Credit: Anthony Quintano | Wikimedia
Introduction
On January 24, 2023, the U.S. Department of Justice (“DOJ”) and the Attorneys General of Virginia, California, Colorado, Connecticut, New Jersey, New York, Rhode Island, and Tennessee (the “Plaintiffs”) filed a civil lawsuit against Google LLC (“Google”) in the United States District Court for the Eastern District of Virginia. The complaint alleges that Google employed anticompetitive measures in connection with digital advertising technology (“ad tech”) in violation of the Sherman Act. This action follows a lawsuit filed by the DOJ in 2020 against Google’s search engine monopoly.
Digital ad tech consists of a set of complex technological tools, which buy and sell online ads in “enormous volumes” and “in mere fractions of a second.” These tools include publisher ad servers, ad exchanges, advertiser ad networks, and demand side platforms (“DSP”). In the ad tech industry, Google owns the leading platforms for each of the aforementioned tools such as Adx, Display & Video 360, Google Ad Manager, and Google Ads.
To illustrate the ad tech stack or the display ad transactions that take place over these platforms, the publisher ad server evaluates which ads to display to the web user and sends an auction request to an ad exchange. Then, the ad exchange transmits the auction request to advertiser buying tools, including the DSP and advertiser ad networks, which help to connect advertisers with ad exchanges and submit auction requests.
Fig. 3 of the Plaintiffs’ Complaint
The Sherman Act
The Sherman Act is one of the country’s most important antitrust laws. Under Section 2 of the Sherman Act, any “monopolization or attempts at monopolizing any aspect of interstate trade or commerce” is illegal. The Sherman Act lays out three types of offenses: (1) monopolization, (2) attempted monopolization, and (3) conspiracy to monopolize. Under the Act, the DOJ has the power to prosecute violators of antitrust laws. To prove that a defendant has violated Section 2 of the Sherman Act, the DOJ must show that the defendant has monopoly power in the market, there are anticompetitive effects from the defendant’s conduct, and there are no procompetitive justifications for the conduct.
Allegations
In the complaint, the Plaintiffs allege that Google has maintained a monopoly over the ad tech stack through anticompetitive acts, by impeding competition and mounting barriers against the entry of competitors. Specifically, the DOJ claims that Google’s anticompetitive practices have included the following: (1) acquiring competitors in an effort to procure central ad tech tools; (2) forcing publishers to embrace Google’s ad tech tools by limiting their demand and “real-time access” to Google’s ad exchange; (3) restricting “real-time bidding” and obstructing ad exchanges of rival companies from competing on the same conditions as Google; and (4) manipulating the auction system for various ad tech tools to guard Google against competition and prevent competitors from gaining an advantage.
Due to Google’s anticompetitive behavior, the Plaintiffs allege that advertisers are forced to pay more for their ads while website creators earn less than they would in a competitive market. As a result, there is a reported lack of novel ad tech tools that would guide the market in producing “higher quality and lower cost transactions.” Ultimately, the Plaintiffs claim that Google’s actions harm users and the public at large because publishers who earn less from advertisements are less likely to provide ads without subscriptions or fees.
Anticompetitive Effects
The Plaintiffs argue that Google’s monopoly power and conduct have led to a series of anticompetitive effects. First, the Plaintiffs allege that Google’s actions have allowed the tech company to charge more for their products, resulting in higher margins. The complaint claims that “but for Google’s ability to build and defend a moat around its ad tech products, competition would have driven prices down for most [ad tech] transactions by as much as 75%.” Instead, Google consistently charges around 20% for its revenue share fees, whereas its competitors typically charge a fraction of that amount.
The complaint also argues that Google implemented a strategy to dominate the ad exchange market and limit competition by hindering rivals' ability to achieve scale. The company aimed to direct more transactions through its ad exchange, preventing competitors from gaining the necessary scale to effectively challenge Google's dominance. Google's practices included giving its ad exchange preferential access to publisher inventory, driving up competitors' costs, impeding their ability to win transactions at scale, and diminishing their attractiveness to publishers and advertisers. The strategy also involved locking publishers into using Google's publisher ad server, making it difficult for rivals to enter the market. Google's actions aimed to maintain its monopoly by thwarting potential threats that could enable competitors to achieve the scale needed to compete in the ad tech market.
The Plaintiffs further allege that Google’s anticompetitive conduct created a lack of choice and control for publishers and advertisers. For example, Google's actions restricted publishers from offering their inventory on any terms of their own choosing. Further, Unified Pricing Rules removed publishers' ability to set transaction terms in their ad server, and Project Poirot secretly redirected advertisers' spending to Google's ad exchange. Google's control limited publishers' choices, forcing them to follow Google's rules for allocating ad inventory, reducing competition, and giving Google unchecked control over industry practices.
Finally, the Plaintiffs claim that Google’s conduct has resulted in information asymmetries and less innovation. According to the complaint, “approximately 15% of all digital advertising spend is simply unaccounted for,” preventing publishers and advertisers from making informed decisions when choosing their ad tech products. Additionally, the Plaintiffs argue that the lack of competition has seriously diminished innovation in the ad tech market.
Credit: DEANLONG.io
Alleged Violations & Request for Relief
Plaintiffs’ claims for relief include Google’s monopolization of the publisher ad server market, ad exchange market, and advertiser ad network market in violation of Section 2 of the Sherman Act; unlawful tying in violation of Sections 1 and 2 of the Sherman Act; and damages sustained by the United States as a result of Google’s violations of antitrust laws pursuant to 15 U.S.C Section 15a.
Plaintiffs request the court to make the following determinations:
Find that Google acted or attempted to act unlawfully to monopolize the publisher ad server market, ad exchange market, and advertiser ad network in violation of Section 2 of the Sherman Act;
Award damages in favor of the United States in accordance with 15 U.S.C. Section 15a;
Order the divestiture of Google Ad Manager and Adx, Google’s publisher ad server, and any other relief to rectify the harm resulting from Google’s anticompetitive practices;
Proscribe Google from further engaging in anticompetitive practices and any other similar practices; and
Enter any other relief required to reinstate competitive market conditions.
Conclusion
It likely will be years before this case goes to trial. Meanwhile, Google is defending itself in a search engine monopoly lawsuit filed by the FTC in 2020, which will likely conclude next month. Together, the Google monopoly cases represent a new era of antitrust enforcement. If the judge rules in favor of the DOJ, Google could be compelled to break up into several smaller companies or be restricted in the types of agreements it can make, drastically altering Google as we know it. On the other hand, if the judge rules in favor of Google, the DOJ may urge Congress to take actions to update antitrust laws to reflect new technologies. Either way, the outcome will have significant effects on more recent Google antitrust cases, such as the ad tech lawsuit. Given the surge in antitrust lawsuits by the DOJ and the Federal Trade Commission, the landscape of technology and competition is likely to undergo a major transformation in the coming years.
*The views expressed in this article do not represent the views of Santa Clara University.