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Google accused of colluding with Facebook in online ad market

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A group of 10 Republican-led US states has opened a new front in US antitrust actions against Google, charging the internet group with abusing its monopoly over parts of the online advertising market and colluding with Facebook to shut out rival ad exchanges.

The allegation that Google worked with Facebook to carve up advertising profits adds a new twist to the multiplying lawsuits that claim the world’s biggest tech companies have acted together to buttress their power. 

The case comes two months after the Department of Justice, backed by 11 states, accused Google of using a web of contracts and partnerships with other companies to block distribution of rival search engines.

That case included a claim that Google had deliberately forged a deal with Apple, worth as much as $12bn a year, to reinforce its monopoly, though there was no claim that Apple had colluded in the plan.

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Ken Paxton, the Texas attorney-general who is leading the group of Republicans targeting Google, disclosed the latest action on Wednesday.

Google has “repeatedly used its monopolistic power to control pricing, [and] engage in collusions to rig auctions [of online ads] in a tremendous violation of justice”, he said.

Referring to Big Tech companies, he added: “It’s time for them to learn the hard way that you do not mess with Texas.”

The Republican-led complaint against Google, filed in federal court in the Eastern District of Texas, takes aim in particular at its advertising exchange, which handles the automated bidding and placement for a large volume of advertising around the web.

Dina Srinivasan, a researcher at Yale who was involved in drafting the complaint, said that Google’s involvement selling technology to both buyers and sellers of advertising, as well as running an ad exchange, echoed the kind of conflicts of interest that had occurred in the past in financial markets.

Experience with financial regulation “shows that the number one thing you must do is minimise conflicts in the market”, she said, meaning that a structural separation was needed to limit the number of roles Google plays in online advertising.

The lawsuit said that Google had 90 per cent of the market for tools US publishers use to sell online ads. It uses that power — and its role selling technology to advertisers — to channel transactions through its in-house exchange, the lawsuit alleged, meaning the company effectively engages in “insider trading”.

“In this electronically traded market, Google is pitcher, batter, and umpire, all at the same time,” according to the states.

Facebook had at one stage backed an alternative technology that would have weakened Google’s ability to channel transactions through its own exchange, making the social network a potential rival, the lawsuit claimed. But it said that Facebook had dropped the idea after Google offered “special auction access”, giving Facebook preferential entry to transactions handled through the Google exchange.

The two companies also “agreed to manipulate publisher auctions in Facebook’s favour”, the states claimed. Facebook is not a defendant in the lawsuit, and declined to comment on the allegations in it.

Google called the lawsuit “meritless”, saying in a statement: “Digital ad prices have fallen over the last decade. Ad tech fees are falling too. Google’s ad tech fees are lower than the industry average. These are the hallmarks of a highly competitive industry.”

The decision by Republicans to go it alone in the lawsuit, rather than include Democratic states that had also been involved in building the case, hinted at political jostling for attention in the dying days of the Trump administration as lawsuits against Big Tech multiply.

A bipartisan group of attorneys-general, led by Phil Weiser of Colorado, was set to file a separate suit targeting Google’s dominance in the search market on Thursday, according to one person with knowledge of the case.

Mr Paxton had come under pressure to relinquish his role in the Google investigation. Eight of his aides resigned or were fired this year after accusing him of using his position to interfere with an investigation into a campaign donor. The officials included Darren McCarty, a former Texas deputy attorney-general and the top lawyer on the Google case.

Following those revelations, Democratic attorneys-general called on Mr Paxton to resign, warning that the accusations risked imperilling their “joint work”.

One person close to the process said that there had been no disagreements over the substance of the online advertising charges, and that the Texas-led group had sought to grab the limelight ahead of the results of a similar DoJ investigation.

Facebook has separately been charged with violating antitrust laws by 48 attorneys-general from both parties in a lawsuit launched last week. The suit accused the social media company of a “years-long course of anti-competitive conduct”, including strategically buying up rivals that threatened its monopoly and cutting off services to squeeze rival developers.

Additional reporting by Hannah Murphy in San Francisco

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