State Google Antitrust Suit Widens

One of the Google antitrust suits expands to encompass a recently announced “privacy” measure the tech giant will institute on Chrome.

Texas Attorney General Ken Paxton (R) announced additional states and territories have joined the antitrust suit he is leading against Google. He also filed a revised and expanded complaint that brings additional claims against Google, some of which relate to an announcement the company made earlier this month about no longer allowing third-party cookies on its dominant browser Chrome. Of course, there is another state antitrust action and the United States (U.S.) government is also suing Google on some of the same grounds.

Collectively, the three suits allege Google has violated U.S. antitrust laws (the Sherman and Clayton Antitrust Acts) in the online search and advertising markets, claiming that the tech giant controls an unfair portion of those markets and has used illegal means in some cases to achieve this dominance. The suits reflect the sea change in Washington and state capitals since 2013 when the Federal Trade Commission (FTC) declined to pursue an antitrust action on much the same grounds.

In his press statement, Paxton stated Alaska, Florida, Montana, Nevada, and Puerto Rico joined the suit and summarized the revised complaint:

Like the original Complaint filed in December 2020, the Amended Complaint that was filed yesterday alleges multiple violations of federal and state antitrust and consumer protection laws, including anticompetitive conduct, exclusionary practices, and deceptive misrepresentation in connection with Google’s role in the multi-trillion-dollar online display advertising industry. Google’s monopolization includes an anticompetitive agreement with Facebook, making misrepresentations to users and customers, and suppressing competition. Google demonstrably diminished publishers’ ability to monetize content, increased advertisers’ costs, and directly harmed consumers.

A significant portion of the revisions are on account of a recent change Google announced in how its browser Chrome will handle third-party cookies and tracking. In short, the company will follow the lead of Apple’s Safari, Mozilla’s Firefox, and Brave in implementing measures to stop the practice of data brokers, advertisers, and many other entities from tracking people across the web. In an early March 2021 blog posting, Google asserted:

That’s why last year Chrome announced its intent to remove support for third-party cookies, and why we’ve been working with the broader industry on the Privacy Sandbox to build innovations that protect anonymity while still delivering results for advertisers and publishers. Even so, we continue to get questions about whether Google will join others in the ad tech industry who plan to replace third-party cookies with alternative user-level identifiers. Today, we’re making explicit that once third-party cookies are phased out, we will not build alternate identifiers to track individuals as they browse across the web, nor will we use them in our products.

However, this move has been decried by privacy advocates and other experts as hollow, for Google will still continue to vacuum up user information through Chrome, and third-party data was a small part of the huge trove of personal data the company uses for its advertising business. Additionally, the proposed replacement scheme, FLoC, has also come under criticism for it would group people of similar characteristics into broad groups, which opens the door critics allege for differential treatment and possibly even discrimination. Google explained in January 2021:

Privacy Sandbox technology for interest-based advertising (FLoC) was first proposed last year, we started with the idea that groups of people with common interests could replace individual identifiers.

It is largely this Privacy Sandbox that Paxton and his colleagues focus on in the amended complaint. In short, they argue Google is dressing up a move to cut competition in the advertising market in the clothes of protecting user privacy. In reality, they claim this will harm online ad buying exchanges and essentially force advertisers from smaller websites like newspapers to Google because the former will no longer be able to use third-party tracking on Google’s Chrome to harvest information to target ads. Moreover, advertisers buying from Google will benefit from the cookie Google Search, YouTube, and Gmail use, which differs from the cookies Chrome will soon be blocking.

Specifically, the attorneys general claimed:

• As regulatory scrutiny around Google and other Big Tech firms increased globally, Google transitioned from Project [REDACTED] to “Privacy Sandbox.” Regulators around the world were increasingly concerned about the extent to which firms like Google tracked consumers. Of any company on the internet, Google was number one in the world when it came to tracking users online through cookies. The leader in cookie-based tracking needed a way to deflect any potential regulation of its business. To address these concerns, Google would take a new approach to building a walled garden out of the open web and ground that approach in privacy language.
• Google’s new scheme is, in essence, to wall off the entire portion of the internet that consumers access through Google’s Chrome browser. By the end of 2022, Google plans to modify Chrome to block publishers and advertisers from using the type of cookies they rely on to track users and target ads. Then, Google, through Chrome, will offer publishers and advertisers new and alternative tracking mechanisms outlined in a set of proposals that Google has dubbed Privacy Sandbox. Overall, the changes are anticompetitive because they raise barriers to entry and exclude competition in the exchange and ad buying tool markets, which will further expand the already- dominant market power of Google’s advertising businesses.
• Google’s new scheme is anticompetitive because it coerces advertisers to shift spend from smaller media properties like The Dallas Morning News to large dominant properties like Google’s. Chrome is set to disable the primary cookie-tracking technology almost all non-Google publishers currently use to track users and target ads. A small advertiser like a local car dealership will no longer be able to use cookies to advertise across The Dallas Morning News and The Austin Chronicle. But the same advertiser will be able to continue tracking and targeting ads across Google Search, YouTube, and Gmail—amongst the largest sites in the world—because Google relies on a different type of cookie (which Chrome will not block) and alternative tracking technologies to offer such cross-site tracking to advertisers. By blocking the type of cookies publishers like The Dallas Morning News currently use to sell ads, but not blocking the other technologies that Google relies on for cross-site tracking, Google’s plan will pressure advertisers to shift to Google money otherwise spent on smaller publishers.
• Google’s new scheme is also anticompetitive because it forecloses competition in the exchange and ad buying tool markets while simultaneously providing Google with a workaround. Non-Google ad buying tools rely primarily on the type of cookies that Chrome is set to block in order to track users and target them with ads. Google’s ad buying tools, however, partially circumvent reliance on the same type of cookies because Google grants them exclusive access to user data from Chrome and Google’s Android mobile operating system. As a result of these impending changes, some advertisers are already in the process of preparing to shift their spend from competing ad buying tools to Google’s. In addition to increasing its already dominant market positions on the buy-side, because Google’s ad buying tools favor Google’s exchange, the upcoming changes will further entrench Google’s exchange monopoly.
• Google’s new scheme limits competitors’ ability to compete with Google and the massive amount of user data that it has accumulated. For over ten years, Google has been the single largest tracker of online users using the very type of cookies that Google will now block. Google has already amassed massive quantities of user data and associated them with individual profiles. Moving forward, Google is also uniquely positioned to continue collecting vast troves of data on individual users: Google will continue individually tracking users on their major properties (e.g., Google Search, Google Maps, YouTube) and through various workarounds (e.g., via Chrome and Android).

In December, Paxton and nine other attorneys general[1] filed their antitrust action in the Eastern District of Texas and dropped a bomb: they allege Google and Facebook conspired to monopolize the online advertising market after publishers have devised a system to blunt Google’s dominance. However, Paxton and his colleagues argue that Google’s illegal actions have essentially taxed Americans through higher prices and lower quality products and services because companies are forced to pay a premium to Google to advertise online.

Paxton and the attorneys general summarized their suit and the relief they think appropriate in light of Google’s conduct:

As a result of Google’s anticompetitive conduct, including its unlawful agreement with Facebook, Google has violated and continues to violate Sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1, 2. Plaintiff States bring this action to remove the veil of Google’s secret practices and end Google’s abuse of its monopoly power in online advertising markets. Plaintiff States seek to restore free and fair competition to these markets and to secure structural, behavioral, and monetary relief to prevent Google from ever again engaging in deceptive trade practices and abusing its monopoly power to foreclose competition and harm consumers.

They summed up the harm they think Google has wrought:

Plaintiff States have sustained antitrust injury as a direct and proximate cause of Google’s unlawful conduct, in at least the following ways: (1) substantially foreclosing competition in the market for publisher ad servers, and using market power in the publisher ad server market to harm competition in the exchange market; (2) substantially foreclosing competition in the exchange market by denying rivals’ access to publisher inventory and to advertiser demand; (3) substantially foreclosing competition in the market for demand-side buying tools by creating information asymmetry and unfair auctions by virtue of Google’s market dominance in the publisher ad serving tools and exchange markets; (4) increasing barriers to entry and competition in publisher ad server, exchange, and demand-side buying tools markets; (5) harming innovation, which would otherwise benefit publishers, advertisers and competitors; (6) harming publishers’ ability to effectively monetize their content, reducing publishers’ revenues, and thereby reducing output and harming consumers; (7) reducing advertiser demand and participation in the market by maintaining opacity on margins and selling process, harming rival exchanges and buying tools; (8) increasing advertisers’ costs to advertise and reducing the effectiveness of their advertising, and thereby harming businesses’ return on the investment in delivering their products and services, reducing output, and harming consumers; (9) protecting Google’s products from competitive pressures, thereby allowing it to continue to extract high margins while shielded from significant pressure to innovate.

In December a different group of attorneys general also filed an antitrust suit against Google. Colorado Attorney General Phil Weiser and 38 other state attorneys general[2] filed their antitrust suit in the District Court of the District of Columbia “under Section 2 of the Sherman Act, 15 U.S.C. § 2, to restrain Google from unlawfully restraining trade and maintaining monopolies in markets that include general search services, general search text advertising, and general search advertising in the United States, and to remedy the effects of this conduct.” They are asking the court for a range of relief, including but not limited to permanent injunctions to stop ongoing and future anti-competitive conduct and a ;possible breakup of the company.

Weiser and his counterparts framed their argument this way:

Google, one of the largest companies in the world, has methodically undertaken actions to entrench and reinforce its general search services and search-related advertising monopolies by stifling competition. As the gateway to the internet, Google has systematically degraded the ability of other companies to access consumers. In doing so, just as Microsoft improperly maintained its monopoly through conduct directed at Netscape, Google has improperly maintained and extended its search-related monopolies through exclusionary conduct that has harmed consumers, advertisers, and the competitive process itself. Google, moreover, cannot establish business justifications or procompetitive benefits sufficient to justify its exclusionary conduct in any relevant market.

They summed up their legal argument of three forms of anticompetitive conduct of Google:

• First, Google uses its massive financial resources to limit the number of consumers who use a Google competitor. For example, according to public estimates Google pays Apple between $8 and $12 billion per year to ensure that Google is enthroned as the default search engine on Apple devices, and it limits general search competition on Android devices with a web of restrictive contracts. Google pursues similar strategies with other devices, such as voice assistants and internet-connected cars.
• Second, Google’s Search Ads 360 (“SA360”) service, a search advertising marketing tool used by many of the world’s most sophisticated advertisers, has long pledged to offer advertisers a “neutral” means for purchasing and comparing the performance of not only Google’s search advertising, but also that of its closest competitors. But, in reality, Google operates SA360—the single largest such tool used by advertisers—to severely limit the tool’s interoperability with a competitor, thereby disadvantaging SA360 advertisers.
• Third, Google throttles consumers from bypassing its general search engine and going directly to their chosen destination, especially when those destinations threaten Google’s monopoly power. Google acknowledges its [REDACTED] because of the proliferation of services offered by specialized vertical providers. Specialized vertical providers, like an online travel agency who offer consumers the ability to complete a transaction then and there, do not compete in Google’s search-related markets. Nevertheless, they pose a threat to Google’s monopoly power in those markets because their success would both strengthen general search rivals with whom they partner and lower the artificially high barriers to expansion and entry that protect Google’s monopolies.

In summary, Weiser and his colleagues argued:

• Google has willfully maintained, abused, and extended its monopoly power in general search services through (a) anticompetitive and exclusionary distribution agreements that lock up the present default positions for search access points on browsers, mobile devices, computers, and other devices as well as emerging device technology; require preinstallation and prominent placement of Google’s apps; and tie Google’s search access points to Google Play and Google APIs; (b) operation of SA360 to limit the tool’s interoperability with a competitor, disadvantaging SA360 advertisers; (c) discriminatory treatment towards specialized vertical providers in certain commercial segments that hinders consumers’ ability to find responsive information; and (d) other restrictions that drive queries to Google at the expense of search rivals.
• Google has willfully maintained, abused, and extended its monopoly power in general search advertising through (a) anticompetitive and exclusionary distribution agreements that lock up the present default positions for search access points on browsers, mobile devices, computers, and other devices as well as emerging device technology; require preinstallation and prominent placement of Google’s apps; and tie Google’s search access points to Google Play and Google APIs; (b) operation of SA360 to limit the tool’s interoperability with a competitor, disadvantaging SA360 advertisers; (c) discriminatory treatment towards specialized vertical providers in certain commercial segments that hinders consumers’ ability to find responsive information; and (d) other restrictions that drive queries to Google at the expense of search rivals.
• Google has willfully maintained, abused, and extended its monopoly power in general search text advertising through (a) anticompetitive and exclusionary distribution agreements that lock up the present default positions for search access points on browsers, mobile devices, computers, and other devices as well as emerging device technology; require preinstallation and prominent placement of Google’s apps; and tie Google’s search access points to Google Play and Google APIs; (b) operation of SA360 to limit the tool’s interoperability with a competitor, disadvantaging SA360 advertisers; (c) discriminatory treatment towards specialized vertical providers in certain commercial segments that hinders consumers’ ability to find responsive information; and (d) other restrictions that drive queries to Google at the expense of search rivals.

In October 2020, the U.S. Department of Justice (DOJ) and a number of states filed the antitrust suit against Google that action centers on Google’s practices of making Google the default search engine on Android devices and paying browsers and other technology entities to make Google the default search engine. However, a number of states that had initially joined the joint state investigation of Google have opted not to join this action and will instead be continuing to investigate, signaling a much broader case than the one filed in the United States District Court for the District of Columbia. Additionally, through the legion leaks from the DOJ and state attorneys general offices about the pressure former U.S. Attorney General William Barr placed on staff and attorneys to bring a case before the 2020 election, there is criticism that rushing the case may result in a weaker, less comprehensive action that Google may ultimately fend off.

In its press release, DOJ claimed

Today, the Department of Justice — along with eleven state Attorneys General — filed a civil antitrust lawsuit in the U.S. District Court for the District of Columbia to stop Google from unlawfully maintaining monopolies through anticompetitive and exclusionary practices in the search and search advertising markets and to remedy the competitive harms. The participating state Attorneys General offices represent Arkansas, Florida, Georgia, Indiana, Kentucky, Louisiana, Mississippi, Missouri, Montana, South Carolina, and Texas.

The DOJ added

As one of the wealthiest companies on the planet with a market value of $1 trillion, Google is the monopoly gatekeeper to the internet for billions of users and countless advertisers worldwide. For years, Google has accounted for almost 90 percent of all search queries in the United States and has used anticompetitive tactics to maintain and extend its monopolies in search and search advertising.  

The DOJ claimed:

As alleged in the Complaint, Google has entered into a series of exclusionary agreements that collectively lock up the primary avenues through which users access search engines, and thus the internet, by requiring that Google be set as the preset default general search engine on billions of mobile devices and computers worldwide and, in many cases, prohibiting preinstallation of a competitor. In particular, the Complaint alleges that Google has unlawfully maintained monopolies in search and search advertising by:

• Entering into exclusivity agreements that forbid preinstallation of any competing search service.
• Entering into tying and other arrangements that force preinstallation of its search applications in prime locations on mobile devices and make them undeletable, regardless of consumer preference.
• Entering into long-term agreements with Apple that require Google to be the default – and de facto exclusive – general search engine on Apple’s popular Safari browser and other Apple search tools.
• Generally using monopoly profits to buy preferential treatment for its search engine on devices, web browsers, and other search access points, creating a continuous and self-reinforcing cycle of monopolization.

These and other anticompetitive practices harm competition and consumers, reducing the ability of innovative new companies to develop, compete, and discipline Google’s behavior. 

In the complaint the DOJ and attorneys general asserted:

• Google’s practices are anticompetitive under long-established antitrust law. Almost 20 years ago, the D.C. Circuit in United States v. Microsoft recognized that anticompetitive agreements by a high-tech monopolist shutting off effective distribution channels for rivals, such as by requiring preset default status (as Google does) and making software undeletable (as Google also does), were exclusionary and unlawful under Section 2 of the Sherman Act.
• Back then, Google claimed Microsoft’s practices were anticompetitive, and yet, now, Google deploys the same playbook to sustain its own monopolies. But Google did learn one thing from Microsoft—to choose its words carefully to avoid antitrust scrutiny. Referring to a notorious line from the Microsoft case, Google’s Chief Economist wrote: “We should be careful about what we say in both public and private. ‘Cutting off the air supply’ and similar phrases should be avoided.” Moreover, as has been publicly reported, Google’s employees received specific instructions on what language to use (and not use) in emails because “Words matter. Especially in antitrust law.” In particular, Google employees were instructed to avoid using terms such as “bundle,” “tie,” “crush,” “kill,” “hurt,” or “block” competition, and to avoid observing that Google has “market power” in any market.
• Google has refused to diverge from its anticompetitive path. Earlier this year, while the United States was investigating Google’s anticompetitive conduct, Google entered into agreements with distributors that are even more exclusionary than the agreements they replaced. Also, Google has turned its sights to emerging search access points, such as voice assistants, ensuring that they too are covered by the same anticompetitive scheme. And Google is now positioning itself to dominate search access points on the next generation of search platforms: internet-enabled devices such as smart speakers, home appliances, and automobiles (so-called internet-of-things, or IoT, devices).
• Absent a court order, Google will continue executing its anticompetitive strategy, crippling the competitive process, reducing consumer choice, and stifling innovation. Google is now the unchallenged gateway to the internet for billions of users worldwide. As a consequence, countless advertisers must pay a toll to Google’s search advertising and general search text advertising monopolies; American consumers are forced to accept Google’s policies, privacy practices, and use of personal data; and new companies with innovative business models cannot emerge from Google’s long shadow. For the sake of American consumers, advertisers, and all companies now reliant on the internet economy, the time has come to stop Google’s anticompetitive conduct and restore competition.

The DOJ and state attorneys general asked the court to:

• Adjudge and decree that Google acted unlawfully to maintain general search services, search advertising, and general search text advertising monopolies in violation of Section 2 of the Sherman Act, 15 U.S.C. § 2;
• Enter structural relief as needed to cure any anticompetitive harm;
• Enjoin Google from continuing to engage in the anticompetitive practices described herein and from engaging in any other practices with the same purpose and effect as the challenged practices;
• Enter any other preliminary or permanent relief necessary and appropriate to restore competitive conditions in the markets affected by Google’s unlawful conduct;
• Enter any additional relief the Court finds just and proper; and
• Award each Plaintiff an amount equal to its costs incurred in bringing this action on behalf of its citizens.

Moreover, it bears note that the DOJ and state attorneys general are following in the footsteps of the European Union’s (EU) €4.34 billion fine of Google in 2018 for imposing “illegal restrictions on Android device manufacturers and mobile network operators to cement its dominant position in general internet search.” The European Commission (EC or Commission) claimed the offending behavior included:

• has required manufacturers to pre-install the Google Search app and browser app (Chrome), as a condition for licensing Google’s app store (the Play Store);
• made payments to certain large manufacturers and mobile network operators on condition that they exclusively pre-installed the Google Search app on their devices; and
• has prevented manufacturers wishing to pre-install Google apps from selling even a single smart mobile device running on alternative versions of Android that were not approved by Google (so-called “Android forks”).

The EC said its “decision concludes that Google is dominant in the markets for general internet search services, licensable smart mobile operating systems and app stores for the Android mobile operating system.”

The EC found:

General search services

Google is dominant in the national markets for general internet search throughout the European Economic Area (EEA), i.e. in all 31 EEA Member States. Google has shares of more than 90% in most EEA Member States. There are high barriers to enter these markets. This has also been concluded in the Google Shopping decision of June 2017.

Smart mobile operating systems available for licence

Android is a licensable smart mobile operating system. This means that third party manufacturers of smart mobile devices can license and run Android on their devices.

Through its control over Android, Google is dominant in the worldwide market (excluding China) for licensable smart mobile operating systems, with a market share of more than 95%. There are high barriers to entry in part due to network effects: the more users use a smart mobile operating system, the more developers write apps for that system – which in turn attracts more users. Furthermore, significant resources are required to develop a successful licensable smart mobile operating system.

As a licensable operating system, Android is different from operating systems exclusively used by vertically integrated developers (like Apple iOS or Blackberry). Those are not part of the same market because they are not available for licence by third party device manufacturers.

Nevertheless, the Commission investigated to what extent competition for end users (downstream), in particular between Apple and Android devices, could indirectly constrain Google’s market power for the licensing of Android to device manufacturers (upstream). The Commission found that this competition does not sufficiently constrain Google upstream for a number of reasons, including:

• end user purchasing decisions are influenced by a variety of factors (such as hardware features or device brand), which are independent from the mobile operating system;
• Apple devices are typically priced higher than Android devices and may therefore not be accessible to a large part of the Android device user base;
• Android device users face switching costs when switching to Apple devices, such as losing their apps, data and contacts, and having to learn how to use a new operating system; and
• even if end users were to switch from Android to Apple devices, this would have limited impact on Google’s core business. That’s because Google Search is set as the default search engine on Apple devices and Apple users are therefore likely to continue using Google Search for their queries.

App stores for the Android mobile operating system

Google is dominant in the worldwide market (excluding China) for app stores for the Android mobile operating system. Google’s app store, the Play Store, accounts for more than 90% of apps downloaded on Android devices. This market is also characterised by high barriers to entry. For similar reasons to those already listed above, Google’s app store dominance is not constrained by Apple’s App Store, which is only available on iOS devices.

The EC flagged three types of illegal behavior:

1) Illegal tying of Google’s search and browser apps

2) Illegal payments conditional on exclusive pre-installation of Google Search

3) Illegal obstruction of development and distribution of competing Android operating systems

The EC stated:

At a minimum, Google has to stop and to not re-engage in any of the three types of practices. The decision also requires Google to refrain from any measure that has the same or an equivalent object or effect as these practices.

The decision does not prevent Google from putting in place a reasonable, fair and objective system to ensure the correct functioning of Android devices using Google proprietary apps and services, without however affecting device manufacturers’ freedom to produce devices based on Android forks.

And, of course, this is only the latest anti-trust case Google has faced in the EU with the €2.42 billion fine in June 2017 “for abusing its dominance as a search engine by giving an illegal advantage to Google’s own comparison shopping service.”

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[1] These states sued Google: Texas, Arkansas  Idaho, Indiana, Mississippi,  Missouri,  North Dakota,  South Dakota, Utah, and the Commonwealth of Kentucky.

[2] The following states are parties to the suit: Colorado, Nebraska, Arizona, Iowa, New York, North Carolina, Tennessee, Utah, Alaska, Connecticut, Delaware, Hawaii, Idaho, Illinois, Kansas, Maine, Maryland, Minnesota, Nevada, New Hampshire, New Jersey, New Mexico, North Dakota, Ohio, Oklahoma, Oregon, Rhode Island, South Dakota, Vermont, Washington, West Virginia, and Wyoming; the Commonwealths of Massachusetts, Pennsylvania, Puerto Rico, and Virginia; the Territory of Guam; and the District of Columbia.