Latest Google Antitrust Suit Alleges Secret Deal With Facebook

States claim Google's dominance in online advertising stems from unlawful practices and harms consumers

Allen St. John, Consumer Reports Senior Home & Tech Writer.

By Allen St. John
Senior Home & Tech Writer

December 16, 2020

Google has become an even larger target in the growing antitrust campaign against Big Tech.

Texas and nine other states filed suit against the online search giant, claiming its dominance in internet advertising resulted from illegal business practices that harm consumers as well as businesses ranging from local retailers to major corporations.

The lawsuit also alleges that Google and Facebook forged a secret, unlawful agreement to manage competition between the two companies while building on their dominant positions in online advertising.

This latest move follows another antitrust suit against Google by the federal government in October and a joint federal-state antitrust suit against Facebook just last week.

“Google sought to kill competition and has done so through an array of exclusionary tactics, including an unlawful agreement with Facebook, its largest potential competitive threat, to manipulate advertising auctions,” the states’ complaint reads.

The other states filing the complaint are Arkansas, Idaho, Indiana, Mississippi, Missouri, North Dakota, South Dakota, Utah, and Kentucky.

Google’s advertising business is extremely complex—the lawsuit repeatedly compares it to stock exchanges and arcane financial markets—adding that this complexity makes it hard to regulate.

Critics often point out that by dominating the auction for online advertising, Google represents both the buyer and the seller of ad space. It also delivers the ads.

“Google was able to demand that it represent the buy-side, where it extracted one fee, as well as the sell-side, where it extracted a second fee, and it was also able to force transactions to clear in its exchange, where it extracted a third, even larger, fee,” the complaint reads. “In this electronically traded market, Google is pitcher, batter, and umpire, all at the same time.”

In addition, the complaint says, the buyers and sellers don’t always know what the ads actually sold for and thus how much money Google made from the transaction. It’s as though a home buyer paid a real estate agent for a house but never learned just how much the real estate agent passed along to the home seller and how much was kept as a fee.

“Overall, evidence suggests that publishers selling inventory through Google receive approximately 70 percent of advertising revenue paid by advertisers, and in some cases that amount is as low as 58 percent,” the complaint says.

The lawsuit says that Google often misleads its business customers about how it uses its own vast stores of data and domination of the ad-buying process to keep strong alternatives from developing and to boost its revenues.

The lawsuit also provides some details of what it alleges was a secret arrangement that Google reached with Facebook, its biggest rival in online advertising.

According to the lawsuit, Google became concerned in 2017 when Facebook started to throw its weight behind an innovative way for publishers to sell ad space, which could have eaten into Google’s business. Secret communication between the companies culminated in a deal in which Facebook would back off in exchange for “information, speed, and other advantages in the auctions that Google runs for publishers’ mobile app advertising inventory.”

Google denied the charges in the complaint, and Facebook declined to comment.

“(Texas) Attorney General (Ken) Paxton’s ad tech claims are meritless, yet he’s gone ahead in spite of all the facts,” a Google spokesperson said in an e-mail to Consumer Reports. “We will strongly defend ourselves from his baseless claims in court.”

What It Means for Consumers

Google’s critics say the company’s monopolistic business practices hurt individuals as well as businesses.

“This dominance means consumers suffer a variety of harms, including less protection of consumer data, higher prices, and the lack of new innovative products and services because of the higher cost of online advertising,” says Sumit Sharma, senior researcher for technology competition at Consumer Reports.

If alternative ways of buying and selling ads had a fair shot, Sharma says, some might charge far less for handling advertising transactions, for instance. That could reduce prices that consumers pay for all kinds of goods and services.

“It is clear that without intervention, these markets will not become competitive,” he says.

There are broad social effects, as well, critics say, including the shuttering of many news outlets, and the shrinking of newsrooms at publishers that do remain in business.

“Many of the publishers affected by Google’s business practices are local news outlets, which means that consumers are left with lower-quality news,” says Charlotte Slaiman, competition policy director at the advocacy group Public Knowledge.

(Consumer Reports does not accept advertising on its website or in print but does advertise with Google and use other Google services.)

The states’ complaint makes a similar point, and stresses that many of the advertisers and publishers directly affected are small businesses.

“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,” the complaint reads.

Consumers, too, seem concerned about the power wielded by Google and other Big Tech platforms.

In a nationally representative online survey conducted by Consumer Reports in late July, 6 out of 10 Americans favored stronger government action—including new laws, regulations, and enforcement actions—to oversee the way the businesses operate.

Survey respondents said they were concerned about misinformation, the fairness of online pricing, and the validity of search results.

The results of the CR survey were cited in a 449-page Congressional report released this fall by the Antitrust Subcommittee of the House Judiciary Committee, which called Google “an ecosystem of interlocking monopolies.”

What Happens Next

The states’ antitrust suit is part of what could be a lengthy process resulting in negotiated settlements or courtroom battles between Google and federal and state prosecutors.

With annual revenues of over $160 billion in 2019, Google has both the financial resources and the incentive to mount an aggressive defense against the charges. The complaint asks for “structural relief to restore competitive conditions in the relevant markets affected by Google’s unlawful conduct,” without spelling out exactly what that would mean in practice. The complaint also asks for monetary damages.

The Texas suit focuses on parts of Google’s business that are different from those in a federal antitrust suit filed in October by the Department of Justice. That suit outlined the company’s dominance of web and mobile search—the company handles 90 and 95 percent of those searches, respectively—calling the tech giant “a monopoly gatekeeper to the internet.”

The DOJ complaint cited billion-dollar agreements between Google and phone manufacturers including Apple, LG, Motorola, and Samsung; major U.S. wireless carriers such as AT&T, T-Mobile, and Verizon; and browser developers that make Google the default search engine on many platforms.

Some of those agreements required cell phone manufacturers to place the Google Search widget on a phone’s home screen and install Chrome and the Google Search app in a way that makes them undeletable by consumers.

While Texas joined that federal suit against Google, New York, which led the filing of an antitrust suit against Facebook earlier this month, is among the states that hasn’t signed on to the federal or state complaints against Google.

“We plan to conclude parts of our investigation of Google in the coming weeks,” New York Attorney General Letitia James wrote in a statement last month when the federal charges were filed against Google. “If we decide to file a complaint, we would file a motion to consolidate our case with the DOJ.” The New York AG’s office did not respond to our request for comment on today’s state complaint.

Google’s antitrust concerns don’t look to be ending anytime soon. A bipartisan group of more than 30 states is scheduled to file another suit on Thursday that focuses on another aspect of Google’s sprawling enterprise, the anticompetitive aspects of its local search business.

The federal government investigated Google seven years ago, looking into concerns about potential biases in search results and efforts to restrict websites from working with rival search engines, but that investigation didn’t result in an enforcement action against the company.

Allen St. John

Allen St. John has been a senior product editor at CR since 2016, focusing on digital privacy, audio devices, printers, and home products. He was a senior editor at Condé Nast and a contributing editor at publications including Road & Track and The Village Voice. A New York Times bestselling author, he's also written for The New York Times Magazine, The Wall Street Journal, and Rolling Stone. He lives in Montclair, N.J., with his wife, their two children, and their dog, Rugby.