• by Wendy Davis  @wendyndavis, September 8, 2024

Google and antitrust enforcers will face off Monday in federal court in Alexandria, Virginia, where the Department of Justice and 17 states will attempt to prove the company illegally monopolized ad-tech tools that power programmatic online display ads.

The showdown is set to start just one month after a federal judge in Washington, D.C. ruled that Google violated antitrust law by arranging to serve as the default search engine on browsers operated by Apple and Mozilla, as well as on Android devices.

The case against Google dates to January 2023, when the Justice Department and a coalition of states alleged that Google “corrupted legitimate competition" by monopolizing markets connected to “open web display advertising” -- essentially meaning programmatic ads served on sites operated by newspapers and other online publishers.

The Justice Department and states contend that Google's moves allowed it to enrich itself at the expense of publishers, who allegedly were deprived of ad revenue, and advertisers, who supposedly paid more than they would have in a more competitive market.

The government is seeking an order that would force Google to divest some or all of its ad-tech products.

Google denies that it acted anticompetitively, and also disputes the government's proposed market definitions.

U.S. District Court Judge Leonie Brinkema ruled in June that the suit raised factual questions that required a trial.

The closely watched upcoming battle could be among the most significant antitrust fights involving the tech industry since the late 1990s, when the government accused Microsoft of monopolizing the browser market by tying Internet Explorer to the Windows operating system.

A trial judge in that case determined that Microsoft violated antitrust law and ordered the company to be broken up, but an appellate court reversed the divestiture order. Microsoft and the government ultimately reached a settlement.

A lengthy roster of potential witnesses in the upcoming trial includes YouTube CEO Neal Mohan, former UM Worldwide global chief media officer Joshua Lowcock and Trade Desk chief revenue officer Jed Dederick.

At trial, the government will attempt to prove that Google's 2008 acquisition of DoubleClick for $3.1 billion enabled the company to unlawfully dominate programmatic advertising.

Google allegedly did so by tying DoubleClick's ad server for publishers and its then-new ad exchange to Google's advertiser network, according to the prosecution.

“By conditioning effective access to any one of its tools on customers also using Google’s other ad tech tools, Google locked publishers and advertisers into using its own ad tech tools rather than those offered by competitors,” prosecutors wrote in a pre-trial statement filed with Brinkema last month.

That filing calls attention to a widely quoted internal Google email in which an employee compared Google's control of the ad-tech stack to Goldman or Citibank owning the New York Stock Exchange.

“Google controls the tools used by both sides of advertising transactions: the tools publishers use to sell open-web display ads as well as the tools advertisers use to buy such ads,” prosecutors wrote.

“Google benefits from a privileged position as the middleman, extracting monopoly rents whenever open web display ads are transacted by advertisers and publishers on its exchange,” the government wrote, adding that the company charges supracompetitive prices for its AdX exchange.

Google counters that its actions “led to increased consumer choice, dramatically increased output, decreased prices, and greater opportunities for businesses of all sizes, especially small businesses.”

“Google endeavored to maximize value for ad space buyers and sellers (as well as users) by improving ad safety and security, user privacy, auction transparency, and the customer experience,” the company said in a pre-trial statement filed last month.

Antitrust expert Chris Hockett, who teaches at Berkeley Law, notes that monopolizing a market doesn't in itself violate antitrust laws. Instead, one key issue will be whether Google acquired or maintained monopoly power through anticompetitive means.

“The question in this case is going to be whether Google's arrangements preferred their own tools to such an extent that it improperly, unlawfully interfered with potential competitors,” he tells MediaPost.

He adds that even if Google is found to have taken a relatively large share of programmatic ad revenue as commissions, doing so wouldn't in itself have been unlawful.

“We don't have antitrust laws that make it illegal for a firm that has high market share, or even a monopoly, to extract the benefits of that monopoly in the form of higher profits,” he says.

One of the key areas of contention will center the nature of the ad-tech market, according to NYU law professor emerita Eleanor Fox, an antitrust and trade regulation expert.

"The definition of the market will definitely be a very serious issue,” Fox says.

The prosecution specifically contends that Google monopolizes three markets: “publisher ad servers for open-web display advertising,” “advertiser ad networks for open-web display advertising,” and “ad exchanges for open-web display advertising.”

For its part, Google disputes the idea that the ad-tech stack can be broken up into three separate markets.

Instead, the company contends, the ad-tech stack is a “two-sided platform” that brings together advertisers and publishers -- comparable to the way a credit-card company manages transactions between consumers and retailers.

Google also challenges the idea that there is a distinct market for “open web display ads” -- defined by the prosecution as an image of text-based ad shown on sites of “open web” publishers and viewable on desktop or mobile devices.

The company says that proposed market doesn't account for competition from streaming services like Disney+, social-media services like Meta and retailers like Amazon.

“Reflecting the industry reality that different ad channels and formats can serve interchangeable purposes, every industry participant in this case testified that advertisers shift ad spend to different ad channels or formats including from or to website-based display advertising, based on return on investment,” Google argued in its pre-trial statement, which drew on deposition testimony.

The company added that its internal documents describe “numerous instances” in which it lost advertiser business to competitors like Meta because ad buyers “shifted spend in order to improve returns.”

Google also questions whether news sites that require passwords and subscriptions, like NYTimes.com, should be categorized as “open web.”

Assuming that ads on news sites as well as MSN and Yahoo are included in the definition of open web display ads, the market comes to around $32 billion a year out of total U.S. ad revenue of around $400 billion, according to ad industry economist Brian Wieser, CEO of consulting firm Madison and Wall.

In addition to disagreements about how to define the market, prosecutors and Google are at odds over the company's decision to bundle various components of the ad-tech stack together.

Prosecutors argue that the bundling decision hurt competitors, but Google counters that its move protects against spam and fraud.

“Integrated tools have important benefits for both ad space buyers and sellers,” Google wrote last month in a pre-trial filing. “Security and safety concerns are better and more reliably addressed when Google operates an integrated system.”

The trial could last for several weeks.