AFTER A THREE-WEEK TRIAL and the testimony of 39 witnesses, a federal judge determined that Google LLC violated U.S. antitrust law by illegally monopolizing two important markets in the online advertising space.
The court found that Google exploited its power in those markets through anti-competitive conduct that ultimately hurt consumers but ruled in the search giant’s favor in connection with a third market.
The court will hold another hearing to determine the appropriate remedy for the violations that could include divesting or restructuring some of the Mountain View-based company’s operations within the space.
The United States and a group of states, including California, brought the suit on Jan. 24, 2023, in the U.S. District Court for the Eastern District of Virginia. The court is known for its so-called “rocket docket,” a reference to the court’s reputation for moving cases quickly.
In her 110-page decision, announced April 17, U.S. District Judge Leonie Brinkema explored the arcane and technical world of digital advertising.
She traced the history of advertising into the digital age and laid open, in surprisingly readable fashion, the intricacies of how advertisers’ digital ads find their way onto websites maintained by content providers.
While the terminology is opaque, the three markets that she examined can be loosely described as follows:
• The advertisers ad networks market is made up of the advertisers who are trying to buy spaces where their digital advertising will run on the web. This is the buy side of an ad placement transaction because the advertisers are buying placements.
• The second market, the publisher ad server market, is the sell side, that is, the market for online publishers who have websites and want to sell space to advertisers for the highest price.
• The third market is the market of the organizations that sit between the buy side and the sell side and act as “exchanges,” where they manage the process by which publishers offer space and advertisers buy it.
The process is designed as a competitive process in which the exchange conducts a real time auction and matches the highest advertiser bid to the publisher inventory.
Billions of ads in the blink of an eye
Transactions on the exchanges happen at blazing speed and in staggering quantities.
The process of placing an ad in front of a customer — with multiple bids offered by advertisers and the highest one accepted by the publisher — may occur within a fraction of a second. The judge cited evidence showing there were billions of transactions on the exchanges every hour.
Google has a major role in each part of the markets. It has a business called AdWords on the advertiser or buy side, another called DFP on the publisher or seller side, each organizing and serving a network of advertisers or publishers looking to effectuate transactions.
Google also owns an exchange called AdX on which many transactions occur.
The court ultimately found that Google had a monopoly in two of the three markets — the publisher-facing market and the exchange market. The court found that the government had not proven Google had established the contours of the advertising-facing market and could not prove monopolization there.
Having and maintaining a monopoly is not unlawful under U.S. law if it occurs as a result of superior product or service and not from anti-competitive conduct.
Google claimed that was the case here, but the court found a number of anti-competitive actions, including using its monopoly position to require publishers using DFP to give AdX a “First Look” or right of first refusal on placements before offering them to other exchanges.
Later, AdX imposed the right to obtain a “Last Look,” which gave it the right to overbid the highest bid from other exchanges. Those rights diminished the amount that publishers received for their placements.
“This exclusionary conduct substantially harmed Google’s publisher customers, the competitive process, and, ultimately, consumers of information on the open web.”
U.S. District Judge Leonie Brinkema
Google also used its monopoly power to “tie” the publisher network to the AdX exchange, preventing publishers from using other exchanges to process their transactions. AdX generally imposed a 20% commission or “take-rate” on transactions on the exchange.
The court found that Google’s anticompetitive conduct was “willful” and deprived its business rivals of the ability to compete. In the court’s opinion, “this exclusionary conduct substantially harmed Google’s publisher customers, the competitive process, and, ultimately, consumers of information on the open web.”
The court said it would next hold a hearing to determine the appropriate remedy for the antitrust violations. Among the potential remedies are the divestiture or restructuring of Google’s operations in the online advertising space with the goal of leveling the playing field for market participants.
The ultimate winners of the fight are likely to be the website publishers — like media outlets — that sell placement on their sites to advertisers.
Search giant dealt another defeat
The case represents the second major antitrust defeat for Google in the last year.
The lawsuit follows a 2020 antitrust suit in the U.S. District Court for the District of Columbia brought by the Department of Justice and 11 states.
The plaintiffs in that case alleged that Google monopolized internet search. In a decision issued Aug. 8, 2024, U.S. District Judge Amit Mehta found Google had a monopoly in the market for internet search and its exclusive dealing arrangements with device manufacturers like Apple and Samsung constituted anticompetitive conduct in violation of the antitrust laws.
In that case, like the advertising case, the government plaintiffs have proposed divestiture of some of Google’s operations as a remedy. A hearing on remedy is expected.
While forced divestiture is a possible antitrust remedy in antitrust cases, in modern times it has rarely been ordered.
The most famous case in the last 50 years was the break-up of AT&T in 1984, which ended up creating seven regional phone companies, sometimes known as the “Baby Bells.”
The government attempted to force divestiture on Microsoft in 2001 as a result of its bundling Internet Explorer with its operating system. The government won the case in the trial court but the ultimate settlement did not include divestiture.
A pending suit by the Federal Trade Commission against Meta, owner of Facebook, seeks to unwind its acquisitions of WhatsApp and Instagram. Facebook originally succeeded in dismissing the FTC’s original complaint, but in January 2022, the government was cleared to proceed with an amended complaint and the trial began April 14. The first witness was CEO Mark Zuckerberg, who testified for three days.
In a news release, U.S. Attorney General Pamela Bondi praised the court’s decision in the Google case, calling it “a landmark victory in the ongoing fight to stop Google from monopolizing the digital public square.”
The post Searching for gold: Google violated antitrust laws with ad market dominance, judge rules appeared first on Local News Matters.