Bringing Down the Giants (or Not)

BRINGING DOWN THE GIANTS

(OR NOT)

A variety of congressional and legal actions are taking dead aim against Google and Facebook. And they could have major ramifications.

BY MARK J. PALCHICK

IF YOU’VE BEEN AROUND A TODDLER, YOU PROBABLY played the “how big” game. How big is baby? Is baby so big? Similar how-big questions are being asked about Google and Facebook these days, but with deadly seriousness. And the consequences could have a dramatic impact on the two giants’ market power.

The U.S. Congress, Federal Trade Commission (FTC), a plethora of state attorney generals and a large newspaper have concluded that both companies are too big. They contend that Google and Facebook became that way by acquiring or killing off competitors; creating barriers to entry; and through collusion – all in violation of antitrust laws. These allegations are particularly troubling when combined with the fear that Facebook and Google have become instrumental in forging and reinforcing political divisions in the

United States. (For more on that, watch the Netflix documentary “The Social Dilemma.”) The antitrust regulation of technology and media companies has ebbed and flowed over the years. At the previous zenith of regulation, AT&T was broken up; prohibitions were placed on common ownership of television stations with newspapers; and limits were placed on how many outlets a broadcast media company could control. In recent years all of these restrictions were substantially lessened. In fact, 2017 was a low point for media regulation. The pendulum has swung back from 2017 with a vengeance. ■ Last year the House of Representatives and the Senate released massive reports on the anticompetitive activities of Google and Facebook, as well as Amazon and Apple. ■ In late 2020 the FTC and several states filed antitrust suits against Facebook and Google. ■ In January 2021 HD Media sued Google and Facebook claiming that they monopolized the digital advertising marketplace and strangled a primary source of revenue for newspapers across the country. ■ On Feb. 4, 2021, the Competition and Antitrust Law Enforcement Reform Act of 2021 was introduced by Sen. Amy Klobuchar. Hearings on the proposed Senate bill are scheduled in the near future. What follows is a summary of the major antitrust claims.

2020 CONGRESSIONAL REPORTS The U.S. House Judiciary Committee’s Subcommittee on Antitrust, Commercial and Administrative Law concluded its antitrust investigation into the digital advertising market with a 470-page report last October. The Report, as it’s called, was preceded last September by a hearing about whether or not Google has harmed online advertising, which was held by the U.S. Senate Judiciary Committee’s Antitrust, Competition Policy and Consumer Rights Subcommittee.

Although The Report acknowledged that Google, Facebook, Amazon and Apple delivered clear benefits to society, it determined that their dominance came at a price. It also found that each platform now serves as a gatekeeper over a key

channel of distribution and, by controlling access to markets, these giants have picked winners and losers. The Report concluded that the companies diminished consumer choice; weakened the vibrancy of the free and diverse press; and undermined Americans’ privacy. It also determined that the rise of these organizations’ market power online has materially weakened innovation and entrepreneurship in the U.S. economy. Overall, The Report signals a significant shift. It focused on the barriers to entry created by these companies’ market dominance. Traditionally, congressional antitrust probes have determined whether a certain company’s dominance has caused, or will cause, consumers to pay more for goods and services.

ACTIONS AGAINST GOOGLE

Last October, the U.S. Department of Justice and several states sued Google. Two months later, on Dec. 16, 2020, the attorneys general (AGs) of Texas and nine other states filed a lawsuit against Google in federal court in Texas. A day later, the AGs of Colorado and 37 other states filed a separate lawsuit against Google in federal court in the District of Columbia.

All three suits allege that Google cornered the market in digital advertising and searches, and that it used this to strengthen its dominance as a search engine for desktop, mobile and personal digital assistants (like Alexa and Apple’s Siri). When its ability to control the market and favor its own advertising was threatened, Google conspired with Facebook to freeze out rival advertising platforms, according to the lawsuits. They also claim that Google’s dominance has created substantial market barriers that prevent competitors from successfully entering the market.

The suits contend that one of Google’s strengths is its ability to gather data on consumers and then market that information to other advertisers. At the same time, it competes for advertising dollars with the marketers that bought its data.

The relief sought against Google is similar to the relief sought against Facebook: make it smaller and prevent it from using its market power to dominate the market.

HD MEDIA’S SUIT

Much of the newspaper publishing industry’s woes result from the anti-competitive actions of Google and Facebook, either directly or indirectly. That’s according to HD Media, a publisher with several newspapers in West Virginia, which has filed suit against Google.

HD Media claims that Facebook and Google’s anticompetitive practices are a major reason why newspapers throughout the U.S. are in rapid financial decline. Both companies have monopolized the market for digital advertising to the detriment of newspapers, according to the suit. And in an interesting twist, the suit alleges Facebook and Google’s anticompetitive actions has restricted freedom of speech.

Newspapers can’t compete in the digital advertising arena with Google and Facebook because of their extremely powerful ad exchanges and a special agreement between them, the suit contends.

Approximately 86% of online display advertising space in the U.S. is bought and sold in real-time on electronic trading venues, known as advertising exchanges or ad exchanges. They are the trafficking systems that connect advertisers with publishers selling inventory. The exchanges also include analytic tools that measure ad campaign

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FACING OFF AGAINST FACEBOOK

Amassive lawsuit filed on dec. 20, 2020 takes dead aim at facebook. IT WAS

filed by the FTC and 46 states, as well as Washington, D.C., and Guam. The suit builds on the findings of The Report and further alleges that Facebook’s market power was obtained in violation of the antitrust laws.

Facebook’s acquisition of Instagram and WhatsApp were done primarily to thwart two rising competitors, the suit alleges. It also contends that when Facebook couldn’t purchase Vine, it froze the smaller competitor out from network connectivity. What’s more, Facebook conspired with Google to cut off the access of advertisers to digital ad platforms that competed with Google, according to the suit.

The lawsuit asks the court to break up Facebook, place increased scrutiny on any of its future acquisitions and free up access to the data it acquires.

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GIANTS—Continued from page 12 efficiency, including consumers’ interactions with an ad. Similarly, the platforms aggregate and store consumer data from various sources and process the data for analysis. Advertisers and publishers use the data to track, partition and target consumer audiences across websites.

The HD lawsuit claims Google and Facebook control the majority of the digital advertising market in the U.S., capturing nearly all of its growth in recent years. Google operates the leading trading venue and the leading intermediaries that buyers and sellers go through to trade. At the same time, Google itself is one of the largest sellers of ad space.

Google’s ad exchange shares trading information and speed with the Google-owned intermediaries. Buy and sell orders are steered by Google to its own exchange and websites (for example, Google Search and YouTube). As such, Google abuses its access to inside information, the suit alleges.

Newspaper publishers sought to break Google’s stranglehold on the ad exchange market by setting up their own exchange, called Header Bidding. It routed ad inventory to multiple neutral exchanges each time a user visited a web page, identifying the highest bid for particular inventory. By 2016, about 70% of major online publishers in the U.S. had adopted Header Bidding and provided a competitive alternative to Google, according to the suit.

Google introduced a service called Open Bidding in retaliation, the suit claims. It was integrated into Google’s ad tech stack and suppressed use of Header Bidding by introducing a fee to advertisers when Header Bidding ads were purchased via Open Bidding. Making matters worse, Open Bidding adopted Accelerated Mobile Pages (AMP), a service that strips down HTML files so that web pages are loaded more quickly on mobile devices. Its framework made Header Bidding incompatible with Open Bidding.

Google also discontinued ranking the pages of sites that did not adopt AMP. According to the complaint, this maliciously rendered “such sites nearly invisible to Google searches.”

Ratcheting up the competitive threat further, Google created the “minimum bid to win” feature in 2019, according to the suit. This feature allowed buyers using Google’s software (as opposed to Header Bidding) to receive extra information that allowed them to adjust their bidding strategy and potentially buy the same inventory at a cheaper price.

Header Bidding was adopted by Facebook in its early years. But Google and Facebook reached an agreement that favored Open Bidding, giving Facebook various forms of preferential treatment, the suit claims.

HD Media is seeking treble damages, punitive damages and/or restitution. And it asks the court to stop Google and Facebook from continuing their anticompetitive conduct.

As the congressional reports and the various lawsuits progress, media observers are also keenly aware that Facebook and Google are key resources for the dissemination of news and information. As such, their behavior as corporate citizens spill beyond mere questions of antitrust and competition into the area of freedom of speech and an informed electorate.

Time will tell what results will spring from the legal and regulatory actions, and whether or not more are to follow.

Mark J. Palchick is an attorney with Lerman Senter PLLC. He can be reached at (301) 602-6130 or mpalchick@lermansenter.com.