Google is facing antitrust charges yet again. Last week, attorneys general from 10 different states filed a lawsuit against the tech giant alleging antitrust violations in connection to Google’s online advertising practices. The lawsuit, which was filed in the United States District Court of the Eastern District of Texas, marks the second time in the past few months that Google has been sued for breaching various antitrust laws.
An Alleged Monopoly
The complaint alleges various instances of Google’s anticompetitive conduct in violation of the Sherman Act and other state laws concerning antitrust violations and deceptive trade laws. First, the complaint alleges that Google forces publishers (online media companies that operate websites and phone apps) to license with Google’s ad server and trade within Google’s ad exchange. When online publishers sell their ad inventory, the advertisements target specific users in real-time, customizing ads to specifically target that user based on their personal information. Publishers can sell their inventories to advertisers indirectly, through the use of centralized electronic trading venues referred to as ad exchanges.
As the complaint explains, Google entered the ad exchange market in 2009 and faced significant competition. In order to foreclose on the competition, Google operated an ad-buying tool for small advertisers to bid on display ad space. The advertisers bidding through Google ads also had to use Google’s ad network and ad exchange, resulting in Google receiving three fees—the buy-side, sell-side, and exchange fees.
Google gained a monopoly on ad-buying tools in part because it already had a monopoly in the markets of display ad networking and search advertising. Thus, small advertisers had to use Google Ads to purchase Google Search inventory, preventing competition with other rival advertising buying tools. The complaint alleges that by routing the small advertiser bids through its own exchanges, Google was not serving the best interests of the small businesses, as their bids were not routed to the exchanges that offered the lowest prices, but rather, limited just to Google.
Blocking the Competition
In addition, the complaint alleges that Google used its control over the publishers to block exchange competition by restricting the publishers from selling their inventory to more than one exchange at a time. With publishers unable to share their inventory to more than one market place at once, and with Google giving itself preferential treatment by routing the publishers’ inventories to its own ad exchange, it effectively blocked out competition while increasing the cost of transacting on its own exchanges.
In 2014, a new industry innovation was developed, referred to as “header bidding,” which is a piece of code that permits publishers to route their inventory to multiple exchanges and earn more ad revenue. One of the purposes of header bidding was to promote exchange competition, but Google wanted to stop it and conspired to do so with Facebook. Initially, Facebook supported header bidding but in an effort to get the social media giant on board (and evidenced in mostly redacted communications within the complaint), Google reached an agreement by which Facebook would curtail its header bidding initiatives and bid through Google’s ad servers. In exchange, Google promised to give Facebook preference in its ad auctions. The complaint further alleges a number of additional deceptive practices that Google attempted to stop header bidding and re-route trading through Google.
Hurting the Ad Industry
The complaint claims that Google’s conduct had numerous negative effects on competition, causing rivals to leave the market and harming the ability of publishers to monetize their content. The lack of competition deprived advertisers, publishers, and consumers of “improved quality, greater transparency, increased output and/or lower prices.”
As part of its prayer for relief, among other requests, the plaintiffs seek a court order for injunctive relief to restore competitive practices in the market of online advertising as well as a request to enjoin Google from further engaging in anticompetitive conduct.
What the complaint describes as illegal conduct, Google states is merely the “hallmarks of a highly competitive industry.” In a public statement, Google has argued that the complaint’s allegations are meritless, noting that the drop in ad prices and ad tech prices is evidence of a competitive market. People do not use Google’s services because they are forced away from other alternatives, as Google argues, but rather because they choose to.
As to its questionable contractual relationship with Facebook, Google denies the allegations and states that it does not have an exclusive arrangement with Facebook nor does it give the social media company any special data. Facebook declined to comment on its involvement.
The Future of Big Tech
This isn’t the only antitrust lawsuit Google is facing. Earlier this month, a number of attorneys general filed a lawsuit in the D.C. district court alleging that Google violated various antitrust laws in relation to its search engines. Similar to the present allegations concerning advertising, this lawsuit alleges that Google creates an unlawful monopoly over the search engine market by, among other things, entering into exclusionary agreements with distributors of search services to ensure that it is the preset default search engine. The complaint closely follows the Justice Department lawsuit filed against Google this past October, which alleges similar conduct concerning Google’s search engine’s advertising.
Google is not the only tech company facing scrutiny in recent months. Last week, the Federal Trade Commission, along with over 48 state attorneys general, accused Facebook of unfair practices in relation to its acquisition of any social media competitors.
As of late, it appears that there is more of a focus on antitrust violations, particularly by large companies such, as Google, making billions a year with targeted digital advertising. In light of this trend, it is likely that Google (and Facebook) will be facing additional lawsuits from other states concerning the fairness of their business practices.