One Thing Google Can’t Tell You: What Fair Competition Is, as the DOJ Files Another Antitrust Lawsuit
The age-old saying “there’s no such thing as bad publicity” may not be true in the case of Google, which has become synonymous with internet searching and technology, and subsequently garnered increasing attention from regulators across the globe. On January 24, 2023, the Department of Justice (“DOJ”) filed a second antitrust lawsuit in the Eastern District of Virginia regarding Google’s role in digital advertising. (Department of Justice). The case is particularly noteworthy because it is the first U.S. lawsuit that calls for the divestiture of Google’s dominant ad tech business and seeks monetary damages for harms to the federal government. (Bryan Koenig, Law360). Former Federal Trade Commission (“FTC”) chairman, William Kovacic, has characterized the case as the most significant monopolization case against Google to date. Id.
This most recent antitrust lawsuit against Google stems from its dominance as a search engine and influential position in ad technology as a result of strategic acquisitions. Id. Google began cementing its position in digital advertising in 2008 with its $3.1 billion acquisition of DoubleClick, the leading ad server at the time, which paved the way for Google to expand into all other sides of the digital ad market, like mobile and ad buying. (Miles Kruppa et al., The Wall Street Journal). Since the DoubleClick acquisition, Google acquired several other would-be competitors in different areas of the digital ad market, including AdMob in 2009, Invite Media in 2010, and AdMeld in 2011. (Matthew Perlman, Law360; Miguel Helft, The New York Times). The DoubleClick acquisition left these businesses in the position of “if you can’t beat them, join them” as Google foreclosed any ability to effectively compete in the market.
To understand Google’s alleged anti-competitive behavior, it is necessary to understand how the digital advertising market operates. DoubleClick, which Google now calls DoubleClick for Publishers (“DFP”), operates as the leading ad server tool that “publishers,” website owners with vacant ad-space, use to offer the space for sale. (Keach Hagey & Vivien Ngo, The Wall Street Journal). For simplicity, think of DFP as a shopping mall filled with stores. (Stacey Subject, Basis Technology). More than 90% of large publishers use DFP. (Keach Hagey & Vivien Ngo, The Wall Street Journal).Advertisers and publishers are connected through marketplaces referred to as “exchanges,” of which Google’s own AdX is the largest. Id. Think of the exchanges as stores filled with inventory, digital ad space. (Stacey Subject, Basis Technology). One reason AdX is popular in the exchange market is that it connects users with Google’s AdWords, a service which allows advertisers to purchase Google search keywords and promote their products when users search the keywords. (Keach Hagey & Vivien Ngo, The Wall Street Journal). The only way to get full access to AdX’s offerings, including AdWords, is by using DFP. Id. In other words, Google leveraged the success of AdWords to force consumers to use AdX, and publishers to use DFP in order to gain access to those AdX customers, creating a cycle. Lastly, for advertisers purchasing space, Google’s DX360 tool is also the industry buy side platform leader. Id. Think of this tool as the currency used to purchase inventory in the stores of our hypothetical mall. Only users of DX360 have access to DFP’s ad-targeting system. Id.
Google’s dominant market position in buy, sell, and exchange sides of the digital advertising market compels publishers to use DFP as the only viable option to access competitive advertiser demand. (Bryan Koenig, Law360). Google’s stranglehold on all sides of the market has pushed large rivals like Facebook and Verizon out of the ad-serving market. (Keach Hagey & Vivien Ngo, The Wall Street Journal). Meanwhile, Google retains 30% of every dollar that goes to publishers using DFP. (Bryan Koenig, Law360). Furthermore, Google has leveraged its properties like YouTube, the leading video streaming site, to further cement its market power, requiring purchasers of YouTube ads to use Google’s ad tools to access the site’s ad space. (Keach Hagey & Vivien Ngo, The Wall Street Journal). This behavior has allowed Google, with YouTube, to be the leader in digital advertising, representing nearly 30% of the $278.6 billion U.S. digital advertising market. (Leah Nylen, Bloomberg Law).
The DOJ’s lawsuit is similar to those brought by 16 states and Puerto Rico in 2020, claiming violations of Sections 1 and 2 of the Sherman Act. Id. The DOJ alleges Google maintained an illegal monopoly and engaged in anti-competitive behavior through its ad-tech “stack” (the totality of Google’s digital ad-space services). (DOJ). The DOJ complaint accuses Google of eliminating competition through its strategic acquisitions, forcing publishers and advertisers to exclusively use its services by acting as a buyer, seller, and broker for digital advertising. Id. Further, the complaint cites comments regarding conflicts of interest made by some of Google’s executives, who compared the control of AdX to Goldman Sachs owning the New York Stock Exchange. (Id.; Bryan Koenig, Law360). Next, the complaint accuses Google of snuffing out competition by strategically underbidding for advertisers turning to rival exchanges so they would eventually “dry out.” (Miles Kruppa et al., The Wall Street Journal). Lastly, the DOJ cites Google’s internal documents, which concede the business would earn less in a competitive market. Id.
If Google’s alleged anti-competitive behavior stems from a 2008 acquisition, why is the DOJ addressing the tech giant’s dominance 15 years later? The current lawsuit results from “many years” of DOJ investigation, the new Antitrust Division head, Jonathan Kanter, commented. (Bryan Koenig, Law360). The time required to compile evidence of the harm the U.S. Government incurred may have also delayed the DOJ. (Miles Kruppa et al., The Wall Street Journal). A prayer for monetary damages is uncommon in civil antitrust suits like this one and is only available by naming the government as a harmed party. (Bryan Koenig, Law360). Federal agencies have spent over $100 million on ads through Google since 2019, fees the DOJ alleges were based on inflated prices from Google’s anti-competitive conduct. Id. Kanter has emphasized the need for the DOJ to bring new cases to trial to ensure case law adapts to changing circumstances. (Brian Fung, CNN). While Kanter’s approach appears the most effective means of creating substantive changes to antitrust law given the political gridlock in Congress, his record gives a bleak outlook on the likelihood of success. Id. Last year, the DOJ failed to block a defense industry merger, a sugar company merger, and another healthcare acquisition. Id. Moreover, Google could be a drastically different company given the rapidly changing tech industry by the time either side appeals the ruling. (Bryan Koenig, Law360). Absent any interim relief, a final judgment will likely be years away, even in a “rocket docket” like Virginia. Id.
However, the lawsuit’s threat of divestiture of the largest parts of Google’s ad-tech business, specifically DFP, may be sufficient to stop Google from causing further harm. Id. The lawsuit alone could have a chilling effect on Google’s ability to rapidly acquire competitors as potential prospects reevaluate engaging Google until the suit has concluded. Id.Meanwhile, ad-tech executives have speculated a successful divestiture of Google’s ad-tech could result in more ad dollars going to publishers, or a less efficient digital advertising market with more participants, causing an overall decrease in digital advertising entirely. (Miles Kruppa et al., The Wall Street Journal). While prosecuting Google may not be the most certain or rapid approach, it may be the only option to significantly curb Google’s monopoly power for the time being.