According to newly unredacted allegations and details in a lawsuit filed by state attorneys general, Google misled publishers and advertisers for years about the pricing and processes of its ad auctions, creating secret programs that deflated sales for some companies while increasing prices for buyers.
Meanwhile, according to the newly unredacted complaint, Google pocketed the difference between what it told publishers and advertisers that an ad cost and used the pool of money to manipulate future auctions in order to expand its digital monopoly. According to the documents, Google employees stated in internal correspondence that some of these practices amounted to the company growing its business through “insider information.”
The unredacted filing in the United States District Court for the Southern District of New York on Friday came after a federal judge ruled earlier this week that an amended complaint filed last year could be unsealed.
The lawsuit was initially filed in December 2020, with many sections redacted. Since then, the redactions have been removed in a series of rulings, revealing new details about the states’ claim that Google has a monopoly that has harmed competitors and publishers in the ad industry.
Google has stated that it plans to file a motion to dismiss it next week. According to a company spokesman, the lawsuit is “full of inaccuracies and lacks legal merit.” “Our advertising technologies help websites and apps fund their content, and allow small businesses to reach customers all over the world,” he added. Online advertising is a cutthroat business.”
The process by which ads are bought and sold on the internet is a complex one, with Google playing a significant role as both a participant in and manager of the auctions that determine sales. Google owns the dominant tool at every link in the chain between online publishers and advertisers, giving it unrivaled control over digital content monetization. It also owns key consumer-facing platforms such as YouTube. As a result, competitors have complained that the tech giant rigged the market in its favor, allowing it to win more bids and eliminate competition. The amended complaint and its unredacted details are intended to shed light on how this works in practice.
The lawsuit, led by Texas Attorney General Ken Paxton and joined by more than a dozen states, claims that Google’s business practices inflate advertising costs, which brands pass on to consumers through higher-priced products. It also claims that Google suppresses competition from rival exchanges and restricts websites’ ad delivery options, citing the company’s internal comparison to a bank that also owns the New York Stock Exchange.
“Our amended complaint describes how Google manipulates the online display auction to punish publishers and blatantly lies to them about how the auction is run,” Mr. Paxton said.
The suit is supplemented by a separate antitrust case involving Google’s search services filed by the US Justice Department and more than three dozen state attorneys general. The trials are scheduled for 2023 or later.
Meanwhile, a dozen Republicans and Democrats in the Senate are pushing legislation that would treat Google’s search engine like a railroad operator, making it illegal for it to favor its own products and services over those of other businesses that rely on the platforms. Analysts in digital advertising believe that if the bill is passed, it will force Google to spin off or sell its ad tech business, formerly known as DoubleClick Inc.
In addition to describing some of Google’s programs, the new complaint claims that Alphabet and Google CEO Sundar Pichai and Meta Platforms Inc. CEO Mark Zuckerberg signed a 2018 business agreement that allegedly guaranteed Meta subsidiary Facebook would bid in—and win—a fixed percentage of ad auctions. The agreement was previously reported to have been signed by Google Chief Business Officer Philipp Schindler and Facebook Chief Operating Officer Sheryl Sandberg.
State prosecutors claimed it was an illegal price-fixing agreement. According to the companies, everything was legal.
The newly unredacted details reveal more about a series of Google programs known as Project Bernanke, Reserve Price Optimization, and Dynamic Revenue Share. The Bernanke program has previously been discussed, but the newly unredacted complaint reveals that it went through three iterations between 2010 and 2019.
According to the complaint, in the first version, Google misled publishers and advertisers into believing they were participating in a “second-price auction,” in which the winner pays the price of the second-highest bid, when using its advertising exchange, AdX. According to the complaint, under Google’s Bernanke program, AdX would sometimes knock out the second-highest bid, allowing the third-highest bid to win and depriving the publisher of revenue. Simultaneously, Google would charge advertisers the price of the second-highest bid and pocket the difference, according to the complaint.
According to the complaint, Google pooled the advertisers’ overpayments and used the money to manipulate auctions on its systems, at times boosting bids from advertisers bidding through its ad-buying tools to ensure it won an auction it would not have won otherwise.
According to the complaint, it affected billions of ad impressions sold each month, and Google’s research found that it reduced publishers’ revenue by up to 40%. According to internal company communications cited in the complaint, one Google employee stated, “Bernanke is powerful.”
According to the complaint, a second version of the program, dubbed Global Bernanke, used the pool of money Google gathered to inflate only the bids belonging to Google’s ad-buying tool for small advertisers, originally known as AdWords and now known as Google Ads, when these bids were otherwise poised to lose auctions on Google’s exchange.
According to the complaint, a third version of the program, called Bell, penalized publishers who did not give Google “preferential access” to their ad inventory by redirecting the pool of money it collected to those who did. According to the complaint, publishers were only eligible for those funds if they participated in Google programs such as Dynamic Allocation, which gave Google’s AdX first refusal over competing exchanges in auctions.
Bernanke, according to a Google spokesman, was implemented to “optimize advertiser bids,” and was one of the improvements made to increase competition and make ads more effective for businesses.
According to the complaint, Google used historical data about an advertiser’s previous bids in the Reserve Price Optimization program to set “floors,” or minimum prices, for that advertiser, resulting in advertisers paying higher prices. Google employees stated in one newly unredacted company communication that the program should be based on “smarts and technology” rather than “insider information.”
The new information also suggests that Google employees were wary of the dynamics caused by another program, Dynamic Revenue Share, which altered the fee collected by Google’s ad exchange in order to help Google’s tools win more auctions than they would have otherwise. Because of its dominance in the publisher ad server market, Google did this only after seeing what all of its competitors had bid, according to the complaint.
In newly unredacted sections of the complaint, one Google employee wrote that the program “makes the auction untruthful because we determine the AdX revshare after seeing buyers’ bids.”
According to a Google spokesman, these programs do not manipulate auctions and are intended to help publishers maximize ad sales.