For the second time in a year, Google (GOOG, GOOGL) is going to trial against the US Justice Department to defend its lucrative businesses.
Starting Monday, prosecutors and lawyers for Google are scheduled to give opening arguments in federal district court in Alexandria, Va., in the case that claims Google illegally maintained its dominance in three markets within the ecosystem that automates online advertising.
The case, to be decided by US District Court Judge Leonie Brinkema, a Clinton appointee, was brought in January 2023 by the Biden administration’s Justice Department, along with 17 state attorneys general.
“The stakes for both sides are very high,” New York University Law School professor Eleanor Fox said.
The trial comes just a month after Google suffered a defeat in a high-stakes federal antitrust case brought by the DOJ during former President Donald Trump’s administration. In that case, US District of Columbia District Court Judge Amit Mehta ruled that Google illegally monopolized the general online search engine market and the market for search engine text advertising.
Google has said it will appeal that decision.
In the ad tech case, the government claimed Google also deployed illegal methods to monopolize markets for publishing ad servers, ad exchanges, and advertiser ad networks. Together, these markets make it possible for advertisers to buy and publishers to sell digital ads online.
At the heart of the government’s case are allegations that Google foreclosed on competitors by capitalizing on its well-known search engine to enter the online advertising market and then bought up competitors within the space.
First in 2000, they said, Google launched Google Ads, previously named AdWords, a platform that allows advertisers to buy ad space on Google’s own web pages, including those that that display internet search results. Later that year, Google created another tool for advertisers to buy ad space on third-party websites.
Prosecutors say Google next devised a “moat” around the entire ad tech industry by developing a separate ad server for publishers. Once it had control over both sides of the industry, they alleged, Google positioned itself to extract profits as a middleman.
When Google’s own ad platforms failed to gain traction, the DOJ said, it turned to buying up rivals.
In 2008, Google acquired the leading publisher ad server, DoubleClick, for $3 billion, as well as an ad exchange auction platform, AdX.
According to the DOJ, Google then blocked publishers who did not use both its publisher-side platform, DoubleClick for Publishers, and its ad exchange from accessing real-time ad demand exclusive to Google Ads.
“In effect, Google positioned itself to function simultaneously as buyer, seller, and auctioneer of digital display advertising,” the complaint said.
Cornell Law School antitrust professor Erik Hovenkamp said the allegations in the complaint are serious and compelling without obvious justifications that might excuse the alleged misconduct.
“As for advertisers and publishers, they are the primary victims of Google’s alleged misconduct,” Hovenkamp said.
Google did not respond to Yahoo Finance’s request for comment. In its response to the lawsuit, it criticized the DOJ and states for using antitrust law to try to derail acquisitions that federal regulators already approved.
“Advertisers and publishers choose Google’s ad tech products because of their quality and Google’s commitment to constant innovation and improvement, not because they have no other choices or are forced to do so,” Google’s court filing states.
Absent Google’s anticompetitive behavior, prosecutors say website owners would earn more from hosting ads and advertisers would pay less to secure advertising space.
Those financial pressures, they said, cause website owners to turn to subscriptions, paywalls, or alternative forms of monetization.
It’s unclear how much of Google’s revenue is at risk in the case.
Wedbush analyst Dan Ives said in a note on Thursday that Google’s collection of ad tech products generated $20 billion of gross revenue and just over $1 billion of operating profit in 2020. The figure accounted for 11% of Alphabet’s consolidated gross revenue that year. Ives estimated that the technologies likely now generate roughly 8% of Google’s gross revenue.
At the time of the complaint, the DOJ said digital display ads generated more than $20 billion in revenue for US-based publishers. Roughly 5 trillion digital display ads are sold by publishers each year. And for each dollar that flows from advertisers to website publishers through its ad tech tools Google retains 30% or more.
Hovenkamp disagrees with speculation that the DOJ’s recent victory over Google will help the government in its ad tech case, anticipating that it will have little influence over the decision.
“If you compare the upcoming Google case to the previous one, both the practices and the markets are different. There is no overlap,” he said.
However, Fox points out that the DOJ will be able to use many parts of Judge Mehta’s opinion to support claims of Google’s market power and alleged misuse. At the same time, she said, she expects Google to leave no stone unturned to try and show that ad tech markets are competitive and still growing.
“I believe that the DOJ has a strong case for Google’s monopoly power,” she said, adding that she views as particularly strong the government’s claims that Google abused its power in the market for advertising exchanges.
If Google is found liable for violating antitrust law, the DOJ has proposed that the company be required to divest businesses within its suite of ad tech products.
Alexis Keenan is a legal reporter for Yahoo Finance. Follow Alexis on X @alexiskweed
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