The US Justice Department filed its second antitrust lawsuit against Google in just over two years on Tuesday. It’s the latest sign that the US government isn’t backing down from antitrust cases against tech companies, despite a mixed record in court.
Tuesday afternoon, Google shares were down 1.3%.
This lawsuit, which focuses on Google’s online advertising business and seeks to force the company to divest parts of it, is the first filed against the company during the Biden administration. The Department’s previous lawsuit, filed under the Trump administration in October 2020, accused Google of using its alleged monopoly power to eliminate competition in internet search through exclusionary agreements. The trial in that case is scheduled for September.
In the fiscal quarter ended September 30, Google’s advertising business generated $54.5 billion in revenue from Search, YouTube, Google Network ads, and other advertising.
Google is also facing three other antitrust lawsuits from large groups of state attorneys general, one of which is centred on its advertising business and is led by Texas Attorney General Ken Paxton.
The lawsuit was joined by the states of California, Colorado, Connecticut, New Jersey, New York, Rhode Island, Tennessee, and Virginia.
Google’s advertising business has been criticised because the platform operates on multiple market sides — buying, selling, and an ad exchange — providing it with unique insight into the process and potential leverage. The company has long denied that it dominates the online advertising market, citing competitors such as Meta’s Facebook.
According to the complaint, another part of Google’s strategy was to acquire other companies in order to increase its power in the advertising market and “set the stage for Google’s later exclusionary conduct across the ad tech industry.” Among these purchases were DoubleClick, a publisher ad server, and a “nascent ad exchange” that would become Google AdX. This allowed Google to require publishers to use all of its tools in some cases in order to gain access to any one of them, rather than working with rival tools for parts of the online ad-buying process.
“In effect, Google was robbing from Peter (advertisers) to pay Paul (publishers), while collecting a hefty transaction fee for its own privileged position in the middle,” the enforcers claim. “Rather than helping to fund website publishing, Google was syphoning off advertising dollars for itself through the imposition of supra-competitive fees on its platforms. A competitor publisher ad server would be unable to compete with Google’s inflated ad prices, especially without access to Google Ads’ captive advertiser demand.”
According to the complaint, Google continued to identify potential threats to its dominance, such as when yield management tools became available to help publishers find better prices for their inventory in real-time outside of Google’s ecosystem.
“As a result, Google employed a familiar tactic: acquire, then extinguish, any competitive threat,” the complainants wrote, referring to Google’s acquisition of yield manager AdMeld in 2011. Following the agreement, they claim, Google changed its AdX contracts to prohibit publishers from using other platforms, forcing its own exchange to compete in real-time with others.
Later, Google became aware of another attempted workaround known as “header bidding,” in which publishers could add code to their own websites to allow non-Google ad exchanges to bid for inventory before Google’s ad exchange preferences were triggered, effectively allowing ad exchange rivals to re-enter the market. Google executives are said to have called the practise a “existential threat.”
As an alternative, Google promoted its own “Open Bidding” tool, which the complaint referred to as a “Trojan Horse.” Participating publishers and ad exchanges were required to provide Google with access to their auctions, including rival exchange bids. This allowed Google’s ad exchange to keep “a guaranteed seat in every auction, regardless of whether Google’s ad exchange offers the best match between advertisers and publishers,” according to the complaint.
According to the DOJ and states, Google also feared ad competition from Facebook and Amazon, so 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.” According to the complaint, Google attempted but failed to reach a similar agreement with Amazon.
“Today’s DOJ lawsuit attempts to pick winners and losers in the highly competitive advertising technology sector,” said a Google spokesperson in a statement. “It largely duplicates an unfounded lawsuit filed by the Texas Attorney General, much of which was recently dismissed by a federal court. “The Department of Justice is doubling down on a flawed argument that would slow innovation, raise advertising fees, and make it more difficult for thousands of small businesses and publishers to grow.”
The Wall Street Journal reported earlier this month that the DOJ Antitrust Division’s progressive chief, Jonathan Kanter, had recently been cleared to work on Google-related matters. Bloomberg previously reported that Kanter was barred from working on company-related issues while the Department considered Google’s request to review his grounds for recusal. Kanter previously represented some of Google’s competitors and critics, including Yelp and News Corp.
In a statement last year, a Google spokesperson stated that Kanter’s prior work and statements “raise serious concerns about his ability to be impartial.”
Google isn’t the only tech behemoth under investigation by the federal government. Meta is also the subject of two antitrust suits at the Federal Trade Commission, as is Microsoft’s proposed acquisition of Activision.
Google and other technology companies have also come under increased scrutiny from other countries, particularly in Europe, where Google has fought multiple competition cases and new regulations threaten to disrupt tech business models.
On February 2, the company will report earnings.