State AGs say Google’s ad business is violating antitrust law. What does that mean for the public interest?

A recently unsealed 2020 antitrust suit filed against Google by 16 state attorneys general plus the attorney general of Puerto Rico alleges that Google uses just about every tool it has—regardless of U.S. antitrust law—to corner and capture global digital advertising markets.

In late October, as most tech reporters and critics were either clawing their way through the Facebook Papers or clamoring for access to them, a judge in the U.S. Southern District of New York unsealed an almost completely unredacted and amended version of the filing, after denying Google’s claim that doing so would pose a threat to privacy. The lawsuit lays out a litany of accusations, including that the company has engineered a quasi-monopoly over digital advertising markets, colluded with Facebook (now Meta) to control the market, and engaged in a host of related deceptive practices.

The most serious claims in the antitrust suit reflect concerns that tech policy advocates have raised for some time. One of the newer allegations—that Google and Facebook have a special agreement that protects both companies’ power in the market—has triggered concern for Democratic senators, too. The complaint is framed around the fact that Google operates and controls the largest electronic ad trading market in existence. The suit explains the dynamics as follows: “In addition to representing both the buyers and the sellers of online display advertising, Google also operates the largest exchange, AdX (formerly DoubleClick). In this electronically traded market, Google is pitcher, batter, and umpire, all at the same time.”

The filing goes on to quote an unnamed senior Google employee who said, referring to Google’s market predominance, “the analogy would be if Goldman or Citibank owned the NYSE.” The suit then argues that a more precise analogy would be “if Goldman or Citibank were a monopoly financial broker and owned the NYSE, which was a monopoly stock exchange.” What this means is that any entity that depends on ad sales for revenue—think of media outlets, for example—has little choice but to negotiate all of this through Google.

Here are some other highlights from the filing. Many claims in the suit are supported by quotations of internal Google documents and employee statements that are not included in the public filing. We expect and hope that these documents will be made public in the near future.

1. Google charges publishers 19% to 22% of exchange clearing prices, between two and four times what competing exchanges charge. Websites that sell ad space, described in this realm as “publishers,” typically offer ad space through what’s called an ad exchange. For a fee, ad exchanges use algorithms to help match advertisers with publishers in real time, so that both entities can get the best value in ad placement, and in many cases, target that ad at a specific user. Google runs AdX, the most powerful ad exchange on the internet, and charges publishers and advertisers a hefty fee for this service. The suit reads:

Google was able to demand that it represent the buy-side (i.e., advertisers), where it extracted one fee, as well as the sell-side (i.e., publishers), 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. (p. 3)

Google can charge these fees for one simple reason: Google uses its monopoly over publishers’ ad servers to unlawfully foreclose competition in the exchange market. (p. 18)

1. Google and Facebook have a secret deal called “Jedi Blue” that has cemented both companies’ predominance in the ad market. In an effort to eliminate header bidding, a once-common practice by which ad exchanges could compete for ad buys, Google brokered a deal called “Jedi Blue,” in which Google ensured that Facebook had a special route to the cheapest ad buy. Every time Facebook made a bid for display space, it would win. The suit reads:

An internal Facebook communication at the highest level reveals that Facebook’s header bidding announcement was part of a pre-planned long-term strategy...to draw Google in. Facebook decided to dangle the threat of competition in Google’s face so it could then cut a deal to manipulate publishers’ auctions in its favor. In the end, Facebook curtailed its involvement with header bidding in return for Google giving Facebook information, speed, and other advantages in the ~43 billion auctions Google runs for publishers’ mobile app advertising inventory each month in the United States. (p. 6)

1. The real intention behind Google’s so-called “Privacy Sandbox” was to create a walled garden on the open web. Privacy nerds have heard about Google’s forthcoming “Federated Learning of Cohorts” (aka FLoC) system, which will move Chrome users away from third-party cookies and towards a “cohort-based” tracking model that the company says will be better for people’s privacy. But the suit cites internal company documents indicating that Google’s Privacy Sandbox (the origin of the FLoC system) was originally dubbed “Project NERA” and that it was intended to further consolidate Google’s power over the digital ad ecosystem. The suit reads:

Google documents reveal that Google’s motive [with Project NERA] was to “successfully mimic a walled garden across the open web [so] we can protect our margins.” For Google, Project NERA’s walled garden meant two things: controlling the design of publishers’ ad space, then forcing those publishers to sell their ad space exclusively through Google’s products. According to internal Google documents, this strategy would permit Google to extract even higher intermediation fees. (p. 94)

Many of the details cited in the suit support arguments for passing comprehensive privacy and data protection laws in the U.S. But it also raises deeper questions about how monopolistic practices in the ad tech world might affect other fundamental rights and the health of society as a whole.

Experts and policymakers now understand that online advertising has significant effects on how people get information and understand the world around them. Independent research and reporting has proven that targeted advertising is a major driver behind the spread of disinformation around elections, public health, and many other essential issues and services that matter to the public interest. It is unnerving to recognize how much power Google has over this ecosystem and how little information it is willing to disclose publicly about how it collects and uses our data to make money. The same is true of Facebook.

While the current paradigm clearly doesn’t serve the public interest, what will happen if the biggest players in Silicon Valley shore up even more power in the online ad space, so that other ad industry players are eliminated altogether? When we look at things like Google’s transition to FLoC and Apple’s new anti-tracking policy, we worry about the tradeoffs. Some of the privacy benefits are clear to see, especially in the case of Apple. But should the power to decide how ads are bought, sold, and targeted rest with just a few very powerful companies? We also know that algorithms will actually run these processes, and that to date, these companies have been willing to disclose very little about how their algorithmic systems actually work.

Our organization, Ranking Digital Rights, systematically measures companies’ public disclosures about policy and practice each year. Both Google and Facebook have a long way to go when it comes to transparency about how they collect, use, and profit from people’s data. In a recent blog post, we cautioned that this lack of transparency could obscure serious harms as we move towards a paradigm in which Silicon Valley’s biggest players—Google, Facebook, and now Apple—leverage their massive amounts of first-party data in what looks like an effort to control this market. Without real transparency, oversight, or accountability mechanisms, this paradigm shift could trigger serious harms for the public interest, harms that go well beyond our privacy and data protection rights.

The outcome of this particular lawsuit will be up to the courts, of course. In the meantime, its claims underscore the urgent need for Congress and the FTC to scrutinize Google and Facebook for anticompetitive behavior, unfair and deceptive practices, and other violations of the law.