SHERMAN, Texas (CN) — A group of 10 states led by Texas filed an antitrust lawsuit against Google on Wednesday, claiming the tech giant struck an unlawful agreement with Facebook to manipulate advertising auctions.
The lawsuit also claims Google forced online publishers to license its software to do business with over 1 million advertisers who used it as their middleman.
One of the most profitable companies in the world with a market capitalization of around $900 billion, Google controls about 90% of all internet searches.
The lawsuit comes one day after European Union lawmakers unveiled draft legislation proposing strict new rules on Google and other large tech companies, which would force them to quickly remove hate speech and disinformation from their platforms, place restrictions on the data they can collect and force them to treat European competitors more fairly, or face steep fines of up to 10% of their global revenue.
Texas Attorney General Ken Paxton accused Google, through a monopoly over online ads, of “acting as the pitcher, catcher, batter and umpire, all at the same time.”
“Google’s monopolization of the display-advertising industry and its misleading business practices stifle innovation, limit consumer choice and reduce competition. Texas and its coalition of allied states bring this action to lift the veil on Google’s secret practices and secure relief to prevent it from engaging in future deceptive and misleading practices,” he said in a statement.
Google offers its ubiquitous search engine and Gmail free of charge and makes money by collecting data about its users for targeted ads.
"Its entire business model is targeted advertising—the purchase and sale of advertisements targeted to individual users based on their personal information," the states say in their 130-page lawsuit.
The states claim Google, whose parent company is Alphabet, started to form its monopoly in 2008 when it acquired DoubleClick, a leading provider of ad tools that online publishers use to sell their advertising inventory on exchanges.
"Google started requiring publishers to license Google’s ad server and to transact through Google’s exchange in order to do business with the one million plus advertisers who used Google as their middleman for buying inventory," the lawsuit states.
The states say Google used its position to extract fees from both ad buyers and sellers, then charged an even larger fee for transactions to clear its exchange.
Google then tightened its stranglehold on publishers by imposing a one-exchange rule that barred them from routing ad inventory to more than one exchange at a time, according to the lawsuit.
"At the same time, Google demanded that sellers route their ad space to Google’s exchange because doing so would serve the sellers’ best interest and maximize revenue," the complaint states.
To get around Google's grip on the online ad market, publishers, including newspapers and digital media companies, developed a new method of selling ad inventory called "header bidding," which routed ad inventory to several neutral exchanges to get the highest bid for it.
Citing partly redacted internal company emails, the states claim Google appeased publishers by letting them use its ad server to route their inventory to more than one exchange at a time, but secretly made its exchange win the right to facilitate ad transactions, even when another exchange placed a higher bid.
In 2017, Facebook, which has more than 2 billion users worldwide, announced it planned to use its online ad marketplace to support header bidding in competition with Google's ad exchange. Google, fearing loss of its market share, scrambled to cut a deal with Facebook, according to the lawsuit.
The group of states claim Google agreed to manipulate its monthly auctions, on which it sells mobile app ad space for publishers, to predetermine how many times Facebook would bid and win. In return, Facebook allegedly backed off from header bidding.
According to the lawsuit, this is but one way Google and Facebook have monopolized the market, and Americans' privacy has suffered from their scams.
"After Facebook acquired WhatsApp, in 2015, Facebook signed an exclusive agreement with Google, granting Google access to millions of Americans’ end-to-end encrypted WhatsApp messages, photos, videos, and audio files," the lawsuit states.
Texas is joined in the lawsuit by of Indiana, Arkansas, Idaho, Kentucky, Mississippi, Missouri, North Dakota, South Dakota and Utah.
The Lone Star State is also one of 11 states that signed on to an antitrust lawsuit the Justice Department filed against Google in October, accusing the company of putting rival search engine operators at a disadvantage by requiring cellphone and computer manufacturers to preset Google as the search engine on their devices and making its software undeletable.
Much of Google's ad revenue comes from YouTube, which it bought for $1.65 billion in 2006. Google is now making $15 billion in annual revenue from the video-sharing platform.
In the new lawsuit, the 10 states accuse Google of violating the Sherman Act. They are also each demanding civil penalties, restitution or disgorgement of ill-gotten gains for Google's alleged violations of each of their state deceptive trade and antitrust laws.
A Google spokesperson called the claims "meritless" and said the company "will strongly defend" itself in court, pointing to its diminishing fees for "ad tech," programs that facilitate digital advertising, as proof it is competing fairly.
"We’ve invested in state-of-the-art ad tech services that help businesses and benefit consumers. 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," he said in an emailed statement that included the links.
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