Google misled publishers and advertisers for years about the prices and operations of its ad auctions, and devised secret programs that slashed sales for some companies while raising prices for buyers, according to newly unredacted allegations and details in a lawsuit filed by the state’s attorney general.
Meanwhile, Google snatched the difference between what it told publishers and advertisers its advertising cost and used the pool of money to manipulate future auctions to expand its digital monopoly, the new, unrefined complaint alleges. The documents refer to internal correspondence in which Google employees have said that some of these practices amount to growing its business through “inside information.”
Friday’s unrevised filing in the US District Court for the Southern District of New York came after a federal judge ruled last week that an amended complaint filed last year can be opened.
The lawsuit was first filed in December 2020, with several sections of the complaint revised. Since then, the revisions have been stripped in a series of rulings, providing new details about the states’ argument that Google runs a monopoly that has hurt competitors and publishers in advertising.
Google is a unit of the alphabet company ,
She said she intends to file an application for her refusal next week. A spokesperson for the company said the lawsuit was “full of inaccurate information and lacking legal merit”. He added, “Our advertising technologies help websites and apps to fund their content, enabling small businesses to reach customers all over the world. There is strong competition in online advertising.”
The way ads are bought and sold on the Internet is a complex process in which Google plays a large role as participant and manager of auctions that determine sales. Google has the dominant tool at every link in the chain between online publishers and advertisers, which gives it a unique power to monetize digital content. It also has major platforms to reach consumers, such as YouTube. As a result, competitors complained that the tech giant had tilted the market in its favour, allowing it to win more bids and shut out the competition. The amended complaint and its unredacted details are intended to shed light on how this works in practice.
The lawsuit, led by Texas Attorney General Ken Paxton and joined by more than a dozen states, alleges that Google’s business practices inflate advertising costs, which brands pass on to consumers in expensive products. It also claims that Google is suppressing competition from rival exchanges and limiting websites’ options for displaying ads, relying on the company’s internal comparison of itself with a bank that also owns the New York Stock Exchange.
“Our amended complaint illustrates how Google manipulates the online bid auction to penalize publishers and blatant lies to them about how they conduct the auction,” said Mr. Paxton.
The lawsuit is complemented by a separate antitrust case by the US Department of Justice and more than 36 state attorneys general focused on Google’s search services. The cases are set for trial in 2023 or later.
Meanwhile, dozens of Republicans and Democrats in the Senate are pushing a bill that would treat Google as a railroad operator, making it illegal for it to take advantage of its products and services at the expense of other companies that rely on the platforms. Digital ad analysts say that if passed, it could force Google to split or sell the ad technology business formerly known as DoubleClick Inc.
In addition to detailing some Google programs, the new complaint says that Alphabet, Google CEO Sundar Pichai, and CEO of Meta Platforms Inc. Mark Zuckerberg signed a 2018 business agreement that allegedly guaranteed Facebook subsidiary Meta to bid at — and win — a fixed percentage of ad auctions. The signing of the agreement was previously reported by Google’s chief business officer, Philip Schindler, and Facebook’s chief operating officer, Sheryl Sandberg.
State attorneys argued that it was an illegal price-fixing agreement. The companies said it was on top of the board.
New, unrefined details provide more information about a series of Google-run programs called Project Bernanke, Reserve Price Optimization, and Dynamic Revenue Share. Bernanke’s program was previously reported, but the new, unrecognized complaint reveals that it had three versions between 2010 and 2019.
In the first version, Google misled publishers and advertisers into believing that they were participating in a “second price auction,” in which the winner pays the second highest bid, when using the ad exchange, AdX, allegedly from a complaint. However, under Google’s Bernanke program, AdX would sometimes lose the second highest bid, allowing the third highest bid to win, thus depriving the publisher of earnings, according to the complaint. At the same time, Google will charge advertisers the second highest bid price and charge the difference, the complaint said.
Google collected excess payments to advertisers and used the money to manipulate auctions on its systems, sometimes boosting bids from advertisers bidding through ad buying tools to ensure it won an auction that it otherwise wouldn’t.
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It affected billions of ad impressions sold each month and Google research found it cut publishers’ revenue by up to 40%, according to the complaint. “Bernanke is strong,” a Google employee said, according to the company’s internal communications in the complaint.
The second version of the program, called Global Bernanke, used a pool of money raised by Google to inflate only bids belonging to Google’s ad buying tool for small advertisers, originally known as AdWords and now called Google Ads, when those bids were in Its way to claim the complaint to lose auctions on the Google Exchange otherwise.
The complaint alleges that a third version of the program, called Bell, penalized publishers who did not give Google what the complaint calls “preferential access” to their ad inventory by redirecting the pool of money it raised to those who did. Publishers were only eligible to receive the money if they participated in Google’s programs like Dynamic Allocation, which gave Google’s AdX first pre-emption against rival exchanges in auctions, according to the complaint.
A Google spokesperson said Bernanke was implemented to “improve advertiser bids” and was among the improvements made to increase competition and make advertising more effective for businesses. He added that the program did not artificially raise prices and denied allegations that Google “manipulated” the ad exchange.
In the Backup Price Optimization program, Google used historical data about an advertiser’s past bids to set “bounds” or minimum prices for that advertiser that resulted in advertisers paying higher prices, the complaint alleges. In one of the company’s communications that hasn’t been readjusted recently, Google employees said the software should rely on “intelligence and technology” rather than “inside information.”
The new details also indicate that Google employees have been wary of the dynamics caused by another program, Dynamic Revenue Share, which changed the fees Google collected for ad exchanges to help Google’s tools win more auctions than they would otherwise have. The complaint alleged that Google did so only after it was able to see what all of its competitors were giving, due to its dominance of the publisher’s ad server market.
In the recently unedited complaint sections, a Google employee wrote that the software “makes the auction dishonest because we determine AdX revenue sharing after seeing buyers’ bids.”
A Google spokesperson said these programs do not tamper with auctions and are designed to help publishers increase ad sales.
write to Tripp Mickle at Tripp.Mickle@wsj.com and Keach Hagey at firstname.lastname@example.org
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