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Google Hit With 2nd Lawsuit Testing Its Monopoly Power — This One Over Digital Ads

Attorneys general led by Texas have been investigating Google's powerful role in the digital advertising market.
Spencer Platt
Getty Images
Attorneys general led by Texas have been investigating Google's powerful role in the digital advertising market.

Updated at 9:49 p.m. ET

Republican attorneys general from 10 states sued Google on Wednesday, accusing it of wielding its might in digital advertising to crush competitors, in the second major legal challenge to the tech giant's power this fall.

The lawsuit, filed in federal court in Texas, focused on Google's outsized role in the complicated chain that links advertisers to publishers selling space online. Google is the biggest player in every link of that chain, and the states allege it has abused that monopoly to boost its own business. They also accuse Google of colluding with Facebook to manipulate the online ad market and limit competition.

"These actions harm every person in America," Texas Attorney General Ken Paxton, who led the states' investigation, said in a video announcing the lawsuit. "If the free market were a baseball game, Google positioned itself as the pitcher, the batter and the umpire."

Google said in a statement the claims were "meritless" and that it would defend itself in court. It said that prices for digital advertising and ad technology have fallen over the last decade and that Google charges less for its tools than the industry average.

"These are hallmarks of a highly competitive industry," the company said.

Arkansas, Idaho, Indiana, Kentucky, Mississippi, Missouri, North Dakota, South Dakota and Utah joined Texas in filing the suit. Some of those states had also joined the U.S. Justice Departmenttwo months ago on another sweeping lawsuit against Google. That one alleged the company illegally protected its monopoly in search and advertising. The federal suit accused Google of striking unfair deals with companies, including Apple, to make its search engine the default on most Web browsers and smartphones.

Google called the Justice Department lawsuit "deeply flawed" and said people use its services because they choose to do so, not because of a lack of alternatives.

States accuse Google of "monopoly tax" on businesses and consumers

While the federal suit took aim at Google's practices in search, Wednesday's complaint from the states zeroed in on the lucrative business of selling online ads.

Google generates nearly all its revenue from ad sales. It pulled in almost $135 billion dollars last year. Over the years, it has built up a potent position as a middleman in the ad market, a role, the states allege, Google has exploited to enrich itself.

The complaint likened Google's grip on the behind-the-scenes plumbing that powers the ads that appear on smartphones and computers to an electronic stock exchange.

"Google operates the largest electronic trading market in existence," the complaint said.

In this analogy, Google owns the exchange and sets the rules for trading, and also acts as a broker, helping publishers sell their ad inventory and advertisers buy that space.

"Google uses its powerful position on every side of the online display markets to unlawfully exclude competition," the lawsuit alleged.

Google overcharged advertisers, boxed out competitors and squeezed publishers, the states alleged adding up to a "monopoly tax" on businesses that is "ultimately borne by American consumers through higher prices and lower quality on the goods, services, and information those businesses provide."

Lawsuit: Facebook seen as threat until "unlawful agreement"

When it came to Facebook, however, the lawsuit claimed Google did not box out a potentially significant rival to its advertising crown. Instead, it accused Google of cutting an illegal deal with the social network to manipulate the auctions through which most digital ads are sold. Facebook gained an advantage in some Google-run auctions, according to the complaint, and in return it did not challenge Google's dominance.

Google even gave this special deal with Facebook a code name referencing a Star Wars character, the states alleged although the name itself was redacted in the public complaint.

Google said the allegation was inaccurate and that Facebook has no exclusive arrangement and receives no special data. Facebook declined to comment on the lawsuit.

The complaint also accused Google of violating people's privacy. In one instance, it alleged Google struck a deal with Facebook for access to messages on WhatsApp, the messaging service the social network bought in 2014. The complaint is heavily redacted, so it is unclear what the states accused Google of doing with that data.

Google said that allegation was also inaccurate and appeared to be related to the option for people to use Google Drive to backup their WhatsApp data, so they can transfer messages, photos and other content between devices. Google said it does not use that data to target ads.

Flood of lawsuits signals shift in view of Big Tech

After years of taking a hands-off attitude toward Silicon Valley, government regulators are now energetically challenging the influence of the biggest tech companies, which have amassed remarkable control over the way people communicate, find information and entertainment, shop, learn and work.

Earlier this month, the Federal Trade Commission and 48 attorneys general hit Facebook with twin lawsuits alleging the social media giant has unfairly crushed competitors and should be broken up.

At the same time that the Trump administration has targeted the tech giants, lawmakers on both sides of the aisle have grown increasingly frustrated with and skeptical of Big Tech. House Democrats released a groundbreaking report in October accusing Google, Facebook, Amazon and Apple of being potent Internet gatekeepers whose power must be checked.

Apple and Amazon are also under scrutiny from federal agencies and state attorneys general. Across the Atlantic, European and British regulators have unveiled new proposals that would force the biggest tech companies to do more to stop the spread of harmful material and to compete more fairly.

Other states are also separately investigating Google's search business, reportedly focusing on whether it favors its own products in search results over competitors such as Yelp's local business reviews and Tripadvisor's travel listings. They are expected to file their own lawsuit or join the Justice Department's lawsuit soon.

Editor's note:Google, Facebook, Apple and Amazon are among NPR's financial supporters.

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Shannon Bond is a business correspondent at NPR, covering technology and how Silicon Valley's biggest companies are transforming how we live, work and communicate.