Google Seeks Dismissal of Ad Practices Suit

The company’s filing in New York federal court marks its first legal salvo since the Texas-led suit against Google was filed in late 2020. Texas has filed several amended complaints since then in a case that is slated to go to trial in 2023.

Google made a compelling case to have some of the claims dismissed, according to Herbert Hovenkamp, an antitrust law professor at the University of Pennsylvania, but he said it’s unlikely the judge will throw out the entire case.

Mr. Hovenkamp said Google did an effective job in Friday’s motion of showing that its product design changes benefited customers and that some of the allegations in the complaint focus on issues that occurred too long ago to be covered under antitrust law.

Other assertions may stand, he said, including Texas’s allegation that Google used its dominance in a market to impose terms on customers, a concept known as tying. Mr. Hovenkamp said a tie under U.S. law requires coercion, and in some cases such as discounts, that legal standard could apply, but where Google didn’t require that the buyer take two things together, those counts could be dismissed.

“If there are a lot of types of alleged agreements and they’re complex, the judge may say, ‘We should just go to discovery over this,’” Mr. Hovenkamp said.

In its motion, Google attacked Texas’ allegation that a deal with Meta Platforms Inc.’s FB -4.23% Facebook precluded the social network from working with other ad auctioneers, saying that “provisions explicitly preserve Facebook’s freedom to deal with Google’s competitors.”

Google included a copy of the Facebook contract in its motion to dismiss.

“Despite amassing a lengthy collection of grievances, each one comes down to a plea for Google to share its data or to design its products in ways that would help its rivals,” the company said in its motion. “The Sherman Act requires no such thing.”

In defending its business practices, Google representatives cast its ad-tech operation as a relatively small piece of the company’s overall business. At the same time, Google said the division is central to the company’s efforts to support a vibrant, ad-funded internet, which in turn aids the company’s larger search-advertising business. For the 2020 fiscal year, the company reported $104 billion in revenue from its own products such as Google Search and $23 billion in sales of ads from third-party publishers.

Texas Attorney General Ken Paxton said Google’s filing “attributes their monopoly status to pure success.” He added, “The company whose motto was once ‘Don’t Be Evil’ now asks the world to examine their egregious monopoly abuses and see no evil, hear no evil, and speak no evil.”

A Texas representative said the state plans to challenge the motion to dismiss. Judge P. Kevin Castel is expected to rule on the motion as soon as this summer, according to Google representatives.

In June, Facebook succeeded in winning dismissal of an antitrust case brought by the Federal Trade Commission. The agency later submitted a revised complaint that a federal judge allowed to proceed.

Texas’s complaint compared Google’s relationship with its ad business to an investment bank that also owned the New York Stock Exchange. Google’s rebuttal focused on legal concepts, emphasizing the state’s failure to demonstrate a violation of the Sherman Act, the 1890 law which prohibits restraints of trade and attempted monopolization.

Google led with the argument that because Texas has dropped its federal claim for damages and is now only asking for an injunction to stop the practices outlined in the complaint, antitrust law requires that behavior under consideration can only stretch back four years from the date the case was filed—in this case, 2020.

Many of the allegations in the Texas complaint concern business practices that go back a decade or more, have been abandoned or, in the case of Google’s forthcoming “Privacy Sandbox,” not yet been implemented, making them unable to be addressed by an injunction, Google argued.

The company also rejected Texas’s argument that the relationship between its ad server, the tool online publishers use to sell ad space, and advertising exchange, an instantaneous auction between ad buyers and sellers, amounts to illegal tying because customers had the option to use either one without the other.

While Google broadly argued in Friday’s motion that it faces competition at each link in the chain of tools connecting online publishers to advertisers, it didn’t address the market share claims in Texas’s complaint.

For example, Texas alleged that Google’s ad server controls 90% of the market for major publisher ad servers, and in fact quotes a Google employee email from 2015 saying “Right now we are the de facto, preferred ad server choice for 90% of publishers.” Google said Friday that some publishers used Google, while others built their own ad servers, and it named two other ad servers that competed with Google: Xandr and Sizmek.

Sizmek, which makes an ad server primarily for ad agencies, not publishers, filed for chapter 11 bankruptcy protection and was purchased by Amazon.com Inc. in 2019. AT&T Inc. sold Xandr to Microsoft Corp. in December.

Google denied Texas’s allegations that its ad-trading strategies were anticompetitive, including Project Bernanke, a program that allegedly manipulated auctions so that Google could win more often. The company agreed with one of Texas’s arguments that its tools used what a Google employee referred to as “insider information” to help bids coming through its tools win auctions, but disputed that the practice was illegal.

“The antitrust laws do not require Google to share its competitive advantages with rivals,” Google said in the filing Friday.

Write to Tripp Mickle at [email protected] and Keach Hagey at [email protected]