Justice Department sues Google over digital advertising dominance

The Justice Department and eight states filed an antitrust suit against Google on Tuesday, seeking to shatter its alleged monopoly on the entire ecosystem of online advertising as a hurtful burden to advertisers, consumers and even the U.S. government.

The government alleged in the complaint that Google is looking to “neutralize or eliminate” rivals in the online ad marketplace through acquisitions and to force advertisers to use its products by making it difficult to use competitors’ offerings. It’s part of a new, if slow and halting, push by the U.S. to rein in big tech companies that have enjoyed largely unbridled growth in the past decade and a half.

“Monopolies threaten the free and fair markets upon which our economy is based. They stifle innovation, they hurt producers and workers, and they increase costs for consumers,” Attorney General Merrick Garland said at a news conference Tuesday.

For 15 years, Garland said, Google has “pursued a course of anti-competitive conduct” that has stalled the rise of rival technologies and manipulated the mechanics of online ad auctions to force advertisers and publishers to use its tools. In so doing, he added, Google “engaged in exclusionary conduct” that has “severely weakened,” if not destroyed, competition in the ad tech industry.

The suit, the latest legal action brought by the government against Google, accuses the company of unlawfully monopolizing the way ads are served online by excluding competitors. Google’s ad manager lets large publishers who have significant direct sales manage their advertisements. The ad exchange, meanwhile, is a real-time marketplace to buy and sell online display ads.

Garland said Google controls the technology used by most major website publishers to offer advertising space for sale, as well as the largest ad exchange that matches publishers and advertisers together when ad space is sold. The result, he added, is that “website creators earn less and advertisers pay more.”

The lawsuit, filed in federal court in Alexandria, Virginia, demands that Google divest itself of the businesses of buyer, seller and auctioneer of digital display advertising, remaining with search—its core business—and other products and services including YouTube, Gmail and cloud services.

Digital ads currently account for about 80% of Google’s revenue and by and large support its less lucrative endeavors. But the company, along with Facebook’s parent company, Meta, has seen its market share decline in recent years as smaller rivals grab bigger portions of the online advertising market. Beyond that, the overall online ads environment market is cooling off as advertisers clamp down on spending and brace for a potential recession.

Alphabet Inc., Google’s parent company, said in a statement that the suit “doubles down on a flawed argument that would slow innovation, raise advertising fees, and make it harder for thousands of small businesses and publishers to grow.”

Tuesday’s lawsuit comes as the U.S. government is increasingly looking to rein in Big Tech’s dominance, although such legal action can take years to complete and Congress has not passed any recent legislation seeking to curb the influence of the tech industry’s largest players.

The European Union has been more active. It launched an antitrust investigation into Google’s digital ad dominance in 2021. British and European regulators are also looking into whether an agreement for online display advertising services between Google and Meta breached rules on fair competition.

An internet services trade group that includes Google as a member described the lawsuit and its “radical structural remedies” as unjustified.

Matt Schruers, president of the Computer & Communications Industry Association, said competition for advertising is fierce and the “governments’ contention that digital ads aren’t in competition with print, broadcast, and outdoor advertising defies reason.”

Dina Srinivasan, a Yale University fellow and adtech expert, said the lawsuit is “huge” because it aligns the entire nation—state and federal governments—in a bipartisan legal offensive against Google.

The current online ad market, Srinivasan said, “is broken and totally inefficient.” The fact that intermediaries are getting 30% to 50% of the take on each ad trade is “an insane inefficiency to have baked into the U.S. economy.” She called it “a massive tax on the free internet and consumers at large. It directly affects the viability of a free press” as well.

As with many highly complex technical markets, it has taken time for federal and state regulators and policymakers to catch up with and understand the online ad market. Srinivasan noted that it took a decade before they woke up to the perils of high-speed trading in financial markets and began adopting measures to discourage it.

Google held nearly 29% of the U.S. digital advertising market—it includes all the ads people see on computers. phones, tablets and other internet-connected devices—in 2022, according to research firm Insider Intelligence. Facebook parent company Meta is second, commanding nearly 20% of the market. Amazon is a distant, but growing, third at more than 11%.

Insider is estimating that both Google and Meta’s share of the ad market will decline, while rivals such as Amazon and TikTok are expected to see gains.

This is the latest legal action taken against Google by either the Justice Department or local state governments. In October 2020, for instance, the Trump administration and 11 state attorneys general sued Google for violating antitrust laws, alleging anticompetitive practices in the search and search advertising markets.

Asked why the Justice Department would bring the suit when a similar complaint has already been filed by states, Assistant Attorney General Jonathan Kanter, the department’s top antitrust official, said, “We conducted our own investigation, and that investigation occurred over many years.”

Tuesday’s lawsuit in essence aligns the Biden administration and new states with the 35 states and District of Colombia that sued Google in December 2020 over the exact same issues.

The states taking part in the suit include California, Virginia, Connecticut, Colorado, New Jersey, New York, Rhode Island and Tennessee.