Google has massive new legal headache.
On Tuesday, the US Justice Department and eight states sued the search giant, arguing it abused its position at the center of the online advertising industry to lock out competitors and claim profits for itself that should have gone to advertisers and publishers.
The case concerns a part of Google's operations that isn't especially familiar to most of us. But it's important, because advertising revenue funds most of what Google does, like search, Chrome and Gmail.
Here's a look at what's going on with the case.
Why is the DOJ suing Google?
The new Justice Department lawsuit, which you can read below in full, alleges Google uses anticompetitive behavior to maintain a monopoly in digital ads. Allegations include Google buying up competition and strong-arming advertisers into using Google's ad tech over competing companies.
"Competition in the ad tech space is broken," the lawsuit says. "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. 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 result, according to the lawsuit, is a durable, profitable dominance that hurts other companies.
"Google uses its dominion over digital advertising technology to funnel more transactions to its own ad tech products, where it extracts inflated fees to line its own pockets at the expense of the advertisers and publishers it purportedly serves," the lawsuit says.
The attorneys general of California, Colorado, Connecticut, New Jersey, New York, Rhode Island, Tennessee and Virginia joined the Justice Department in the online ad lawsuit. It piles on to a 2020 antitrust lawsuit the DOJ filed that argues Google stifled competition in search, paying partners like Apple and Samsung to ensure Google remains the default search engine on mobile devices.
"Any monopoly case filed by the DOJ is a big deal," said George Hay, a senior professor of law and economics at Cornell Law School, with an expertise in antitrust law. "They don't happen very often, and even less so against a company as well known and as prominent as Google."
How is Google involved with online ads?
You're probably familiar with the ads Google places alongside search results. But the Justice Department's case is broader, concerning more ad technology. Thanks to its 2008 deal to acquire DoubleClick, Google bought its way into a commanding position supplying ads that appear on all kinds of websites and, later, mobile apps.
When you load a website, Google's technology often runs a nearly instant, automated auction to find advertisers willing to pay to show their ads. This technology, called an ad exchange, is most effective when a broad range of advertisers are angling to place ads on a broad range of publisher sites.
Tuesday's lawsuit argues Google unfairly dominates not only this ad exchange but also the tools used to participate in the bidding process.
There's a tie-in to Google's search dominance too. In 2015, it introduced Accelerated Mobile Pages, or AMP, aimed at loading web pages faster on mobile devices. But it also used AMP to push websites from open web technology into a "Google-controlled walled garden, one where Google could dictate more directly how digital advertising space could be sold," the Justice Department argues. To get good placement atop Google search results, publishers had to use the AMP system.
Google controls 26.5% of the $278.6 billion US digital ads market, surpassing both Facebook parent Meta and Amazon, according to eMarketer estimates reported by Bloomberg. Google's share is the largest of any single company.
What does the lawsuit mean for the ads I see?
For now, don't expect any changes in the ads you'll see online. The Justice Department's lawsuit doesn't seek to halt Google's ad tech at the moment. Any changes that would occur to Google's ad business depend on the influence and outcome of the legal proceedings, which could take years.
What does DOJ's lawsuit mean for Big Tech?
The lawsuit is "part of a new regulatory climate" from the Justice Department and the Federal Trade Commission that's upended the idea of Big Tech getting bigger through mergers and acquisitions, said Rebecca Allensworth, a Vanderbilt University law professor. "The FTC's suit against Facebook alleging that their acquisitions of WhatsApp and Instagram already did that, and so did the agencies' more active merger review program of late." The FTC also sued to block Meta's acquisition of VR fitness app maker Within.
Unlike the EU, which has been throwing hefty fines at Big Tech to the tune of potentially billions of dollars, the DOJ is likely looking at a different approach to exact change.
"Given the horsepower that the DOJ is throwing at this, like they're looking for something concrete to be done, or I don't think they would settle for a settlement," said Brad Haller, senior partner of mergers and acquisitions at West Monroe, a Chicago-based management consulting company. Google will either need to show that it's divesting its ad tech stack or make a convincing argument that there's plenty of competition in the digital ad space, Haller said.
What's Google's response?
Google is fighting the suit, saying the Justice Department's demands would slow innovation and raise advertising fees, thereby harming small businesses.
The effect of the lawsuit is to "pick winners and losers in a highly competitive advertising technology sector," Dan Taylor, Google's vice president of global ads, said in a blog post Tuesday. As evidence of competition, he pointed to Microsoft's acquisition of Xandr, which is now building Netflix's advertising business; Amazon's ad business, which is growing faster than Google and Meta's; Apple's growing advertising business; TikTok's $10 billion in ad revenue; and investments in digital ad technology by Comcast, Disney, Walmart and Target.
Taylor argues the Justice Department's case parrots a similar one led by the state of Texas that Google asked a judge to dismiss last year. That case was largely upheld, though
Taylor takes issue with the Justice Department's request that Google unwind its acquisitions of AdMeld and DoubleClick, made 12 and 15 years ago, respectively. He said that the acquisitions were approved by regulators and the Justice Department, and that since then, competition in the space has only increased.
"The mere fact that the agency did not challenge them at the time does not preclude a current claim that, with the wisdom of hindsight, we can see that those acquisitions have had an anticompetitive effect," Hay said.
How do Google's actions and this lawsuit affect ordinary folks?
There's no direct effect for most of us, unless you're running websites or trying to place ads on them or are otherwise involved with the world of ad tech.
But indirectly, we all pay for the system in the form of higher costs to use websites, the Justice Department argues.
"This conduct hurts all of us because, as publishers make less money from advertisements, fewer publishers are able to offer internet content without subscriptions, paywalls, or alternative forms of monetization," the lawsuit says. "On average, Google keeps at least 30 cents -- and sometimes far more -- of each advertising dollar flowing from advertisers to website publishers through Google's ad tech tools. Google's own internal documents concede that Google would earn far less in a competitive market."
Google's ad practices negatively affect the US government and military, Assistant Attorney General Jonathan Kanter said during a press conference announcing the lawsuit.
Google's ad business funds free products and services like search, Gmail, Google Photos and Android.
How does the DOJ want to change Google to deal with the issue?
The lawsuit seeks to force Google to sell off its ad manager technology, including its server technology used to display ads, called DFP, and its advertising exchange, called AdX. Essentially, it's trying to unwind Google's acquisitions of ad exchange DoubleClick in 2008 and ad management technology maker AdMeld in 2011.
If that happens, it would remove a major source of Google revenue. The online advertising industry would persist, though, operated by the Google spinoffs and other involved companies. And Google would still do major business placing ads on its own properties, like search, YouTube and Gmail.
The Justice Department also seeks a damages payment, an injunction to stop its alleged anticompetitive ad behavior, and preliminary and permanent relief "to restore competitive conditions in the markets affected by Google's unlawful conduct."
What happens next?
Expect Google to challenge the Justice Department when it files its response. Google already has launched a publicity campaign, arguing it abides by competition rules. Google faces pressure from regulators and Congress.
In answering the DOJ, Google likely will make the case that its actions are good for competition, making it easy for websites to offer online advertising as a way to generate revenue and easy for advertisers to place ads, Vanderbilt's Allensworth predicted.
"Google will probably argue that their conduct has essentially made the internet what it is -- a place where users can access lots of valuable content for 'free' (if you don't count the attention cost of encountering advertising) and a place where anyone, including very small businesses, can purchase ad space to draw customers in," Allensworth, the Vanderbilt law professor, said.
US District Court Judge Leonie Brinkema is overseeing the case.
It's possible the lawsuit could end with a settlement, likely including changes in Google behavior and a fine. But don't expect the Justice Department and its allies to roll over. The plaintiffs represent a broad swath of political and business interests.
"It's notable there are once again eight bipartisan states signed on, including New York (home of media and advertising industry) and California (home of Google and tech startups)," tweeted Jason Kint, chief executive of Digital Content Next, a trade association representing digital publishers and frequent critic of Big Tech.
"Ultimately it's up to the court to decide what is lawful and what is not," Hay said. "If there is anything new, it's the DOJ's and FTC's recent focus on Big Tech."