States Allege Google Cut Deal With Facebook to Rig Online Ad Market

By John D. McKinnon and Ryan Tracy 

WASHINGTON -- A Texas-led coalition of state attorneys general sued Alphabet Inc.'s Google unit accusing the company of operating a digital advertising monopoly in violation antitrust laws and claiming that Google had reached an improper auction-rigging deal with Facebook Inc. to preserve its dominance.

The complaint, filed Wednesday in U.S. District Court in Texas, alleges that Facebook emerged in 2017 as a powerful new rival to Google's established dominance in the market for online advertising. In response, the complaint says, Google initiated a deal with the social-media company that allowed the search giant to preserve its commanding position in a key segment of the online advertising market, while guaranteeing Facebook would win a certain share of the ad auctions that Google runs.

Google on Wednesday denied engaging in any anticompetitive behavior and repeated its stance that it operates in highly competitive markets.

"Attorney General Paxton's ad tech claims are meritless, yet he's gone ahead in spite of all the facts. We've invested in state-of-the-art ad tech services that help businesses and benefit consumers," a Google spokesperson said in a statement. "We will strongly defend ourselves from his baseless claims in court."

Facebook had no immediate comment on the lawsuit's allegations.

In a video posted on social media, Texas Attorney General Ken Paxton said Google had used its monopoly position in the ad-tech market to control pricing and colluded to rig advertising auctions.

"This internet Goliath used its power to manipulate the market, destroy competition, and harm YOU, the consumer," Mr. Paxton's office said on Twitter.

The Texas-led case follows a Justice Department lawsuit filed Oct. 20 against Google that alleged that the company maintains its status as gatekeeper to the internet through an unlawful web of exclusionary and interlocking business agreements that shut out competitors.

In that suit, the government highlighted Google's relationship with another tech giant, Apple Inc., alleging that Google uses billions of dollars collected from advertising to pay for mobile-phone manufacturers, carriers and browsers such as Apple's Safari to maintain Google as their preset, default search engine.

Alphabet publicly discloses that it pays other companies to funnel in search traffic. Analysts estimate that it pays Apple alone around $10 billion a year -- another deal the government cited in alleging suppressed competition.

Taken together, the cases risk tarnishing Silicon Valley's reputation with suggestions of preferential arrangements that harm both consumers and potential competitors.

The Texas-led coalition of state attorneys general has been zeroing in for more than a year on Google's dominant presence in the digital advertising market, and specifically its dominance in the ad-tech software used to buy and sell ads on sites across the web, according to people familiar with the matter and a civil subpoena Mr. Paxton sent last year.

Google owns the dominant tool at every link in the complex chain between online publishers and advertisers, giving it unique power over the monetization of digital content. Many publishers and advertising rivals have accused Google of tying these tools to one another, and to its owned-and-operated properties such as its search engine and YouTube, in anticompetitive ways.

Google has argued that the ad-tech industry is competitive and that moves it has made to merge products were aimed at improving customers' experience.

The states have coordinated closely with the Justice Department, which also has been posing increasingly detailed questions -- to Google's rivals and to executives inside the company -- about how Google's third-party advertising business interacts with publishers and advertisers, according to people familiar with that probe.

That digital business was built largely on the company's 2008 acquisition of ad-technology provider DoubleClick. Publishers and rivals say Google leveraged its acquisition of that company, which was the dominant provider of tools for publishers to sell their digital ads online, to build out the dominant marketplace for digital ads -- known as an ad exchange -- and dominant ad-buying tools for advertisers.

Along the way, critics allege that Google created a system rife with conflicts of interest, in which it used its superior data advantage and unique dominance in the marketplace to give preference to its own tools and steer money to its own properties.

They point as evidence of anticompetitive behavior to moves like Google's longtime practice of giving itself a "last look" in ad auctions; giving preference its own Accelerated Mobile Pages, or AMP, in search results to effectively force publishers to adopt a format that would make it harder to use alternative ad technologies; and requiring advertisers to use Google's ad-buying tools to access YouTube ads.

Texas' initial subpoena included more than 200 questions and demands for records. Many of the questions appear designed to solicit evidence that Google engaged in anticompetitive conduct in building up its powerful position.

For instance, the subpoena asked for information about Google's "business rationale" for acquiring several of the companies that have helped it build up its advertising business, including DoubleClick in 2008, AdMob in 2010 and Admeld Inc. in 2011.

In another question, Google is asked to explain its business justification for prohibiting rival data-management platforms from operating on its own ad networks.

Still another asked Google to explain its "control or influence over" the AMP Project, an open-source initiative to standardize mobile website design. Google is also asked to explain its "business justification for removing YouTube [advertising] inventory from other Ad Exchanges."

In its response to the subpoena, Google referred to a blog post by Kent Walker, its senior vice president for global affairs.

"We have answered many questions on these issues over many years, in the United States as well as overseas, across many aspects of our business, so this is not new for us," Mr. Walker wrote. "The [Justice Department] has asked us to provide information about these past investigations, and we expect state attorneys general will ask similar questions. We have always worked constructively with regulators and we will continue to do so."

In another blog post Sept. 11, the company said competition in the ad space is robust.

"To suggest that the ad tech sector is lacking competition is simply not true," it said. "To the contrary, the industry is famously crowded. There are thousands of companies, large and small, working together and in competition with each other to power digital advertising across the web, each with different specialties and technologies."

Wall Street Journal publisher News Corp, a longtime Google critic, was among the publishers contacted by antitrust investigators, along with New York Times Co., Gannett Co., Nexstar Media Group Inc. and Condé Nast, some of the people said.

Write to John D. McKinnon at [e-mail] and Ryan Tracy at [e-mail]

(END) Dow Jones Newswires

December 16, 2020 16:32 ET (21:32 GMT)

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