Economist says Google divestiture would hurt market

ALEXANDRIA, Va. (CN) — Working to flip the script in a trial that could end with severe consequences for Google, witnesses Wednesday testified that divestiture of the company’s ad tech arm would result in unintended consequences.

“The elimination of Google as a competitor could create an incentive to shift investments away from open web advertising,” said Andres Lerner, founding partner and head of the North American Antitrust and Competition Practice.

Google’s legal team called Lerner to the witness stand during an ongoing trial to determine the remedies necessary to restore the market in light of a ruling that the tech giant violated antitrust laws. U.S. District Court Judge Leonie Brinkema, a Bill Clinton appointee, is presiding over the case.

Google’s legal team argues that instead of the divestiture sought by the U.S. Department of Justice, the court should order a combination of behavioral remedies aimed at changing the way the tech giant operates. This would involve more transparency regarding how Google’s ad server works.

“By removing barriers, I would expect rivals to compete more effectively,” Lerner said, adding that the benefits of remedies should restore the market and outweigh unintended consequences.

Witnesses have presented sharply different views about the economic impact of divesting Google’s ad arm, which would involve migrating code from one business to another. And during cross examination, Julia Tarver Wood, the government’s lead attorney, pointed out that Lerner had been hired by Google during previous antitrust cases. Last year, a U.S. District Court judge in Washington, D.C. found the company violated antitrust law with its search business. And in September, European regulators fined Google €2.95 billion — $3.2 billion — over accusations the company abused its dominance in digital advertising technology.

This case, brought in the U.S. District Court for the Eastern District of Virginia, revolves around the way Google’s ad display business works.

“Google’s conduct has drastically altered the supply paths through which available display advertising inventory is sold, reducing payouts to publishers, burdening advertisers and publishers with lower-quality matches of advertisements to inventory, and inhibiting choice and innovation across the ad tech stack,” the Justice Department’s claims in its lawsuit.

But the current trial is playing out as the tech world pivots away from open display and toward video ads seen on websites such as YouTube, according to Lerner.

A divestiture could impact a part of the business that was not the target of the initial charges, according to Google’s witnesses. In the process, a number of issues may crop up — not every business may be able handle the expense, and after divestiture, customers could leave and employees might bolt, witnesses said.

“They’ll do what is in their best interest,” said Shane Goodwin, executive director of Southern Methodist University’s Corporate Governance Initiative. “The knowledge transfer is very crucial.”

More testimony is expected Thursday. Google’s legal team is expected to call expert witnesses to opine about the feasibility of migrating data from one business to another. Rival tech executives, some of whom are considering acquiring part of Google’s business, have indicated that they believe only divestiture will stop Google.