Suit Alleges Facebook, Google Conspired to Fix Advertising Deals; Colluded on Beating Antitrust Actions

Do you ever get the impression that Big Tech is not really a group of independent companies who compete with each other, but is in fact a growing monolith in which all the players scratch each other’s backs, protect each other and screw all the little guys in the process?

We have these laws called antitrust laws to prevent competitors from engaging in such collusion, because if they did, they could fix prices and freeze out fair competition. So when two giants in the same industry start making deals to exchange guaranteed purchases for special treatment, it sure quacks like an antitrust duck. And when we find out that they’ve agreed to assist each other in defending antitrust litigation, that probably means they knew their actions were inviting such litigation.

Google and Facebook, I doubt anyone is surprised by your sneakiness and your arrogance. But given the action taken last week by 10 state attorneys general (all Republican, by the way), you two are hereby busted:

The final version of the lawsuit didn’t make public details about the deal’s value. The draft states that starting in the deal’s fourth year, Facebook is locked into spending a minimum of $500 million annually in Google-run ad auctions. “Facebook is to win a fixed percent of those auctions,” the draft version says. The lawsuit says “Facebook is to [REDACTED].”

According to the draft version, an internal Facebook document described the deal as “relatively cheap” when compared with direct competition, while a Google presentation said if the company couldn’t “avoid competing with” Facebook, it would collaborate to “build a moat.” The redacted lawsuit filed last week doesn’t include those quotes.

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For years, criticism of Google’s online advertising empire has focused on how the company leveraged its powerful consumer-facing platforms, such as Google Search and YouTube, to take over another lucrative but less visible business: the software that acts as a middleman for buying and selling ads across the web. The Facebook allegations add a new wrinkle—that Google cut a deal with a competing middleman, one that the states describe as Google’s “largest potential competitive threat.” They also represent a potent legal risk. Under U.S. law, agreements to fix prices can be easier to prove than the states’ other accusations—namely that Google is maintaining an illegal monopoly.

These “auctions” are supposed to allow the bidder with the best rate to get ad placements. By putting aside a certain percentage for Facebook, and guaranteeing that Facebook will win, Google is in essence rigging the auctions in Facebook’s favor. What Google gets an agreement from Facebook not to compete with Google’s online advertising tools.

In other words, Facebook was able to use its size and buying power to guarantee itself a certain piece of the action, while Google was able to use its inventory to protect itself against competition. If you’re a smaller advertising company hoping for a fair shot in these advertising auctions, too bad. The auctions have been rigged and Facebook is going to win, no matter what your numbers are (or theirs) because Google wants a monopoly and Facebook wants a guarantee.

Antitrust laws are designed to prevent this kind of inside deal because, when two large competitors conspire, it freezes out the smaller players and creates and anti-competitive marketplace that Congress decided more than 100 years ago should be illegal. It ultimately costs consumers more because the stifling of competition removes one of the primary factors limit the rise in prices.

Will the lawsuit succeed? Antitrust cases are not easy to win, but they get a lot easier when someone has internal e-mails showing that the two sides discussed fixing prices.

The logic behind this is mind-boggling, though. Google already dominates the world of Internet search and so much of people’s online activity. And Facebook already dominates social media. The shareholders of both companies are sitting pretty today and into the foreseeable future. Did they really have to get greedy by coming together to fix prices?

Ten attorney generals allege that they did, and the Journal’s look at the supporting documentation is intriguing to say the least.

Maybe Big Tech really thinks it’s exempt from the law. We’re about to find out if that’s the case.