coming weeks that are "just the start" of an effort to "illuminate how Americans' data is being used online, how to ensure that data is safe, and how information is being filtered to consumers over the web."

A similar battle has been playing out over tech-friendly rules from the Obama era on net neutrality. The net neutrality regime could benefit Google and other internet companies at the expense of AT&T and firms in the telecommunications industry, which generally own the networks that support the internet. The rules require the owners of the systems to treat all internet traffic the same, without blocking, throttling or charging for faster speeds. Telecom companies have argued the rules were a government overreach that could choke off investment in networks.

Once Mr. Trump took office, the FCC started the process of rolling back those rules.

In response, Google and internet firms organized an online "day of action" for July, in which websites would post information about unfriendly policies in Washington that they said could harm the internet and call on users to contact their representatives in Congress.

In an earlier fight with the movie industry in 2011 and 2012, Google and the tech industry successfully used the tactic to get millions of internet users to swamp congressional offices and the FCC with protests.

Before the planned day of action, aides to Speaker Paul Ryan, Republican Leader Kevin McCarthy and other Republicans met with officials from Google, Facebook, Amazon.com Inc. and other tech representatives. During the generally friendly meeting, a Ryan aide issued a polite warning: If the internet companies carried through with their protest, it could endanger relationships with Republicans in Congress and other legislative priorities, according to people familiar with the meeting. Among the bills mentioned at the meeting was Ms. Blackburn's privacy bill, according to the people.

The day of action went ahead but had little impact on GOP lawmakers' plans. Some activists said participation by big tech firms appeared muted.

Perhaps the most emotionally charged issue to haunt Google involves online sex trafficking. Google and other internet firms have broad immunity under federal law from many types of lawsuits over items that other people post on their platforms -- even advertisements that offer children for sex.

In May, Republican Sen. Rob Portman of Ohio teamed up with Democratic Sen. Richard Blumenthal of Connecticut to work on a measure that would curb the immunity when it comes to sex trafficking. The bill would allow victims to hold internet companies liable for such content on their platforms in some circumstances.

Google officials, worried any carve out from the immunity law would open the door to more exceptions and lead to a rash of frivolous lawsuits, sought to get Mr. Portman to back off his legislation. The company dispatched a lobbyist who used to work for Mr. Portman to meet with the senator's chief of staff.

At the meeting, on July 19, a Google lobbyist told the Portman chief of staff the company opposed the legislation and would defeat it, according to lobbyists who spoke to the Portman aide about the meeting.

The Portman aide countered that Google could hurt its reputation by opposing it. The Google lobbyist said Mr. Portman would be seen as a villain trying to regulate the internet. The meeting left a bad taste, Mr. Portman's chief of staff later told the lobbyists.

Messrs. Portman and Blumenthal introduced the bill the next month with more than 20 co-sponsors. A spokesman for Mr. Portman's office didn't comment on the meeting and said he was confident that the Senate would pass the bill.

More recently, Google has changed its strategy. Susan Molinari, Google's vice president for public policy, said recently in a blog post that Google has "a long standing commitment to eradicating human trafficking." She said it had proposed amendments to Mr. Portman's legislation that would give victims and survivors the right to civil litigation and enable prosecutors to hold bad actors accountable for their crimes.

--Natalia Drozdiak contributed to this article.

(END) Dow Jones Newswires

October 30, 2017 12:22 ET (16:22 GMT)