Ten states sued Google Wednesday, accusing the search giant of running an illegal digital-advertising monopoly and enlisting rival Facebook Inc. in an alleged deal to rig ad auctions that was code-named after “Star Wars” characters.
The complaint, filed in U.S. District Court in Texas, alleges that Facebook emerged in 2017 as a powerful new rival to Google, challenging the Alphabet Inc. unit’s established dominance in online advertising. Google responded by initiating an agreement in which Facebook would curtail its competitive moves, in return for guaranteed special treatment in Google-run ad auctions, the lawsuit claims.
Google’s internal code name for the alleged Facebook deal referenced characters from Star Wars, according to the suit, which redacted specifics. A person familiar with the matter said the code name was “Jedi Blue,” after the sci-fi franchise’s Jedi knights.
“Google is a trillion-dollar monopoly brazenly abusing its monopolistic power, going so far as to induce senior Facebook executives to agree to a contractual scheme that undermines the heart of [the] competitive process,” Texas Attorney General Ken Paxton, who led the suit, said in a statement.
The accusations opened up a fresh front of criticism for both tech giants, each of which face federal antitrust lawsuits filed in recent weeks.
Facebook declined to comment. Google 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 Wednesday. “We will strongly defend ourselves from his baseless claims in court.”
The spokesperson said that the allegation about Facebook isn’t accurate and that the company doesn’t receive special data.
Nine other attorneys general, all Republicans like Mr. Paxton, joined the lawsuit. Noticeably absent were Democrats who had initially joined Texas in launching a bipartisan state investigation of Google last fall, though it is possible more states could join the suit later. A separate, bipartisan group of state attorneys general is preparing another antitrust case against Google, which is expected to target its search business and could filed as soon as Thursday.
The Texas-led case contains allegations that aren’t addressed in detail in a Justice Department lawsuit filed Oct. 20 against Google. The federal suit focused on Google’s flagship search business, alleging it maintains its status as gatekeeper to the internet through an unlawful web of exclusionary and interlocking business agreements that shut out competitors.
Wednesday’s complaint traces back more than a decade, alleging that Google quietly built up and defended its dominance in the market for digital ads, beginning with its acquisition of the ad-technology firm DoubleClick in 2008.
Many of the accusations involve Google’s ad-tech software, which is used to buy and sell ads on sites across the web. 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. It also owns key platforms for reaching consumers, such as YouTube.
The Texas-led suit accuses Google of illegally tying these products to one another, leveraging its power in one part of the advertising chain to force publishers or advertisers to use another Google-owned tool.
The claims echo past concerns from advertising-technology companies and news publishers. They say Google created a system rife with conflicts of interest, in which it used its superior data advantage and dominant position in the marketplace to give preference to its own tools and steer money to its own properties.
Google “now uses its immense market power to extract a very high tax of [REDACTED] percent of the ad dollars otherwise flowing to the countless online publishers and content producers like online newspapers, cooking websites and blogs who survive by selling advertisements on their websites and apps,” the lawsuit says.
The suit alleged that this added cost “is ultimately borne by American consumers through higher prices and lower quality on the goods, services and information those businesses provide.”
The complaint also targets Google for allegedly influencing an initiative for developing mobile webpages, known as Accelerated Mobile Pages, to effectively force publishers to adopt a format that would make it harder to use alternative ad technologies on those pages.
The suit alleges that Google came up with a secret program to harm publishers, code-named in reference to the “Star Wars” franchise, with the precise name redacted in the complaint.
The program appeared to allow publishers more freedom to choose among exchanges that match the buyers and sellers of digital ads, the lawsuit alleged. But it says that Google “secretly let its own exchange win, even when another exchange submitted a higher bid.” The program was “designed…to avoid competition and the program consequently hurt publishers,” the suit says, citing an internal Google communication.
The company has consistently disputed claims that it dominates the advertising technology market.
“To suggest that the ad tech sector is lacking competition is simply not true,” it said in a blog post last year. “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.”
According to the lawsuit, Google went to great lengths to preserve its market power.
When Facebook emerged as a threat, “Google made overtures to Facebook,” the lawsuit says, with the two parties allegedly entering into the Jedi Blue deal. Facebook withdrew as a direct threat in return for Google giving Facebook “information, speed and other advantages in the auctions that Google runs” for publishers’ mobile advertising, the lawsuit says.
“The parties agree on [REDACTED] for how often Facebook would [REDACTED] publishers’ auctions—literally manipulating the auction with [REDACTED] for how often Facebook would bid and win,” the suit says.
The lawsuit seeks monetary damages from Google and asks the court to restrain Google’s behavior, including via “structural relief to restore competitive conditions in the relevant markets.”
States joining in the Texas-led case include Arkansas, Idaho, Indiana, Kentucky, Mississippi, Missouri, North Dakota, South Dakota and Utah.
The federal suit filed this fall 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.
Taken together, the cases risk tarnishing Silicon Valley’s reputation with suggestions of preferential arrangements that harm both consumers and potential competitors.
The lawsuits could take years to resolve. Eventually, the state and federal lawsuits against Google could be combined into a single case. Up to now, the states have coordinated 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.
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.
David Chavern, chief executive of the News Media Alliance trade association, welcomed the states’ suit. “Quality local journalism has been directly damaged by Google’s anticompetitive conduct, and we look forward to the judicial authorities examining the full range of their behaviors and businesses,” he said.