U.S. Files New Antitrust Suit Against Google Over Ad Tech

Alleging that Google has violated federal antitrust laws, the government wants to force the
Alphabet
(ticker: GOOGL) unit to divest its ad tech business, calling among other things for the unwinding of the company’s 2008 acquisition of the ad tech company DoubleClick. The government is also requesting that the court assess financial damages, although the complaint doesn’t specificy a dollar figure.

Google said in response that the allegations are unfounded.

“Today’s lawsuit from the DoJ attempts to pick winners and losers in the highly competitive advertising technology sector,” the company said in a statement. “It largely duplicates an unfounded lawsuit by the Texas Attorney General, much of which was recently dismissed by a federal court. DoJ is doubling down on a flawed argument that would slow innovation, raise advertising fees, and make it harder for thousands of small businesses and publishers to grow.”

The new case zeros in on Google’s multiple roles in the online advertising world: providing software for ad sales to most major website, offering tools for advertisers to buy ad space, and acting as the largest ad exchange, matching publishers with advertisers.

“[C]ompetition in the ad tech space is broken, for reasons that were neither accidental nor inevitable,” the Justice Department said in the complaint, which was filed in the U.S. District Court for the Eastern District of Virginia.

“One industry behemoth, Google, has corrupted legitimate competition in the ad tech industry by engaging in a systematic campaign to seize control of the wide swath of high-tech tools used by publishers, advertisers, and brokers, to facilitate digital advertising,” the complaint says. “Having inserted itself into all aspects of the digital advertising marketplace, Google has used anticompetitive, exclusionary, and unlawful means to eliminate or severely diminish any threat to its dominance over digital advertising technologies.”

The suit was filed jointly with the attorneys general of eight states—Virginia, California, Colorado, Connecticut, New Jersey, New York, Rhode Island, and Tennessee .

In the 153-page complaint, the government asserts that Google’s plan has been to “neutralize or eliminate ad tech competitors, actual or potential, through a series of acquisitions,” and to “wield its dominance across digital advertising markets to force more publishers and advertisers to use its products while disrupting their ability to use competing products effectively.”

The government pointed in particular to the acquisition of DoubleClick for more than $3 billion as a pivotal event in the evolution of Google’s ad business.

The complaint goes on to allege that Google “abuses its monopoly power to disadvantage website publishers and advertisers who dare to use competing ad tech products in a search for higher quality, or lower cost, matches.”

The government said the goal of the lawsuit is to “halt Google’s anticompetitive scheme, unwind Google’s monopolistic grip on the market, and restore competition to digital advertising.”

In a blog post Tuesday responding to the lawsuit, Dan Taylor, Google’s vice president for Global Ads, argued that the government is overstating the company’s dominance of the industry. He pointed to growth in the ad businesses at
Amazon.com
)AMZN), Apple UAAPL), and TikTok, among others.

“We are one of hundreds of companies that enable the placement of ads across the Internet,” Taylor wrote “And it’s been well reported that competition is increasing as more and more companies enter and invest in building their advertising businesses.”

Added Taylor: “We will vigorously contest attempts to break tools that are working for publishers, advertisers, and people across America.”

According to the Wall Street Journal, Google last year offered to split off part of its ad business as a separate company that would still be owned by Alphabet. That proposal apparently was rejected by the government.

Cowen Washington Research Group analyst Paul Gallant pointed out that it will be a while before the case goes to trial. He estimated 18 to 24 months.

Note that by the time the Justice Department’s lawsuit over Google’s domination of internet search finally goes to trial later this year, more than three years will have elapsed since it was filed.

If the government ultimately wins at trial, the court is likely to order Google to divest some or all of its ad tech business, rather than requiring that it change its behavior, he said. Gallant also noted that Sen. Mike Lee, a Utah Republican, has introduced a bill that would force Google to divest most of its ad tech business.

Alphabet shares were down 1.9% at $99.30 on Tuesday afternoon.

Write to Eric J. Savitz at eric.savitz@barrons.com