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The New Google Suits

by asheesh agarwal

Just before the holidays, 44 states filed two separate lawsuits alleging that Google violated the Sherman Act and 16 separate state statutes. The lawsuits, totaling 245 pages, seek to dismember the company and force it to pay perhaps hundreds of billions of dollars in treble damages. In a nutshell, the suits focus on two main themes:  Google has attempted to monopolize the online search engine market (“the search lawsuit”), and Google has attempted to monopolize the online advertising market (“the ad tech lawsuit”). 

The search lawsuit, led by Colorado, largely tracks an earlier lawsuit filed by the Department of Justice. It alleges that Google unlawfully maintains monopolies through exclusionary contracts that require computer and mobile device manufacturers to set Google as the default search engine and to preinstall Google applications. Like DOJ, the states charge that Google is using exclusive contracts to monopolize the search components of the Internet of Things, such as automobiles and voice assistants, and that Google’s algorithms disadvantage specialized search competitors, like Yelp and Expedia.

The ad tech lawsuit, led by Texas, alleges that Google improperly monopolizes online advertising by manipulating auctions in its favor, colluding with Facebook, and pressuring advertisers to use its full suite of ad tools. At its core, the lawsuit alleges that Google uses its size to give it unfair competitive advantages in placing ads. For instance, the suit claims that Google promised advertisers that its tools would let them place ads on competing engines and exchanges, but actually tilted the playing field in its own favor. According to the complaint, Google gave Facebook preferential treatment and more data, in exchange for Facebook’s agreement to limit competition for advertising auctions. Similarly, the states allege that Google “uses its market power to withhold YouTube inventory from competing buyside ad buying tools, forcing advertisers to use Google’s tools in order to purchase ad space from the leading provider of video inventory in the United States.”

The lawsuits raise numerous complex factual and legal issues that likely will take years to sort out. Even at this early stage, however, a few points become clear.

These lawsuits, along with two suits against Facebook, firmly move the antitrust debate from Congress to the courts. Many reformers, particularly on the left but also on the right, are seeking to expand the scope of antitrust law. Some proposals would force companies to separate into single lines of business, hamper certain firms’ ability to acquire other companies, and even have antitrust law take into account amorphous values like “fairness” and “democratic ideals.” With these lawsuits pending, Congress is less likely to enact major antitrust legislation. Many reformers, such as House Judiciary Chairman Jerrold Nadler, praised the lawsuits as an “important step” in preserving competition online. Given that the existing laws, as written, may well allow the courts to address any competitive concerns, antitrust reformers will have a harder time persuading their colleagues that Congress must overhaul the antitrust laws now. At the very least, given that the most significant antitrust cases in two decades are now in the courts, Congress should take a deep breath before trying to rewrite a century of antitrust law.

The lawsuits challenge the idea that vertical integration benefits consumers. Google both places ads for advertisers and sells advertising space for most of the world’s ad-supported websites. Google operates the most popular general search engine and many properties, such as YouTube and map apps, that attract millions of eyeballs. Google’s popularity gives it an upper hand in the ad search market; Google offers tools to assist advertisers in evaluating consumer interactions and serves as an intermediary between the ad exchanges for publishers and its own online ad servers. In the states’ telling, Google abuses its breadth by “tying” together these offerings, which “coerces” advertisers and publishers into accepting all of its offerings and paying higher prices in order to reach, or have better chances of reaching, the millions of eyeballs otherwise not accessible to those looking for more direct deals with other networks. At least in theory, this conduct could violate the antitrust laws: in this narrative, Google’s use of its search market power qualifies as a tying violation when Google (allegedly) restricts customers’ ability to advertise on Google’s most popular offerings, like YouTube, unless those customers also use Google’s full suite of products. Google likely will counter that its integrated offerings benefit its customers through lower prices and efficient services, and in any case, that Google has every right to give preferential treatment to customers who use more of its services. While the facts will come to light over time, in general, tying claims are notoriously difficult to prove in court, and economic research suggests that vertical integration benefits consumers. The antitrust agencies agree with this principle.

The lawsuits attempt to define away the broader competitive landscape. Most antitrust lawsuits hinge on the definition of the market: the narrower the market, the easier it is to argue that a company has the market power to charge higher prices. In these cases, the states define the relevant markets as narrowly as an election margin in Wisconsin. For instance, the states define the advertising market to exclude TV, radio, print, and outdoor advertising, and the search market to exclude specialized search engines and social media advertising. Indeed, the ad tech lawsuit alleges that YouTube dominates the market for “online instream video advertising,” which comes close to alleging that YouTube dominates the market for YouTube. In reality, advertisers can reach consumers at many other websites that stream videos, including Facebook, Flickr, TikTok, Twitch, Twitter, Dailymotion, Snapchat, and even MySpace, which still receives fifteen million views monthly.

The lawsuits attempt to fix an industry that, by many metrics, is already very competitive. Online ad fees are falling, overall ad prices are declining, and output is rising. From 2010 to 2019, domestic spending for online digital advertising quintupled, from $26 billion to nearly $130 billion. Over the same period, Internet advertising costs declined by nearly 40%. In general, these characteristics epitomize a competitive marketplace, not one dominated by a monopolist (monopolists tend to reduce output and raise prices in order to maximize their revenue).

The courts will have to sort through many hotly contested facts. In perhaps the most tantalizing charge, the states accuse Google of colluding with Facebook to limit competition for advertising auctions, to the benefit of both companies. Google counters that Facebook receives no preferential treatment, that dozens of other companies bid in the same auctions, and that Google has made no secret of its agreement with Facebook. As much of the states’ complaints are redacted, time will tell whether the states have identified facts that support a viable antitrust theory.

In another contentious charge, the states allege that Google intentionally limits competition from specialized vertical providers in certain market segments like travel, home improvement, and entertainment, by “limiting those firms’ ability to acquire customers.” So, for instance, the charge is that Google downgrades the search visibility of companies like Expedia and TripAdvisor in order to benefit its own properties. Google counters that its search results preference the businesses themselves, rather than middlemen, thereby allowing businesses to connect directly with their customers. On this point, Google may receive some support from … the Federal Trade Commission. In 2013, the FTC looked into the alleged search bias and concluded that Google’s search tools “likely benefited consumers,” finding that Google designed its search tools to provide quality results, not to stifle competitors. The courts will have to sort through whether the FTC got it right then, whether anything material has changed, and whether Google designed its search algorithms to harm competition or simply to provide individuals with the results that Google thinks they want.

Before the lawsuits conclude, real-world events likely will bring more competition to the marketplace. Including appeals, the state lawsuits likely will take two or three years to play out. Maybe longer. By that time, the competitive landscape could look very different. Reports suggest that Apple is planning to turn Siri into an independent search engine, instead of a voice for Google searches; if so, three of the world’s largest tech companies will compete vigorously in the general search market. A fourth company, Amazon, already has surpassed Google in product searches, where search engines earn almost all their money. Walmart, no competitive slouch, recently launched its own self-serve ad platform. Beyond existing competitors, smart TVs soon could offer personal advertising, European regulators are actively seeking to boost their tech companies by hobbling their American rivals, and Chinese companies continue to invest strategically in nascent technologies. 

As has happened so often throughout the last century, the marketplace likely will move much faster than the court system, particularly in as dynamic an industry as technology. Today’s competitive landscape may seem quaint by the standards of, say, 2025, much as 2008’s landscape, dominated by MySpace and AOL, seems quaint today.  Thus, while the lawsuits certainly bear watching, the real guarantor of competition is likely happening outside the courtroom.