(B)Ad Bedfellows

Fifteen states brought a lawsuit against Google, accusing the search giant of "anti-competitive conduct" in the online advertising industry, including a deal to manipulate sales with rival Facebook. Texas Attorney General Ken Paxton announced the suit, which was filed in a federal court in Texas, saying Google is using its "monopolistic power" to control pricing of online advertisements, fixing the market in its favor and eliminating competition. "This Goliath of a company is using its power to manipulate the market, destroy competition, and harm you, the consumer," Paxton said in the video posted on Twitter.

Google, which is based in Mountain View, California, called Paxton's claims "meritless" and said the price of online advertising has fallen over the last decade. "These are the hallmarks of a highly competitive industry," the company said in statement. "We will strongly defend ourselves from [Paxton's] baseless claims in court."

Paxton led a bipartisan coalition of 50 U.S. states and territories that announced in September 2019 they were investigating Google's business practices, citing "potential monopolistic behavior." The complaint targets the heart of Google's business - the digital ads that generate nearly all of its revenue, as well as all the money that its corporate parent, Alphabet Inc., depends upon to help finance a range of far-flung technology projects. As more marketers have increased their spending online, those digital ads have turned Google into a moneymaking machine. Through the first nine months of this year, Google's ad sales totaled nearly $101 billion, accounting for 86% of its total revenue.

And now the states contend Google intends to use its alleged stranglehold on digital ads to choke off other avenues of potential competition and innovation. The company struck an illegal deal with Facebook, a major competitor for ads, to manipulate advertising auction, according to the complaint. Facebook declined to comment. "Google has an appetite for total dominance, and its latest ambition is to transform the free and open architecture of the internet," the suit alleges.

In the "ad tech" marketplace that brings together Google and a huge universe of online advertisers and publishers, the company controls access to the advertisers that put ads on its dominant search platform. Google also runs the auction process for advertisers to get ads onto a publisher's site. Nine of Google's products in search, video, mobile, email, mapping, and other areas are estimated to have over a billion users each, providing the company a trove of users' data that it can deploy in the advertising process. Google officials say the company shares the majority of its "ad tech" revenue with publishers, such as newspaper websites. An official recently rejected even the assertion that Google is dominant, saying that market dominance suggests abuse, which is foreign to the company.

The state's suit comes after the U.S. Justice Department sued Google in October for abusing its dominance in online search and advertising - the government's most significant attempt to buttress competition since its historic case against Microsoft two decades ago. Separately, the FBI is investigating whether Paxton, a close ally of President Donald Trump, broke the law in using his office to help a wealthy donor who is also under federal investigation. This fall, eight of the attorney general's top deputies accused him of bribery, abuse of office and other crimes in the service of an Austin real estate developer who employs a woman with whom Paxton is said to have had an extramarital affair. All eight of Paxton's accusers have since been fired or resigned, including the deputy attorney general who had been leading the office's probe of Google. The court complaint list attorneys with private firms in Houston, Chicago, and Washington, D.C., as the lead lawyers on the case. Paxton announced the lawsuit the week after the U.S. Supreme Court rejected his legal push to overturn Joe Biden's victory in the presidential election, a case that prompted widespread speculation that the attorney general is angling for a preemptive pardon from Trump.

The American Economic Liberties Project, an organization that advocates for government action against business concentration, welcomed the the states' suit. Newly unredacted documents from a state-led antitrust lawsuit against Google accuse the search giant of colluding with rival Facebook to manipulate online advertising sales. The CEOs of both companies were aware of the deal and signed off on it, the lawsuit alleges. The original redacted lawsuit, filed in December 2020, accused Google of "anti-competitive conduct" and of teaming up with the social networking giant. But the unredacted version offers details on the involvement of Alphabet CEO Sundar Pichai and Facebook CEO Mark Zuckerberg in approving the deal. Facebook has since renamed itself Meta. According to the lawsuit, Facebook's chief operating officer, Sheryl Sandberg, was "explicit that 'this is a big deal strategically'" in a 2018 email thread about the deal that included Facebook's CEO. While the names of the Facebook executives are still redacted in the suit, their titles are visible.

When the two sides hammered out the terms of the agreement, "the team sent an email addressed directly to CEO" Zuckerberg, the lawsuit states. "We're nearly ready to sign and need your approval to move forward," the email read, according to the complaint. Zuckerberg wanted to meet with Sandberg and his other executives before making a decision, the complaint states. In a statement, Google spokesperson Peter Schottenfels said the lawsuit is "full of inaccuracies and lacks legal merit." In September 2018, the complaint says, the two companies signed the agreement. Sandberg, who was once the head of Google's ad business, and Pichai personally signed off on the deal, per the states' complaint. Meta spokesperson Chris Sgro said Friday that the company's ad bidding agreement with Google and similar agreements it has with other bidding platforms "have helped to increase competition for ad placements." "These business relationships enable Meta to deliver more value to advertisers while fairly compensating publishers, resulting in better outcomes for all," Sgro said.

Internally, Google used the code phrase "Jedi Blue" to refer to the 2018 agreement, according to the lawsuit. Google kept this code phrase secret. Google's Schottenfels said the lawsuit's allegation that Pichai approved the deal with Facebook "isn't accurate." "We sign hundreds of agreements every year that don't require CEO approval, and this was no different," he said, adding that the agreement "was never a secret."

The lawsuit is led by Texas Attorney General Ken Paxton and was joined by the attorneys general of Alaska, Arkansas, Florida, Idaho, Indiana, Kentucky, Louisiana, Mississippi, Missouri, Montana, Nevada, North Dakota, Puerto Rico, South Carolina, South Dakota, and Utah.