By John D. McKinnon and Ryan Tracy
WASHINGTON -- Ten states sued Google Wednesday, accusing the
search giant of running an illegal digital-advertising monopoly and
enlisting rival Facebook Inc. in an alleged deal to rig ad auctions
that was code-named after "Star Wars" characters.
The complaint, filed in U.S. District Court in Texas, alleges
that Facebook emerged in 2017 as a powerful new rival to Google,
challenging the Alphabet Inc. unit's established dominance in
online advertising. Google responded by initiating an agreement in
which Facebook would curtail its competitive moves, in return for
guaranteed special treatment in Google-run ad auctions, the lawsuit
claims.
Google's internal code name for the alleged Facebook deal
referenced characters from Star Wars, according to the suit, which
redacted specifics. A person familiar with the matter said the code
name was "Jedi Blue," after the sci-fi franchise's Jedi
knights.
"Google is a trillion-dollar monopoly brazenly abusing its
monopolistic power, going so far as to induce senior Facebook
executives to agree to a contractual scheme that undermines the
heart of [the] competitive process," Texas Attorney General Ken
Paxton, who led the suit, said in a statement.
The accusations opened up a fresh front of criticism for both
tech giants, each of which face federal antitrust lawsuits filed in
recent weeks.
Facebook had no immediate comment on the allegations. Google
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 Wednesday. "We will strongly
defend ourselves from his baseless claims in court."
Nine other attorneys general, all Republicans like Mr. Paxton,
joined the lawsuit. Noticeably absent were Democrats who had
initially joined Texas in launching a bipartisan state
investigation of Google last fall, though it is possible more
states could join the suit later. A separate, bipartisan group of
state attorneys general is preparing another antitrust case against
Google, which is expected to target its search business and could
filed as soon as Thursday.
The Texas-led case contains allegations that aren't addressed in
detail in a Justice Department lawsuit filed Oct. 20 against
Google. The federal suit focused on Google's flagship search
business, alleging it maintains its status as gatekeeper to the
internet through an unlawful web of exclusionary and interlocking
business agreements that shut out competitors.
Wednesday's complaint traces back more than a decade, alleging
that Google quietly built up and defended its dominance in the
market for digital ads, beginning with its acquisition of the
ad-technology firm DoubleClick in 2008.
Many of the accusations involve Google's ad-tech software, which
is used to buy and sell ads on sites across the web. 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. It also owns key platforms for
reaching consumers, such as YouTube.
The Texas-led suit accuses Google of illegally tying these
products to one another, leveraging its power in one part of the
advertising chain to force publishers or advertisers to use another
Google-owned tool.
The claims echo past concerns from advertising-technology
companies and news publishers. They say Google created a system
rife with conflicts of interest, in which it used its superior data
advantage and dominant position in the marketplace to give
preference to its own tools and steer money to its own
properties.
Google "now uses its immense market power to extract a very high
tax of [REDACTED] percent of the ad dollars otherwise flowing to
the countless online publishers and content producers like online
newspapers, cooking websites and blogs who survive by selling
advertisements on their websites and apps," the lawsuit says.
The suit alleged that this added cost "is ultimately borne by
American consumers through higher prices and lower quality on the
goods, services and information those businesses provide."
The complaint also targets Google for allegedly influencing an
initiative for developing mobile webpages, known as Accelerated
Mobile Pages, to effectively force publishers to adopt a format
that would make it harder to use alternative ad technologies on
those pages.
The suit alleges that Google came up with a secret program to
harm publishers, code-named in reference to the "Star Wars"
franchise, with the precise name redacted in the complaint.
The program appeared to allow publishers more freedom to choose
among exchanges that match the buyers and sellers of digital ads,
the lawsuit alleged. But it says that Google "secretly let its own
exchange win, even when another exchange submitted a higher bid."
The program was "designed...to avoid competition and the program
consequently hurt publishers," the suit says, citing an internal
Google communication.
The company has consistently disputed claims that it dominates
the advertising technology market.
"To suggest that the ad tech sector is lacking competition is
simply not true," it said in a blog post last year. "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."
According to the lawsuit, Google went to great lengths to
preserve its market power.
When Facebook emerged as a threat, "Google made overtures to
Facebook," the lawsuit says, with the two parties allegedly
entering into the Jedi Blue deal. Facebook withdrew as a direct
threat in return for Google giving Facebook "information, speed and
other advantages in the auctions that Google runs" for publishers'
mobile advertising, the lawsuit says.
"The parties agree on [REDACTED] for how often Facebook would
[REDACTED] publishers' auctions -- literally manipulating the
auction with [REDACTED] for how often Facebook would bid and win,"
the suit says.
The lawsuit seeks monetary damages from Google and asks the
court to restrain Google's behavior, including via "structural
relief to restore competitive conditions in the relevant
markets."
States joining in the Texas-led case include Arkansas, Idaho,
Indiana, Kentucky, Mississippi, Missouri, North Dakota, South
Dakota and Utah.
The federal suit filed this fall 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.
Taken together, the cases risk tarnishing Silicon Valley's
reputation with suggestions of preferential arrangements that harm
both consumers and potential competitors.
The lawsuits could take years to resolve. Eventually, the state
and federal lawsuits against Google could be combined into a single
case. Up to now, the states have coordinated 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.
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.
David Chavern, chief executive of the News Media Alliance trade
association, welcomed the states' suit. "Quality local journalism
has been directly damaged by Google's anticompetitive conduct, and
we look forward to the judicial authorities examining the full
range of their behaviors and businesses," he said.
--Keach Hagey contributed to this article.
Write to John D. McKinnon at john.mckinnon@wsj.com and Ryan
Tracy at ryan.tracy@wsj.com
(END) Dow Jones Newswires
December 16, 2020 18:40 ET (23:40 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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