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Google Hit With 2nd Lawsuit Testing Its Monopoly Power — This One Over Digital Ads

Dec 17, 2020
Originally published on December 17, 2020 3:06 pm

Updated at 9:49 p.m. ET

Republican attorneys general from 10 states sued Google on Wednesday, accusing it of wielding its might in digital advertising to crush competitors, in the second major legal challenge to the tech giant's power this fall.

The lawsuit, filed in federal court in Texas, focused on Google's outsized role in the complicated chain that links advertisers to publishers selling space online. Google is the biggest player in every link of that chain, and the states allege it has abused that monopoly to boost its own business. They also accuse Google of colluding with Facebook to manipulate the online ad market and limit competition.

"These actions harm every person in America," Texas Attorney General Ken Paxton, who led the states' investigation, said in a video announcing the lawsuit. "If the free market were a baseball game, Google positioned itself as the pitcher, the batter and the umpire."

Google said in a statement the claims were "meritless" and that it would defend itself in court. It said that prices for digital advertising and ad technology have fallen over the last decade and that Google charges less for its tools than the industry average.

"These are hallmarks of a highly competitive industry," the company said.

Arkansas, Idaho, Indiana, Kentucky, Mississippi, Missouri, North Dakota, South Dakota and Utah joined Texas in filing the suit. Some of those states had also joined the U.S. Justice Department two months ago on another sweeping lawsuit against Google. That one alleged the company illegally protected its monopoly in search and advertising. The federal suit accused Google of striking unfair deals with companies, including Apple, to make its search engine the default on most Web browsers and smartphones.

Google called the Justice Department lawsuit "deeply flawed" and said people use its services because they choose to do so, not because of a lack of alternatives.

States accuse Google of "monopoly tax" on businesses and consumers

While the federal suit took aim at Google's practices in search, Wednesday's complaint from the states zeroed in on the lucrative business of selling online ads.

Google generates nearly all its revenue from ad sales. It pulled in almost $135 billion dollars last year. Over the years, it has built up a potent position as a middleman in the ad market, a role, the states allege, Google has exploited to enrich itself.

The complaint likened Google's grip on the behind-the-scenes plumbing that powers the ads that appear on smartphones and computers to an electronic stock exchange.

"Google operates the largest electronic trading market in existence," the complaint said.

In this analogy, Google owns the exchange and sets the rules for trading, and also acts as a broker, helping publishers sell their ad inventory and advertisers buy that space.

"Google uses its powerful position on every side of the online display markets to unlawfully exclude competition," the lawsuit alleged.

Google overcharged advertisers, boxed out competitors and squeezed publishers, the states alleged adding up to a "monopoly tax" on businesses that is "ultimately borne by American consumers through higher prices and lower quality on the goods, services, and information those businesses provide."

Lawsuit: Facebook seen as threat until "unlawful agreement"

When it came to Facebook, however, the lawsuit claimed Google did not box out a potentially significant rival to its advertising crown. Instead, it accused Google of cutting an illegal deal with the social network to manipulate the auctions through which most digital ads are sold. Facebook gained an advantage in some Google-run auctions, according to the complaint, and in return it did not challenge Google's dominance.

Google even gave this special deal with Facebook a code name referencing a Star Wars character, the states alleged although the name itself was redacted in the public complaint.

Google said the allegation was inaccurate and that Facebook has no exclusive arrangement and receives no special data. Facebook declined to comment on the lawsuit.

The complaint also accused Google of violating people's privacy. In one instance, it alleged Google struck a deal with Facebook for access to messages on WhatsApp, the messaging service the social network bought in 2014. The complaint is heavily redacted, so it is unclear what the states accused Google of doing with that data.

Google said that allegation was also inaccurate and appeared to be related to the option for people to use Google Drive to backup their WhatsApp data, so they can transfer messages, photos and other content between devices. Google said it does not use that data to target ads.

Flood of lawsuits signals shift in view of Big Tech

After years of taking a hands-off attitude toward Silicon Valley, government regulators are now energetically challenging the influence of the biggest tech companies, which have amassed remarkable control over the way people communicate, find information and entertainment, shop, learn and work.

Earlier this month, the Federal Trade Commission and 48 attorneys general hit Facebook with twin lawsuits alleging the social media giant has unfairly crushed competitors and should be broken up.

At the same time that the Trump administration has targeted the tech giants, lawmakers on both sides of the aisle have grown increasingly frustrated with and skeptical of Big Tech. House Democrats released a groundbreaking report in October accusing Google, Facebook, Amazon and Apple of being potent Internet gatekeepers whose power must be checked.

Apple and Amazon are also under scrutiny from federal agencies and state attorneys general. Across the Atlantic, European and British regulators have unveiled new proposals that would force the biggest tech companies to do more to stop the spread of harmful material and to compete more fairly.

Other states are also separately investigating Google's search business, reportedly focusing on whether it favors its own products in search results over competitors such as Yelp's local business reviews and Tripadvisor's travel listings. They are expected to file their own lawsuit or join the Justice Department's lawsuit soon.

Editor's note: Google, Facebook, Apple and Amazon are among NPR's financial supporters.

Copyright 2021 NPR. To see more, visit https://www.npr.org.

STEVE INSKEEP, HOST:

Ten state attorneys general alleged that Google abused its power. The AGs, all Republican, accused Google of abusing its power specifically in digital advertising. The Justice Department in some of these same states were already suing Google for allegedly stifling rival search engines. Google is among NPR's financial supporters, but we cover them like any other company. So NPR tech correspondent Shannon Bond is here on the lawsuit. Shannon, good morning.

SHANNON BOND, BYLINE: Hi, Steve.

INSKEEP: Where does this alleged abuse of power happen in online ads?

BOND: Well, you know, this is a big business for Google, of course. And behind every ad you see on your phone or computer, there's this complicated chain of technology that makes it show up. And the AGs say that Google is the biggest player in every link in that chain. Here's how Texas AG Ken Paxton, who led this investigation, put it.

(SOUNDBITE OF ARCHIVED RECORDING)

KEN PAXTON: If the free market were a baseball game, Google positioned itself as the pitcher, the batter and the umpire.

BOND: So in the game of advertising, they're saying Google calls the shots. It acts as the umpire. And it also plays on both sides, helping publishers sell their ad space and helping advertisers buy that space.

INSKEEP: Shannon, I just have to stop a moment to observe a fact. Ken Paxton is the Texas state attorney general who just grabbed headlines a few days ago by filing a spurious lawsuit over the presidential election. The Supreme Court batted away that false lawsuit without even hearing the case. Paxton is also under indictment. He's also under a whistleblower investigation. So that is the attorney general leading this Google lawsuit. Is this lawsuit any less bogus than his previous big case?

BOND: I mean, there certainly is a cloud over Paxton. But, Steve, this Google case looks really strong to me. It's not fact-free. There's a lot of evidence this investigation has turned up. Remember, it's involved several states. And more broadly, you know, this concern about Google's power in advertising and search is bipartisan.

INSKEEP: OK. So how do the experts say that Google abused its power?

BOND: Well, they say Google is overcharging advertisers and boxing out its competitors. But, Steve, it's also interesting in this lawsuit, there's one competitor that they say Google treated differently, that's Facebook, which is also an NPR sponsor. The lawsuit accuses Google of essentially colluding with Facebook, cutting an illegal deal to manipulate the online ad market. That's an explosive charge. So the states are asking for a jury trial. They want Google to pay damages and be forced to change its ways, including possibly making structural changes like selling off parts of its business. Although, there aren't specifics there in this complaint.

INSKEEP: OK. So the allegation is the super big players played nice with each other, but not with other people. How do Google and Facebook defend themselves?

BOND: Well, Google says these claims are meritless. It says prices have fallen for ads and ad tech. And it says that's evidence of a competitive market. And Facebook declined to comment on this lawsuit. But, you know, both of these companies are just under so much pressure and scrutiny right now. Just back in October, the Justice Department sued Google over its search business. Last week, the FTC and more than 40 states accused Facebook of crushing rivals in social media.

INSKEEP: What do these lawsuits suggest about the politics, the political situation, facing the tech industry?

BOND: Well, you know, just a few years ago, these companies were really golden. And they grew in unchallenged ways. But regulators and politicians are finally waking up to this power that they have and challenging it. And this isn't even the last shoe to drop for Google. We're expecting another lawsuit from other states, including some with Democratic attorneys general, very soon about search and how - whether it favors its own products.

INSKEEP: Shannon, thanks so much.

BOND: Thanks, Steve.

INSKEEP: That's NPR tech correspondent Shannon Bond. Transcript provided by NPR, Copyright NPR.

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