US states sue ‘Goliath’ Google over digital ad practices

US states have raised the legal stakes for Google, alleging it manipulated digital ad markets in violation of antitrust laws.

A coalition of US states alleges Google manipulated digital advertising markets in violation of antitrust laws. Picture: AFP

The Texas attorney general said he was suing Alphabet’s Google unit on behalf of a coalition of states, alleging the company manipulated digital advertising markets in violation of antitrust laws.

“This internet Goliath used its power to manipulate the market, destroy competition, and harm YOU, the consumer,” the office of Texas Attorney-General Ken Paxton said on Twitter.

A spokeswoman for Google had no immediate comment.

The Texas-led case raises the legal stakes for Google, which depends on advertising for much of its profits. Its parent company reported digital advertising revenue of $US37.1 billion in its latest quarterly report.

The new complaint against the company’s digital advertising business opens a second major front for government claims that Google is illegally suppressing competition. The Justice Department and a number of states already have brought antitrust claims against the company, focused on its search business.

The Texas-led coalition of state attorneys general has been zeroing in on Google’s dominant presence in the digital advertising market, according to people familiar with the matter, as well as a civil subpoena Mr Paxton sent last year.

Google’s ad-tech business consists of software used to buy and sell ads on sites across the web. The company owns the dominant tool at every link in the complex chain between online publishers and advertisers, giving it unique power over the monetisation of digital content. Many publishers and advertising rivals have accused Google of tying these tools to one another, and to its owned-and-operated properties such as its search engine and YouTube, in anticompetitive ways.

Google has argued that the ad-tech industry is competitive and that moves it has made to merge products were aimed at improving customers’ experience.

The states have co-ordinated closely with the Justice Department, which also has been posing increasingly detailed questions -- to Google’s rivals and to executives inside the company -- about how Google’s third-party advertising business interacts with publishers and advertisers, according to people familiar with that probe.

That digital business was built largely on the company’s 2008 acquisition of ad-technology provider DoubleClick. Publishers and rivals say Google leveraged its acquisition of that company, which was the dominant provider of tools for publishers to sell their digital ads online, to build out the dominant marketplace for digital ads -- known as an ad exchange -- and dominant ad-buying tools for advertisers.

Along the way, critics allege that Google created a system rife with conflicts of interest, in which it used its superior data advantage and unique dominance in the marketplace to give preference to its own tools and steer money to its own properties.

They point as evidence of anticompetitive behaviour to moves like Google’s longtime practice of giving itself a “last look” in ad auctions; giving preference its own Accelerated Mobile Pages, or AMP, in search results to effectively force publishers to adopt a format that would make it harder to use alternative ad technologies; and requiring advertisers to use Google’s ad-buying tools to access YouTube ads.

Texas’ initial subpoena included more than 200 questions and demands for records. Many of the questions appear designed to solicit evidence that Google engaged in anticompetitive conduct in building up its powerful position.

For instance, the subpoena asked for information about Google’s “business rationale” for acquiring several of the companies that have helped it build up its advertising business, including DoubleClick in 2008, AdMob in 2010 and Admeld Inc. in 2011.

In another question, Google is asked to explain its business justification for prohibiting rival data-management platforms from operating on its own ad networks.

Still another asked Google to explain its “control or influence over” the AMP Project, an open-source initiative to standardise mobile website design. Google is also asked to explain its “business justification for removing YouTube [advertising] inventory from other Ad Exchanges.”

In its response to the subpoena, Google referred to a blog post by Kent Walker, its senior vice president for global affairs.

“We have answered many questions on these issues over many years, in the United States as well as overseas, across many aspects of our business, so this is not new for us,” Mr. Walker wrote. “The [Justice Department] has asked us to provide information about these past investigations, and we expect state attorneys general will ask similar questions. We have always worked constructively with regulators and we will continue to do so.”

In another blog post September 11, the company said competition in the ad space is robust.

“To suggest that the ad tech sector is lacking competition is simply not true,” it said. “To the contrary, the industry is famously crowded. There are thousands of companies, large and small, working together and in competition with each other to power digital advertising across the web, each with different specialties and technologies.”

News Corp, a longtime Google critic and publisher of The Austrtalian and Wall Street Journal, was among the publishers contacted by antitrust investigators, along with New York Times, Gannett, Nexstar Media Group and Condé Nast, some of the people said.

Dow Jones Newswires