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10 States Accuse Google of Abusing Monopoly in Online Ads

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Ten state attorneys general on Wednesday accused Google of illegally abusing its monopoly over the technology that delivers ads online, adding to the company’s legal troubles with a case that strikes at the heart of its business.

The state prosecutors said that Google overcharged publishers for the ads it showed across the web and edged out rivals who tried to challenge the company’s dominance. They also said that Google had reached an agreement with Facebook to limit the social network’s own efforts to compete with Google for ad dollars. Google said the suit was “baseless” and that it would fight the case.

“If the free market were a baseball game, Google positioned itself as the pitcher, the batter and the umpire,” Ken Paxton, the Texas attorney general, said in a video on Twitter announcing plans for the suit.

The complaint, filed in the U.S. District Court for the Eastern District of Texas, adds to the fierce bipartisan backlash against one of the country’s biggest tech companies. Regulators in the United States and Europe have focused on the outsize role Amazon, Apple, Facebook and Google play in the modern economy, shaping everything from how we shop to what information and entertainment we see.

In October, the Justice Department and 11 states said Google had illegally maintained a monopoly over online search engines and the ads that appear in users’ results. An additional case against Google, brought by a separate set of states, is expected soon. Last week, the Federal Trade Commission and more than 40 states accused Facebook of illegally crushing competition by acquiring younger rivals, and argued that the company should be broken up. Apple and Amazon are both under federal antitrust investigations, too.

The lawsuit filed on Wednesday is the first by regulators in the United States to focus on the tools that connect buyers of advertising space with publishers who sell it. Advertisements generate a vast majority of the company’s profits. The Justice Department has its own antitrust inquiry into advertising technology, said a person with knowledge of the investigation.

The prosecutors asked for monetary penalties and structural changes at the company, but they did not add specifics.

The prosecutors who signed the suit are all Republicans, and it is not expected to be part of the Justice Department case against the company. The other states’ suit against Google, which could come as soon as Thursday, is expected to be signed by Republicans and Democrats and could combine with the federal agency’s case.

Google’s own system for selling ads across the web has been built over more than a decade. In 2007, Google bought DoubleClick, which offered advertising technology and acted as a marketplace, in a deal that has since been criticized as central to Google’s dominance. Google now controls software at every step of the ad sales process.

The company says that it competes with a vast array of rivals when it comes to offering advertising technology and that its services work with those offered by competitors. In recent years, companies like AT&T and Amazon have made attempts to capture more of the market for online ad sales.

“Attorney General Paxton’s ad tech claims are meritless, yet he’s gone ahead in spite of all the facts,” said a Google spokeswoman, Julie McAlister. “We will strongly defend ourselves from his baseless claims in court.”

Publishers like Rupert Murdoch’s News Corporation have long contended that Google’s dominance lets the company exact a higher cut of each sale without contributing to the costs of creating content. Google’s success stands in sharp contrast to shrinking newsrooms and the shuttering of many local newspapers. This year, Google said it would pay news publishers more than $1 billion over the next three years through a new licensing program.

After achieving a monopoly, Google has been able to squeeze publishers for a high cut of each ad sold on its platforms, prosecutors said.

“The monopoly tax Google imposes on American businesses — advertisers like clothing brands, restaurants and realtors — is a tax that is ultimately borne by American consumers through higher prices and lower quality on the goods, services and information those businesses provide,” they said in the lawsuit.

The lawsuit argues that Google used a variety of tactics to become the dominant player in online advertising, hurting publishers, competitors and consumers in the process.

Prosecutors said that after buying DoubleClick, Google “quickly began to use its new position to exert leverage.”

They said that Google then tried to destroy a process designed by publishers to introduce more competition into the market for online ads. Under that system, publishers were able to sell ad space in more online marketplaces at once, reducing their reliance on Google’s ad tech.

The states said that Google had maintained its dominance in part by reaching an agreement with Facebook to limit the social network’s involvement in that process. In return, Google gave Facebook an advantage in other ad auctions it runs, the prosecutors said.

“The companies’ efforts to avoid competition were successful,” they said in the lawsuit. Facebook, which did not immediately offer a comment, is not named as a defendant in the lawsuit. Google said the allegations involving Facebook were inaccurate. A representative for Facebook declined to comment.

With the data behind many of the most popular services on the internet, the two companies together sit on a treasure trove of data about what people are interested in, where they go and who they interact with. That information helps advertisers reach the right audience for marketing. Both companies also sell ads for their own sites.

The two companies accounted for about 54 percent of U.S. digital advertising in 2019, according to the research firm eMarketer, with Google’s share at about 31 percent and Facebook’s at 23 percent.

The publicly posted version of the complaint is heavily redacted, obscuring key evidence prosecutors are citing to make their case. But the document refers to internal documents from both Google and Facebook. At multiple points, it says that Google gave projects code names inspired by the Star Wars series, but the names themselves are blacked out on the page.

The complaint widens the focus of suits over Google’s business, said Charlotte Slaiman, the competition policy director at Public Knowledge, an advocacy group that has pushed for more regulations for Google.

“The powerful market position that Google holds in search also had helped them to develop this powerful market position in advertising technology, and that’s part of this complaint,” Ms. Slaiman said. “It’s also an indication of how broad the competitive challenges are in Big Tech.

Mr. Paxton led the investigation into Google even as he faced allegations that he abused the power of his office. Seven of Mr. Paxton’s lawyers said this year that he had done favors for a friend and donor and committed bribery. The employees have since left Mr. Paxton’s office, or been put on leave or fired outright.

Mr. Paxton was also charged with securities fraud in 2015. He has denied those charges as well as the recent allegations made by his own employees.

He is also a prominent ally of President Trump, leading some critics to see his investigation of Google as part of a larger conservative campaign against the tech giants.

But Ms. Slaiman said that she believed there ultimately would be bipartisan support for the concerns expressed in the lawsuit.

She said she hoped that lawmakers in Washington could act on the concerns by passing legislation to rein in the companies, instead of leaving the task entirely to prosecutors.

“It’s really important to have antitrust enforcement,” she said, “but so much more is needed.

Maurice Stucke, a law professor at the University of Tennessee and co-author of “Competition Overdose,” said that the online ad industry stands out as a place where regulators should look, and noted that it has also caught the attention of regulators in Australia, France and Britain.

“In no other market do you have one entity that represents most of the buyers, most of the sellers and controls the leading exchange,” he said. “You can create a system that on the surface looks robustly competitive but it really isn’t.”

The allegations of collusion with Facebook stood out, Mr. Stucke said, since such examples of anticompetitive behavior are usually seen as the linchpin of a strong antitrust case — the type of evidence that should interest more states and even the Justice Department.

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