A trial of the U.S. Department of Justice’s “Ad Tech” antitrust lawsuit against Google begins on September 9 in Alexandria, Virginia Federal District Court. In a nutshell, DOJ (joined by 17 states) argues that Google illegally monopolized key digital advertising technologies through a variety of anticompetitive tactics. DOJ’s will find it difficult to prove that Google’s actions harmed competition and consumers in this market. Rather than furthering the public interest, this sort of lawsuit is far more likely to deter innovation in dynamic markets, to the detriment of consumers and the American economy.
The Ad Tech Lawsuit
DOJ’s Argument
In January 2023, DOJ (joined initially by 8 states, now by 17 states) filed a civil antitrust suit against Google for monopolizing multiple digital advertising technology products in violation of Sections 1 and 2 of the Sherman Antitrust Act.
DOJ claimed that:
“Google now controls the digital tool that nearly every major website publisher uses to sell ads on their websites (publisher ad server); it controls the dominant advertiser tool that helps millions of large and small advertisers buy ad inventory (advertiser ad network); and it controls the largest advertising exchange (ad exchange), a technology that runs real-time auctions to match buyers and sellers of online advertising.”
Even assuming this is true (and this description will be controverted at trial), a monopoly by itself does not violate the antitrust laws. To prove a violation, the government must show that defendant obtained or retained the monopoly through business tactics that are not “competition on the merits” – actions that make no economic sense but for their tendency to harm competition.
When a defendant can show plausible efficiency explanations for its conduct, the government is highly unlikely to succeed in its monopolization lawsuit.
DOJ asserted in its 2023 complaint that Google undermined competition through:
(1) a pattern of acquisitions to obtain control over key digital advertising tools used by website publishers to sell advertising space;
(2) locking in website publishers to its newly-acquired tools by restricting its unique, must-have advertiser demand to its ad exchange, and in turn, conditioning effective real-time access to its ad exchange on the use of its publisher ad server;
(3) limiting real-time bidding on publisher inventory to its ad exchange, and impeding rival ad exchanges’ ability to compete on the same terms as Google’s ad exchange; and
(4) manipulating auction mechanics across several of its products to insulate Google from competition, deprive rivals of scale, and halt the rise of rival technologies.
DOJ added that, “[a]s a result of its illegal monopoly, and by its own estimates, Google pockets on average more than 30% of the advertising dollars that flow through its digital advertising technology products.”
Google’s Likely Response
Google may be expected to respond that: (1) DOJ’s allegations do not show anticompetitive conduct; and (2) Google’s conduct was efficient, benefiting consumers and the economy.
First, American antitrust courts almost invariably require a market share of well over 50 percent to find monopoly power. As the Federal Trade Commission explains, “typically do not find monopoly power if the firm (or a group of firms acting in concert) has less than 50 percent of the sales of a particular product or service within a certain geographic area. Some courts have required much higher percentages.”
DOJ’s reference to “30% of advertising dollars” that flow through Google’s pockets, though not specifying a particular market, suggests that DOJ may find it hard to convince a court that Google is a monopolist. If it is not, DOJ’s argument that Google’s conduct maintains a monopoly fails as a legal matter.
Second, DOJ alleged that Google has monopolized three peculiar markets (as servers, ad exchanges, and advertiser ad networks) for specific ad tech for “open-web display advertising.” These jerry-rigged definitions exclude most of the online places where users see ads – in apps, on social media, on most retail sites (for example, Amazon), and on connected TV. The definitions also exclude in-stream video ads.
Google presumably will argue that these other online places should be included in the market, and when they are, Google is far from dominant.
Third, DOJ asserted that Google illegally “tied” its publisher ad server to its ad exchange. Antitrust law holds that the law may be violated when a firm with a lot of market power in one product requires buyers to acquire another product as well. In high tech markets, such as ad tech, courts apply the antitrust “rule of reason” to a tie, to determine whether potential efficiency benefits outweigh any anticompetitive effects.
Google will argue that the ad server and ad exchange should be viewed as one integrated product, not two products, so the tying argument fails.
But even if there are two products, Google will point out that its ad exchange is a “two-sided market” platform that brings together buyers and sellers, and that it should be allowed to operate that exchange as it sees fit. Google will likely stress that substantial efficiencies are generated through the joint provision of products, negating the claim that competition is being harmed (or, at the very least, outweighing any harm).
Fourth, DOJ refers to Google’s acquisitions of digital advertising tools, but those acquisitions were not previously found to be illegal. Moreover, Google may well seek to demonstrate that those acquisitions improved the quality of its ad tech products, a result which is procompetitive, not anticompetitive.
Fifth, DOJ’s allegations related to Google’s real time bidding limitations on publisher inventory to its ad exchange, and “manipulation” of its auction mechanics, are problematic.
There are significant efficiency explanations for such conduct. These include, for example, ensuring that Google’s ad exchange enjoys sufficient scale to compete most effectively, and that its auctions run most effectively.
Google has no antitrust duty to help its competitors. Thus, if there are sound business efficiency reasons for Google’s handling of bidding and auctions (Google will no doubt advance them), there is no violation.
More generally, in the Verizon v. Trinko case, the Supreme Court stressed that businesses have broad discretion not to deal with competitors. Google may be expected to point out that, in essence, DOJ is arguing that Google acted badly by denying competitors access to its customers and technology, in defiance of Supreme Court teachings.
Sixth, DOJ will place an emphasis on the testimony of rival ad tech firms and publishers that will claim they have lost market share due to Google’s tactics. However, as the Supreme Court has taught, U.S. antitrust law is concerned not with protecting individual competitors, but, instead, with promoting consumer welfare. Google may be expected to emphasize this point, stressing that its actions enhanced efficiency, to the benefit of consumers.
The Role of the Trial Court
The ad tech case will be decided by District Court Judge Leonie Brinkema, not by a jury. The judge will build a factual record, and carefully weigh the arguments put forth by DOJ and rebutted by Google. It would be foolish to predict how the judge will evaluate the evidence and what decision she will ultimately reach.
Nevertheless, based on what we know at this time, Google has a strong case that DOJ has concocted a story based on alleged competitive harm that does not stand up well to close scrutiny.
In assessing this case, the court may also take note of market realities. Digital advertising output (measured by revenue) has expanded dramatically in recent years, reflecting its benefits to businesses and consumers. This shows a market that is working quite well.
DOJ is claiming that the market could be working even better. This is a manifestation of what distinguished economist Harold Demsetz called the “Nirvana fallacy,” that involves comparing actual working institutions with unrealistic, idealized alternatives. Perhaps the Judge will recognize that.
Where Do We Go From Here
The U.S. Government has a bad record of trying to “fix things” that are actually working well, and this problem is manifested particularly in recent aggressive federal antitrust prosecutions. The Google Ad Tech case is a prime example.
DOJ’s attack on Google, a highly innovative firm that (like its high tech counterparts) has poured billions of dollars into improving its offerings, comes at a time when the U.S. faces increased competition internationally from China. Suits of this sort will only undermine the U.S. private sector’s incentive to innovate aggressively, to the detriment of the American economy and American consumers.
In sum, one hopes that U.S. antitrust enforcers will take a step back and reassess the wisdom of pursuing the Google Ad Tech case, and similar big tech antitrust challenges.
