The U.S. Justice Department on Tuesday filed its second antitrust lawsuit against Google in just over two years. It’s the latest sign that the U.S. government is not backing down from cases against tech firms even in light of a mixed record in court on antitrust suits.
Google shares were down 1.3% Tuesday afternoon.
related investing news
This lawsuit, which is focused on Google’s online advertising business and seeks to make Google divest parts of the business, is the first against the company filed under the Biden administration. The Department’s earlier lawsuit, filed in October 2020 under the Trump administration, accused Google of using its alleged monopoly power to cut off competition for internet search through exclusionary agreements. That case is expected to go to trial in September.
Google’s advertising business generated $54.5 billion in the quarter ended Sept. 30 from Search, YouTube, Google Network ads and other advertising.
Google also faces three other antitrust lawsuits from large groups of state attorneys general, including one focused on its advertising business led by Texas Attorney General Ken Paxton.
The states of California, Colorado, Connecticut, New Jersey, New York, Rhode Island, Tennessee and Virginia joined DOJ in the latest lawsuit.
Google’s advertising business has drawn critics because the platform operates on multiple sides of the market — buying, selling and an ad exchange — giving it unique insight into the process and potential leverage. The company has long denied that it dominates the online advertising market, pointing to the market share of competitors including Meta‘s Facebook.
In its lawsuit, the Justice Department and the states argue that Google sought to control all sides of the market, realizing “it could become ‘the be-all, and end-all location for all ad serving.'”
“Google would no longer have to compete on the merits; it could simply set the rules of the game to exclude rivals,” they allege.
According to the complaint, even one of Google’s own advertising executives questioned the wisdom of Google’s broad ownership in the space.
“[I]s there a deeper issue with us owning the platform, the exchange, and a huge network?” the executive allegedly asked. “The analogy would be if Goldman or Citibank owned the NYSE.”
The harm of Google’s practices, they allege, is that “website creators earn less, and advertisers pay more, than they would in a market where unfettered competitive pressure could discipline prices and lead to more innovative ad tech tools that would ultimately result in higher quality and lower cost transactions for market participants.”
As a result, they added, more publishers are forced to turn to alternative models like subscriptions to fund their operations.
Another part of Google’s strategy, the complaint alleges, was to acquire other companies to grow its power in the advertising market and “set the stage for Google’s later exclusionary conduct across the ad tech industry.” Those acquisitions included a 2008 purchase of publisher ad server DoubleClick and a “nascent ad exchange” that would become Google’s AdX. This allowed Google to require publishers in some instances to use all of its tools to gain access to any one, rather than working with rival tools for parts of the online ad-buying process.
“In effect, Google was robbing from Peter (the advertisers) to pay Paul (the publishers), all the while collecting a hefty transaction fee for its own privileged position in the middle,” the enforcers allege. “Rather than helping to fund website publishing, Google was siphoning off advertising dollars for itself through the imposition of supra-competitive fees on its platforms. A rival publisher ad server could not compete with Google’s inflated ad prices, especially without access to Google’s captive advertiser demand from Google Ads.”
Google continued to identify potential threats to its dominance, the complaint alleges, like when yield management tools became available to help publishers find better prices for their inventory in real-time outside of Google’s ecosystem.
“So, in response, Google employed a familiar tactic: acquire, then extinguish, any competitive threat,” the complainants wrote, pointing to Google’s 2011 acquisition of yield manager AdMeld. Following the deal, they allege, Google changed its AdX contracts to bar publishers from using other platforms forcing its own exchange to compete with others in real-time.
Later, Google became aware of another attempted workaround called “header bidding,” where publishers could add code to their own websites to let non-Google ad exchanges bid for inventory before Google’s ad exchange preferences were triggered, letting ad exchange rivals back into the market in a significant way. Google executives allegedly described the practice as an “existential threat.”
Google marketed its own “Open Bidding” tool as an alternative, which the complaint called a “Trojan Horse.” Publishers and ad exchanges that participated in the program had to give Google visibility into their auctions, including rival exchange bids. That allowed Google’s ad exchange to retain “a guaranteed seat in every auction, regardless of whether Google’s ad exchange offers the best match between advertisers and publishers,” the complaint alleges.
Google also feared ad competition from Facebook and Amazon, the DOJ and states allege, and in response, it agreed with Facebook to give it “preferential Open Bidding auction terms … in exchange for spend and pricing commitments designed to push more of Facebook’s captive advertiser spend onto Google’s platforms.” The complaint alleges Google sought a similar arrangement with Amazon but wasn’t so successful.
“Today’s lawsuit from the DOJ attempts to pick winners and losers in the highly competitive advertising technology sector,” a Google spokesperson said in a statement. “It largely duplicates an unfounded lawsuit by the Texas Attorney General, much of which was recently dismissed by a federal court. DOJ is doubling down on a flawed argument that would slow innovation, raise advertising fees, and make it harder for thousands of small businesses and publishers to grow.”
The DOJ Antitrust Division’s progressive chief, Jonathan Kanter, had recently been cleared to work on Google-related matters, The Wall Street Journal reported earlier this month. Bloomberg had previously reported that Kanter was not permitted to work on issues involving the company while the Department evaluated Google’s request to review his grounds for recusal. Before his time in government, Kanter represented some of Google’s rivals and critics, including Yelp and News Corp.
A Google spokesperson said in a statement last year that Kanter’s prior work and statements “raise serious concerns about his ability to be impartial.”
Google isn’t the only tech giant that has seen scrutiny from the federal government. At the Federal Trade Commission, Meta is also the subject of two antitrust suits, as is Microsoft’s proposed acquisition of Activision.
Google and other tech companies have also faced increasing scrutiny from abroad, particularly in Europe, where Google has also fought multiple competition cases and new regulations threaten major changes to tech business models.
The company reports earnings on Feb. 2.