They also sparked a high-stakes legal battle over whether a federal agency can use its consumer-protection powers to police cyber security practices at American companies.

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Facebook’s top lawyer Ted Ullyot is leaving the social networking giant, apparently to take some time off.

Facebook disclosed the departure today. Ullyot, 45, will be officially gone in July; the search for his replacement will include internal and external candidates.

As general counsel, Ullyot has presided over a myriad of new, unusual and sometimes controversial legal issues, including managing high-stakes and complex litigation that ranged from Facebook’s battle with the Winklevoss twins, to a patent fight with Yahoo to investor disgruntlement around its initial public offering.

And, of course, over privacy issues. In many ways, given the Silicon Valley company’s pioneering role in social networking, Ullyot has had to work in a relatively undiscovered landscape, which has also attracted a great deal of scrutiny from consumers, regulators and investors.

He started in the fall of 2008, and has managed all the legal aspects of the company and built up the team from 10 when Facebook was a startup to more than 70 as a public company. In that time, Facebook has grown from 500 people to 5,000 and from 100 million to over one billion active users.

It has certainly been a ride for him, from beating back the Winklevii over their allegations related to the founding of Facebook to settling the patent dispute with Yahoo to handling the Federal Trade Commission investigation and more.

It is not clear what he will do next, but sources said he does not have another job lined up as of yet.

The move comes amid growing privacy concerns regarding the types of information collected by mobile devices and apps, including location and other personal data.

“The mobile world is expanding and innovating at breathtaking speed, allowing consumers to do things that would have been hard to imagine only a few years ago,” outgoing FTC Chairman Jon Leibowitz said in a statement. “These best practices will help to safeguard consumer privacy and build trust in the mobile marketplace, ensuring that the market can continue to thrive.”

Leibowitz announced on Friday that he will step down later this month.

The FTC report contains recommendations for those that create the mobile operating systems, including Google, Apple, Microsoft and BlackBerry, and for those that make apps for those platforms and for other players, such as mobile ad networks.

On the OS side, the FTC suggestions include making disclosures as consumers are taking potentially privacy-compromising actions such as sharing their location, as well as having a single place to view privacy settings and icons that show when information is being shared.

For app makers, the FTC recommends a clear, easily accessible privacy policy, as well as getting users to expressly provide consent when sharing information and better communication with the third parties the apps work with, such as ad networks and analytics companies, to make sure partners also support their privacy choices.

(Image courtesy of Geek Culture/The Joy of Tech)

“Under facts we found, all five of us, from liberal Democrat to conservative Republican, agreed that the evidence militated against an antitrust case,” Leibowitz told Talking Points Memo. “The fact that we managed to have both Google and Google’s rivals unhappy, in an odd way that’s maybe unique to Washington, that puts us in the right place substantively.”

And, despite the implications of critics, the efforts of lobbyists did nothing to steer the agency to that place. “My sense is that the lobbying makes the companies feel good and lobbyists feel good,” Leibowitz said. “At the end of the day, whether you want to say lobbying had any influence, or canceled itself out because there was lobbying on both sides, if you’re going to do what lobbyists want you to do in a regulatory agency, you’re not doing your job.”

Almunia’s position doesn’t appear to be different from when he expressed it via statement in December, but he elaborated a bit in an interview with the Financial Times about which areas of Google’s business he finds troubling.

The interview comes on the heels of the U.S. Federal Trade Commission essentially clearing Google of search abuse claims in an antitrust settlement announced Jan. 3.

Google has more than 90 percent of the search market in Europe — significantly more than in the U.S. — where Bing is not as significant a player in many languages. European laws are more friendly to competition, and Almunia has more unilateral power than the FTC to exact punishment and fines.

The FT suggests that one of Almunia’s proposed punishments will be for Google to label its own services, which is not seen as a particularly strong remedy by Google’s competitors.

Basically, Google would have to more clearly show that it is referencing its own mapping, local, travel search and shopping-vertical search properties, similar to how it visually labels advertisements as such. But a bigger change would be to restrict Google from preferencing its own services over those of competitors.

Almunia said he is more or less in line with the FTC’s three restrictions on Google: No more scraping (a practice Google had already stopped), allowing advertisers to share data between Google and other services, and limitations on injunctions over standards-essential patents.

Though many details of the FTC investigation leaked out before they were announced officially, Almunia has openly discussed his process, having published his list of demands on Google last May. However, his repeated public discussion of the issue makes it that much more evident that various deadlines have been pushed back multiple times.

Asked for comment, a spokeswoman for Google said, “We continue to work cooperatively with the European Commission.”

Igor Zakowski / Shutterstock.com

That’s both because he doesn’t think Google violated antitrust laws and because he doesn’t think the non-binding search agreement Google made has any teeth.

Rosch’s pithy take: “In other words, after promising an elephant more than a year ago, the Commission instead has brought forth a couple of mice.”

Rosch, a Republican who is known as a bit of a lone-wolf thinker, is on his second-to-last day at the agency, as his replacement was confirmed earlier this week.

Rosch voted along with the rest of the five commissioners to close their search investigation and with the majority to discipline Google on standards-essential patents. But he abstained from voting for Google’s voluntary settlement agreement and a statement on the patent matter.

By stretching to catch Google on something — anything — the FTC reached too far, Rosch argued. The two issues the FTC convinced Google to back down on are scraping content to display in search “snippets” and allowing AdWords users to manage their ad campaigns across multiple platforms.

But scraping could quite easily be seen as an issue of fair use. The search agreement puts “the FTC in the position of becoming the enforcer of the copyright laws on the Internet — a task for which it has neither the resources nor expertise, and was surely not envisioned by Congress,” Rosch said.

He elaborated:

As any casual user of the Internet knows, many websites make use of other websites’ content; indeed, the business model for many popular websites is based on aggregating or summarizing the content of other websites. As a result of the majority’s apparent condemnation of scraping, the legality of these aggregators may be called into question, and the Commission may be inundated with rent-seeking complaints from firms like the alleged “victims” here.

Rosch had previously expressed skepticism about Google’s competitors trying to get the FTC to fight their battles. He told Bloomberg, “They can darn well bring it as a private antitrust action if they think their ox is being gored instead of free-riding on the government to achieve the same result.”

The U.S. Federal Trade Commission could agree to end its investigation as soon as this week, in response to several voluntary changes that Google will agree to make to its search practices to satisfy some of the agency’s concerns, according to one of the people briefed on the matter. That would mean Google wouldn’t have to sign a so-called consent decree, a formal settlement with the agency in which the company would agree to certain terms, said the people familiar with the probe.

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Nearly 60 percent of 400 popular kids’ apps made for phones and tablets running Google Inc. and Apple Inc. mobile software transmitted information about the device to the app’s developer or, more commonly, a third party such as an advertising network, FTC tests found. Meanwhile, just 20 percent of the apps reviewed disclosed any information about their data collection, the commission said.

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In an amicus brief filed late Wednesday with the U.S. Federal Circuit Court of Appeals, the trade agency argued that a district court was right to dismiss a request by Google’s Motorola Mobility division for an injunction against sales of the iPhone and iPad in the United States.

The patents Motorola had attempted to assert against Apple were SEPs, which it is obligated to license on fair, reasonable and non-discriminatory terms. And in the FTC’s eyes, using the threat of SEP-based injunctions to demand higher royalties or other favorable licensing terms is bad business. It’s a “patent hold-up,” to quote the agency’s term.

“Hold-up and the threat of hold-up can deter innovation by increasing costs and uncertainty for other industry participants, including those engaged in inventive activity,” the FTC said in its brief. “It can also distort investment and harm consumers by breaking the connection between the value of an invention and its reward — a connection that is the cornerstone of the patent system.”

But above all, patent hold-ups may undermine the value of standard setting, and that by extension could reduce interoperability, which isn’t good for anyone.

And in the end, disagreements over SEPs are better settled by financial means. By agreeing to license IP as an industry standards, companies who do so — like Google — have already acknowledged that they can be properly compensated by a royalty. So seeking an injunction against an allegedly infringing product is really just overkill. If there are damages in cases like these, they should be monetary.

It’s worth noting that this isn’t the first time the FTC has sounded off on SEP-driven lawsuits and Google’s efforts to use them to enhance its negotiating stance. Back in June, the agency told the International Trade Commission that Google’s request for import bans against Microsoft’s Xbox and Apple’s iPhone for their alleged infringement of its SEPs could hurt competition.

Apple and Google did not respond to requests for comment.

When everyone gets back from this week’s Thanksgiving break, many observers are expecting there to be some progress on the U.S. Federal Trade Commission’s investigation of Google’s alleged anti-competitive activities.

The crucial issue right now is whether the FTC decides to legally challenge Google on “search manipulation” — that is, whether Google manipulates its search rankings to give preference to its own sites, while also pushing down competitors’ rankings.

But, according to people intimately involved in the case, the FTC is hesitating on whether it is willing to go to bat on that particular and critical point, as Google has persuasively argued to some of the FTC commissioners — specifically Tom Rosch — that search is shifting from delivering text links to other Web sites to delivering robust and helpful information on the spot.

For example, when someone searches for an address, instead of providing a list of links to pages on various mapping sites, such as for AOL’s MapQuest, Google surfaces a clickable image of the map itself from its own mapping service.

The company is asserting that this is a better experience for consumers, even if it disadvantages other sites. The center of its argument is that it is doing what’s best for users — and it just so happens that it’s also good for Google properties.

While that might be selfish, it might not be illegal, and it is a difficult legal task for the FTC to prove otherwise, especially since damages to consumers are not clear.

What’s clear is that competitors from a wide range of companies are upset that they don’t get more prominence, but the question centers on whether Google — under antitrust law — might not be compelled to help them.

Said one lawyer close to the situation: “Coca-Cola does not have to carry Pepsi in its gas-station coolers.”

Therefore, the FTC would need solid proof that Google specifically tried to hurt a competitor who had better information in order to push its own properties.

And while there are other issues in play, too — such as advertising data portability, exclusive search agreements on sites and phones and perhaps even issues involving standards essential patents — evidence of abuse of search dominance is at the dead center of the potential battle.

Without it, the FTC might be stymied.

Bloomberg reported the same thing earlier today, saying the FTC is unsure it has enough evidence to prove that Google’s activities harmed consumers. That’s a major change from a series of previous leaks to Washington reporters in recent months that indicated the FTC was proceeding with a strong case.

As one source familiar with the negotiations told me: “There’s a sense the FTC has been outmaneuvered by Google once again.”

After a highly publicized investigation of Google, if the FTC were to drop the search ranking aspect of the case, it could still be taken up by the Department of Justice, which had originally wanted purview over the issue. (Please note: That’s actually what happened a decade ago with the Microsoft antitrust case.)

But to drop the search part of the case would be a massive blink by the FTC that would have implications for further government regulation of technology companies. “They’ll never bring for many years a case against a high-tech company if they don’t bring it here,” said another D.C. insider today.

That doesn’t mean tech companies would all be happy about Google effectively winning. For Google to go unchallenged on antitrust violations could be seen as a green light for the company to pursue whatever form of competition it wants.

Take FairSearch, a coalition of companies including Microsoft, Expedia and TripAdvisor, that is squaring off against Google with a list of demands.

Spokesperson Ben Hammer said via email today: “The members of FairSearch would view any resolution to the antitrust investigations of Google, whether through litigation or a settlement, as incomplete if it does not end Google’s preferencing of its own products ahead of natural search results.”

The FTC had previously given Google a couple of weeks to talk about a settlement before its five commissioners voted on a formal complaint. But sources said Google is trying to call the FTC’s bluff, and it may be working.

Google is in negotiations with the tougher European Commission over antitrust as well, where search manipulation has been at the center of the case, so a timid move by the FTC would also look weak by comparison to the EC — which, in fact, is nothing new.

The background for all this is whether the FTC under Chairman Jon Leibowitz — who is expected to leave soon after serving eight years at the agency — has seemingly been “outmaneuvered” by Google in recent years.

First, the agency let Google’s controversial AdMob acquisition through, with the shaky reasoning that Apple’s purchase of rival Quattro made the mobile search ad market balanced.

Then it dropped its investigation of Google’s Wi-Fi spying. And, most recently, after it got Google to agree to a privacy consent decree over Google Buzz, the company promptly broke it with its Safari cookie workaround — and was fined a piddling $22.5 million (which was just upheld last week).

So, borking this case, which many consider to be the one true shot at restraining Google’s power, would really not look good.

“There’s a possibility of competitive harm here,” said Joseph Wayland, who served as the Justice Department’s acting antitrust chief until last week, when he stepped down to return to private practice. Mr. Wayland said officials are devoting “huge energy, particularly at a senior level” to this and other antitrust issues surrounding patents.

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It’s much less difficult in Washington.

In fact, as one D.C. person familiar with the ongoing FTC probe aimed at slapping Google for its worrisome dominance of search and other markets put it most colorfully:

“There’s now blood in the water. All these people who have wanted to kill Google, this is their chance. They will never have a better opportunity than the next 30 days.”

And that’s why I’m in the nation’s capital for the next few days, sussing out the current status of the impending potential battle between Google and regulators.

The timing is tight. While there might have been a pause while the election played out, FTC Chairman Jon Leibowitz’s desire to step down and get back to the private sector is widely known.

There is also the increasing pressure for him to act soon, especially since Leibowitz pushed hard to get the case in an intra-governmental tussle with the Department of Justice.

Still, until now, it’s been a funny pace of sprinting fast and jogging slow, following a more than 18-month-long investigation of Google’s search business, in order to file a formal complaint for what would surely be a battle over a much longer time frame.

After FTC staffers recommended that the agency had enough material from interviews and internal documents for a case, commissioners have over the last two months been talking to the players themselves.

Google has been engaged in ongoing talks to settle with the FTC, although as Bloomberg reported, the company is now facing an ultimatum after failing to propose a reasonable remedy.

That appears to be the case: Leibowitz told Google on Friday that he planned to call for a vote within the next couple of weeks, sources said.

Thus, the clock is now clearly ticking for what some people are describing as Google’s “Microsoft moment,” referring to the devastating antitrust trial from the 1990s in which the government was able to label the software giant as a “monopolist.”

Such an outcome could be equally damaging to Google, of course, if the case moves forward.

At that point, once a complaint is filed, the spotlight would move to a top litigator, Beth Wilkinson, whom the FTC brought on in April.

The well-respected attorney, who is a partner at Paul, Weiss, Rifkind, Wharton & Garrison, is also a former prosecutor for the Justice Department. Hired on a part-time contract for one year, Wilkinson is best known for her work on the Oklahoma City bombing case against Timothy McVeigh.

The Google case is nowhere as dramatic or tragic, but Wilkinson’s involvement shows the seriousness of the matter. Seen through a Google-tinted lens, that’s the point — to make the threat of litigation seem very serious indeed.

There are many added complications to the basic case, including how U.S. regulators will line up with their equivalents in the European Commission, which has also been investigating Google’s business practices. And, no surprise, there’s also the likelihood that some publicity-seeking state attorneys general will want to pile on — oops — participate.

In Washington, lawyers and lobbyists like to talk about what section of antitrust law the FTC will use to charge Google. Leibowitz has indicated he might want to push on a less-used power to regulate businesses for “unfair methods of competition.” There’s also the question of whether it’s better for the FTC to file in an administrative court or a federal court, both now and for later appeals.

If a majority of commissioners do approve moving the case forward, most expect that Google will likely face multiple areas of inquiry.

They include:

• Search entry points, around Google’s history of exclusive search syndication deals with Web portals and publications, in browsers and on phones
• Google’s policies of exclusivity in search advertising APIs, where customers and competitors are inhibited from sharing data between various advertising options from different companies
• Various issues related to discrimination and scraping of vertical search competitors, as Google became more involved in areas such as travel and local
• Possibly, policies around its Android mobile operating system that give Google search exclusivity on partner phones

So, what can Google do to prevent the legal onslaught? It could agree to accept various behavioral changes such as opening up its search advertising APIs. It could be subject to more structural changes, including separating its advertising out from other products, and vertical search out from core search. It could give up exclusivity on its search deals.

What seems clear at this point is that better labeling and transparency — which Google would prefer as a remedy — won’t be enough to satisfy regulators and competitors.

More to the point, the foes of Google now include a panoply of companies across a wide range of industries — this is now not just a Microsoft-fueled effort — many of whom are expecting some sort of legal challenge.

So why should Silicon Valley care?

While many in the tech industry love to hate on Google these days, it is still very unclear if its search dominance has really reached Microsoft operating system proportions of days past. In addition, there is the question of whether regulators should be cracking down on technology that is now changing more quickly than ever.

Still, as one insider put it: “They should care because an uncontained Google is bad for all of them.”

Stay tuned to see if the FTC can actually prove just how bad that is.

Rep. Jared Polis, a Colorado Democrat, feels that taking legal action against Google for alleged anticompetitive behavior is a lousy idea — so lousy that he’s threatening to give the FTC a Congressional spanking if it moves ahead with it.

“I believe that application of antitrust against Google would be a woefully misguided step that would threaten the very integrity of our antitrust system, and could ultimately lead to congressional action resulting in a reduction in the ability of the FTC to enforce critical antitrust protections in industries where markets are being distorted in monopolies or oligopolies,” Polis wrote in a letter to FTC Chairman Jon Leibowitz. “At a time when the national economy continues to stagnate, it’s not clear to me why the FTC should be focusing on a product that consumers seem very happy with, search engines. Competition is only a click away and there are no barriers to competition.”

Leaving aside for a moment the letter’s fortuitous timing — leaked to the press just days after news emerged that four of the FTC’s five commissioners think Google may have used its dominance of the search market to harm rivals — it’s a bit unusual. For one thing, it’s a threat of Congressional action. For another, it’s a threat from the most junior Democrat on the Judiciary Committee — a guy who’s not even on the competition and the Internet subcommittee, which would presumably be the party most interested in this sort of thing.

And then there’s that “competition is only a click away” comment. Even if you’ve been following Google’s regulatory tribulations half-heartedly the past few years, you’d recognize that as a central bullet point of the company’s fair competition argument. Remember, Google’s business is perpetually at risk and its dominance potentially fleeting, even if it does hold a well over 60 percent share of the U.S. search market …

Fine. Maybe that point resonated with Polis, who founded and sold off a number of Internet businesses before pursuing a career in politics. But it still seems a bit odd. And just to be clear: Google has not donated to Polis’s campaign, according to OpenSecrets.

But a single Congressman who’s not privy to the findings of the FTC’s year-long investigation of Google threatening congressional action over a call the agency hasn’t yet made?

Which is not to say that the FTC shouldn’t be careful about taking antitrust action against Google. It most certainly should. The industry in which the company operates is a rapidly changing one that has benefited from the hands-off approach given it by the government. A more hands-on approach could have broad, unforeseen and unfortunate consequences.

That’s a very real concern. But maybe we should all wait and see the FTC’s evidence and the merits of its case — if there is one — before threatening to limit the agency’s authority.

The story doesn’t identify which four of the commission’s five members have concluded, after a year of investigation, that Google used its overwhelming command of the Internet search market to hurt rivals in the travel, shopping and entertainment sectors, and to benefit itself. They’re also concerned about Google’s handling of certain patents related to smartphones.

Meanwhile, FTC chairman Jon Leibowitz, pictured from his June appearance at D: All Things Digital, has said he wants to see a decision by the commission before the end of the year.

If the FTC brings the case, Google has two fundamental courses of action: Settle or fight. If it settles, the result will be a negotiated order that applies to Google, and Google only. The same will happen at the end of a lawsuit, assuming the FTC wins, which isn’t exactly certain.

There is another course of action the FTC could take, and has been known to take before: Issue guidelines. During the week, I talked with David Balto, a former FTC litigator during the Clinton Administration who has long been my go-to guy on antitrust law. He says enforcement actions can be messy, and even when they’re successful they only apply to the target, not to anyone else.

“Antitrust law is a really narrow tool,” he told me. “It doesn’t really fit in a lot of situations.”

The commission issued guidelines in 2002 in relation to Internet search companies, in an attempt to address practices that many companies were engaging in. Obviously, things have changed a lot in 10 years, so these guidelines would necessarily have to be updated substantially, and probably adjusted again within another two or three years.

Let’s say, for the sake of argument, that Google opts not to settle, but to fight. The result, Balto says, will be a complicated lawsuit that could take years, cost both sides million, and in the end, the FTC could lose. It has happened before. In 2003, the commission brought an enforcement action against chip interface designers Rambus. The FTC argued that Rambus had played fast and loose with the rules of an industry body that set standards for the memory chip industry when after leaving that body it tried to enforce patents against several memory companies.

After almost seven years of costly litigation, an appeals court sided with Rambus, saying that the commission hadn’t proved a violation had occurred in the first place. After all that, the FTC has started to hold hearings on the process of setting standards.

Guidelines would apply to everyone and would set ground rules for every participant in the market, including Google, Microsoft, Yahoo and whoever else might be affected. And all parties would benefit from participating in the dialogue leading up to the crafting of the guidelines: In the end, there would be a more informed consensus, and everyone involved will know the rules of the road.

It would be more complex and would take longer than it did 10 years ago, Balto says, but in the end, the FTC’s mission is to protect consumer welfare, not bring big and costly lawsuits.

It’s been nice to see all the euphoria at Yahoo about free food and Apple iPhones kicking it up a notch.

But, purple people, guess what? Them’s just your basic table stakes in Silicon Valley these days and pretty much everyone else has had such perks for a long while now.

Thus, as nice as it is to drink your coconut water gratis, after two months in charge, it’s long past time to focus on what new Yahoo CEO Marissa Mayer is up to besides making much-needed but obvious cultural changes at the troubled Internet giant.

She’s been busy with the expected listening tour of employees and also outside tech players — such as former Yahoo CEO Terry Semel — which is a textbook stop in the turnaround playbook.

Now comes the hard part: Actually beginning to make the significant decisions about how she’s going to turn around Yahoo and what the key issues of strategic focus need to be.

In a series of recent meetings, according to numerous sources inside the company, Mayer has begun to outline what those are to top staff.

Not surprisingly, they are many of the same thorny issues that Yahoo has been facing for a long time and which center primarily on making the company relevant again in a wide number of ways.

I’ll get to many of them over the next week in a series of What Will Marissa Do? posts — including looking closely at her new hires, when and how Mayer will deal with inevitable layoff decisions facing the company, where the sale of Yahoo! Japan stands and, finally, what she’s cooking up for key Yahoo products.

But the focus has to fall first of all on search and advertising, the two arenas that Mayer has been studying most closely, according to numerous sources close to the situation.

That has included a recent meeting and numerous discussions with Microsoft CEO Steve Ballmer about improving Yahoo’s search advertising partnership, said sources at both companies.

That deal has been largely disappointing since it was struck under the regime of ousted CEO Carol Bartz several years ago.

Many reasons are given for the poor performance of the entire arrangement, including lack of improvement of cost per click and share growth for both parties. That means bid density and numbers of advertisers remain too low, especially compared to Google’s offering of access to a larger, more active and lucrative market.

Simply put, despite massive spending by Microsoft on search, users and advertisers get significantly better results overall with the search leader Google.

(You can read a great piece by Search Engine Land’s Danny Sullivan from last year, which exhaustively looked at the issues until then.)

The irony abounds that it’s up to Mayer to fix this problem of improving revenue per search with Ballmer, since she has been among the executives who have made Google the search behemoth it has become.

Her particular expertise has been on search experience for consumers, which is just the area that Yahoo desperately needs to improve after handing over technology duties to Microsoft.

That move was controversial at the time and some feel it was a big mistake. But, most also think there is no going back at this point, given the enormous cost of running a serious search enterprise.

Such an idea is still being raised inside Yahoo, although it seems more nostalgic than a realistic possibility, given the enormous price and, more importantly, the departure of the company’s core search engineers in recent years.

That doesn’t mean Yahoo under Mayer can’t be key to helping solve Microsoft’s search tech problems. She certainly knows the entire arena, which has already given Yahoo increased credibility among Microsoft’s search engineers.

“None of Yahoo’s many CEOs knew anything about search technology and that’s certainly not the case here with Mayer,” said one person close to the situation at Microsoft. “When she walks in, she instantly has status among the geeks as someone who knows what she’s talking about.”

It still may be a losing battle, due to Google’s overwhelming dominance, but if anyone at Yahoo can spot areas of even small improvement — which can yield big returns — it could be Mayer.

In addition, she can spearhead Yahoo’s own efforts to reverse — or perhaps simply stop — search market share declines via delivering a better consumer offering.

That’s still heavy lifting, no matter the exec, since both Microsoft’s Bing and Google are better equipped to win here, too.

“It hard to imagine we are going to slow down in any way,” said one former colleague of Mayer’s at Google to me recently in a rather ominous tone. “We’re only going to get more competitive.”

Pressure much?

And more: Mayer is under a time limit, since guaranteed payments Microsoft agreed to pay Yahoo for the shortfalls on what was promised will be running out next year. The pair has renegotiated that deal before, and it will likely have to do so again.

Of course, Mayer could try to walk and threaten to take Yahoo’s search business elsewhere, a move that former CEO Scott Thompson was mulling before his ouster.

That’s not a surprising ploy, except it is probably impossible to pull off, a fact acknowledged by top Yahoo execs.

“It might feel good to say we have options in search,” said one person close to the situation. “But that ship sailed years ago.”

Indeed, especially since Google is the only choice of possible alternate partners and such a move is rife with major obstacles.

There is the issue of the contract with Microsoft, which could lead to a potentially explosive legal struggle Yahoo can ill afford.

“They can try to get out of the deal,” said one high-ranking person at the software giant. “But that’s a lot easier threatened than done.”

And, there is the clear regulatory hairball any search hook-up between Google and Yahoo would lead to.

That’s happened before, which Mayer knows well since she was a top exec in Google’s business when it tried to partner with Yahoo as a way to prevent Microsoft’s hostile takeover bid for the company.

While times might have changed, Google is currently facing a likely battle with the Federal Trade Commission over its powerful search business, and trying to get Yahoo’s business now is a non-starter.

Thus, finally fixing the Microsoft partnership is key to Mayer’s success since it represents a little over one-third of revenue of Yahoo (see the chart below).

The bigger part of Yahoo’s business, as you can also see from the chart, has been display revenues. And that, too, has been a sorry tale of declines and ever more disappointing results.

A report by eMarketer on display market share had this depressing chart for Yahoo:

As is clear, the march downward for one-time leader Yahoo has been swift, and the prospects for the future are worse as Google and Facebook vie for leadership.

The reasons for this have been myriad, but Mayer has apparently decided that it’s been due in large part to the broken Yahoo ad tech platforms and their ever weaker performance.

As we have previously reported, she has determined that it’s now time to invest in improving them, both by funding internally and external acquisitions.

For that, she has formed a tight group of execs to scan the landscape for tasty and innovative treats for Yahoo to gobble up.

That includes: Scott Burke, SVP of Yahoo’s advertising and data platforms; Brian Silver, who runs the company’s Right Media Exchange; Xuhui Shao, a key engineering VP under Burke; and Mark Morrissey, the longtime tech exec who previously ran the company’s search business and was key to integrating the Microsoft search deal into place.

The cerebral Burke especially has been pushing ad platform improvement for a while and finally seems to have won the battle against detractors of the big and possibly grandiose plan by appealing to Mayer’s interest in not giving up.

Thus, the tabling of plans by Thompson, as well as interim CEO Ross Levinsohn, to outsource some of the automated parts of the display business to Google.

Those talks were very serious, as well as others to sell off Right Media, but they are done for now.

One major issue — the people in charge of the ad platform turnaround could also be seen (and most definitely are) as mired in Yahoo’s legacy of lackluster results and poor performance.

“It is kind of funny that the guys responsible for the decline now have the responsibility for fixing it,” said one source at Yahoo.

It’s a fair point to be made.

But that’s water under the bridge, apparently, since the group has been making the rounds, helped by Yahoo’s M&A execs, with a wide range of companies in many different ad tech area being considered (and some dismissed), including: Mediaocean, Turn, Criteo, PubMatic and Millennial Media.

Millennial is the most interesting, because it is a mobile ad play, where Yahoo is exactly nowhere (to be fair, less than nowhere) after years of botched efforts.

As with other companies, this is a critical arena for Yahoo, and yet one more that Mayer needs to focus on.

Lastly, Mayer has to make sure Yahoo’s premium display business remains strong. This is much more based on relationships with large advertisers than on major sponsorship and branding offerings, as well as creating consumer products and content that is appealing to marketers.

This area is now headed up by former Google exec Michael Barrett, who has publicly said he was staying put for now at Yahoo as its chief of revenue.

In fact, because he is in charge of all sales, he occupies the second slot under Mayer on Yahoo’s now strangely configured, punctuation-impaired and information-free management page.

But numerous sources inside and outside Yahoo said Barrett has also told many people that he is still not fully committed to staying in the role for the long haul.

If he eventually gets a lucrative exit package — something the new boss is not being very generous with overall, said sources — that will mean Mayer will need a high-profile and well-regarded ad exec to replace him; sources said Mayer has already begun reaching out to some candidates.

The pickings are slim, with only a few names on the list of those capable of taking on such a job. That includes: Demand Media’s Joanne Bradford, who was also a former top Yahoo exec; Microsoft’s Yusuf Mehdi; OWN’s Kathleen Kayse; MLB.com’s Bob Bowman; and any number of Google execs.

In that regard, as with all the other search and advertising overhaul efforts at Yahoo, it is a matter of attracting serious talent into the company going forward.

More on that — and more — to come.

Facebook first agreed to the settlement in November, prompting a period of public comment that has just ended.

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Two people I spoke to — both of whom declined to be identified — in Silicon Valley separately said they had been contacted by a lawyer at the FTC’s Bureau of Competition inquiring about the circumstances of their contact with Third Point manager Dan Loeb (pictured here), specifically around the time that he first began buying large chunks of Yahoo last year as part of an activist shareholder action. Loeb is currently a director on the Yahoo board.

One of those people contacted was told by the FTC attorney that it was related to a “non-public investigation,” although the lawyer did not reveal specifically what the line of inquiry was about.

But another source said that it was related to the Hart-Scott-Rodino Antitrust Improvement Act (HSR Act) and its filing requirements.

The antitrust law, designed to prevent anticompetitive mergers or acquisitions, according to the FTC Web site, “requires companies to report any deal that is valued at more than $66 million to the agencies so they can be reviewed.”

In addition, according to FTC information, “the HSR Act requires that under some circumstances, individuals who acquire voting securities must notify the FTC and Department of Justice and observe a waiting period before completing the acquisition.” The waiting period is typically 30 days, which can be waived by the FTC.

An FTC spokesman declined to comment about any possible inquiries by its staff.

Third Point also declined to comment.

I reached out to a Yahoo spokeswoman, and am also awaiting a comment.

But another source said the Yahoo board was aware of the FTC scrutiny and does not consider it a serious issue.

To be clear, there has been no action by the FTC against Third Point and many such inquiries never lead to a finding that any violation occurred and are a routine part of the agency’s oversight job.

In addition, if a violation did occur, it also might have been technical and inadvertent or due to faulty advice from counsel.

That was the case in a $500,000 fine paid to the FTC by Comcast CEO Brian Roberts last December.

In addition, the FTC then determined that Roberts also got no financial gains from the filing violation and also reported the problem soon after it was discovered.

Previous to that, the FTC has settled with a variety of investors, including hedge funds, over violations of HSR filing requirements.

Neither Third Point nor Loeb has ever been subject to such any such action by the FTC. He is an experienced investor who is well known for his “poison pen” and pugnacious manner.

“The hedge-fund manager competes in triathlons, never, ever drinks from a plastic water bottle and is unsparing at times in his criticism of corporate executives,” a recent article in The Wall Street Journal noted.

Loeb definitely took clear and unflinching aim at Yahoo last September with his $8.7 billion fund, disclosing that he had acquired a more than five percent stake in Yahoo, proceeding to wage a proxy fight to gain board seats.

At the time, he paid about $11 per Yahoo share. It has recently been trading in the $15 to $16 range.

Despite a lot of noisy agitation, Loeb’s big break came only after he uncovered a fake computer science degree on the resume of then CEO Scott Thompson earlier this year. The result: Yahoo’s directors ousted Thompson and settled with Loeb by giving him three board seats.

In addition, a number of Yahoo directors whom he had attacked stepped aside, including then Chairman Roy Bostock, and a nearly new board was put in place.

Yahoo’s shares have rise 17 percent since Loeb became a major investor, although its stock is down for 2012.

Since he joined as a director, the aggressive money manager seems to be calling the shots at the company, despite not being the chairman of the board.

That has included pushing hard for the appointment of a new CEO, former Google exec Marissa Mayer, as well as involving himself in initial talks to settle the patent lawsuit it had filed against Facebook and also in other deals.

After Mayer was appointed, Loeb has since added even more shares, assembling a more than six percent stake in Yahoo that is worth $1.2 billion.

That’s a $150 million paper gain for Loeb so far, said the Journal. That tidy sum, along with his board victory and the well-received appointment of Mayer, has caused the voluble Loeb to make a series of calls to a number of execs in Silicon Valley he has recently gotten to know via incessant and tireless networking to tout his win.

“He’s very proud of himself and really seems to be enjoying being the guy to force change at Yahoo,” said one person Loeb has dialed up recently to chitchat. “It’s his version of humblebrag.”

Humblebrag, indeed. In a second-quarter letter to his investors last week, Loeb was practically doing a victory dance about Yahoo in one section, which you can see below in its entirety:

Third Point’s investment in Yahoo! appreciated 4% during the second quarter. Due to Yahoo!’s concentrated size in our funds, this modest appreciation still made it the biggest winner for the period.

We were pleased to have favorably resolved the proxy contest we commenced in Q1. Following a subsequent kerfuffle involving misstated academic records of its then‐CEO and a now former board member, Yahoo!’s directors determined that it was in the best interests of the Company to invite our nominees Daniel Loeb, Michael Wolf, and Harry Wilson onto the board.

Since we joined the Board in mid‐May, Yahoo! has achieved three significant milestones. First, Yahoo! and Alibaba, the privately held Chinese internet company in which Yahoo! owns a 40% stake, reached an agreement for Alibaba to repurchase about half of that position at an attractive valuation. This agreement provides pricing transparency and a path to liquidity for this key Yahoo! asset, and is expected to close sometime in Q3. Yahoo! has indicated that it will return substantially all of the expected $5B of cash it will receive from this transaction to shareholders. Second, the Company was able to amicably settle a patent lawsuit filed in the first quarter against Facebook, one of its largest partners, resulting in a new, expanded partnership between the two companies.
Lastly, Yahoo recently appointed Marissa Mayer as CEO. Mayer, a Stanford graduate with a B.A. in Symbolic Systems and M.S. in Computer Science, was Google’s 20th employee when she joined the fledging company in 1999. During her 13 years at Google, she oversaw the design of numerous well‐known products and was responsible for its iconic home page design. Mayer is a leading innovator in Silicon Valley whose creative vision made her a critical part of Google’s leadership team. Her appointment was received favorably by employees and the tech community. We were very pleased to have had the opportunity to work with our fellow directors towards this extremely positive outcome and wish Marissa the best.

The fine is expected to be the largest penalty ever levied on a single company by the U.S. Federal Trade Commission. It offers the latest sign of the FTC’s stepped-up approach to policing online privacy violations, coming just six months after The Wall Street Journal reported on Google’s practices.

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“We take our commitments to license on fair, reasonable and non-discriminatory terms very seriously and are happy to answer any questions,” Google said.

Bloomberg reported on the FTC inquiry earlier on Friday.

Microsoft and Apple have both criticized Motorola’s handling of patents that are used in various wireless standards.

It’s clear — especially from this interview with Federal Trade Commission Chairman Jon Leibowitz at the 10th D: All Things Digital conference — that the federal government is going to spend more time scrutinizing Internet companies and their behavior.

“The more protection these consumers have, the more they trust it, and the more commerce they do,” Leibowitz said in a wide-ranging interview that focused a lot on “privacy by design” and transparency in the face of ever-growing power by digital-data-sucking companies like Facebook and Google.

Leibowitz could not say much about an ongoing antitrust investigation of Google, except to note that he had just hired his own outside big legal gun to keep up with the search giant’s, in case of, well, you know.

Here’s the video of the full interview with Walt Mossberg: