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 john.mckinnon@wsj.com and Ryan
Tracy at ryan.tracy@wsj.com
(END) Dow Jones Newswires
December 16, 2020 16:32 ET (21:32 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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