Google Ad Tech Trial, Part 2: What to Watch

If you see me around the Federal Courthouse in Alexandria, VA this week, pull out your credit card and buy a copy of Yield. If you're not there, I've written this helpful primer on what's happening. You can read all of my court coverage in our free newsletter at Monopoly-Report.com.

A Quick Recap of Last Season

I know. It’s been a while. Let’s quickly remind ourselves how Season 1 ended, with quite a few cliffhangers, as well as a cross-over from the search trial.

Last fall, the DOJ presented their case that Google maintained a monopoly in publisher ad serving (duh!), in the ad exchange, and on the buy-side ad network (i.e., AdWords). The allegation revolved around the tying of these products, using the demand from AdWords to lock publishers into the dual monopoly of AdX plus GAM/DFP. To boil it down, the key allegation was that as a publisher you couldn’t get money from AdWords without also using AdX, and you couldn’t really use AdX unless you also used GAM/DFP. Notably, the case restricted its market definition to “open web display advertising,” so it did not include video, mobile, social, or native advertising.

This past spring, Judge Brinkema found mostly for the DOJ, finding that Google did, in fact, operate a monopoly in ad serving and the exchange. The judge declined to find as much for the ad network. Brinkema also declined to find the acquisitions of DoubleClick and AdMeld as inherently anticompetitive, since at the times they were completed the market was not as consolidated. 

Reading: Judge Brinkema’s findings

Two additional things happened in the off season. First, and most monumentally, Judge Mehta issued a remedies ruling for the other Google antitrust case that almost entirely landed in Google’s favor. While you might think this is unrelated, you might be wrong. In the pre-trial hearings for the ad tech case, Judge Brinkema specifically said the parties should “give careful attention to the Search case" and its "potential impact on these remedies." What did she mean by this? I don’t know, but it doesn’t seem good for those rooting for a more substantial remedy

Second, Google is getting hit left, right, and center by follow-on civil suits on the same facts as the antitrust case. Why does this matter? Primarily it affects the company’s willingness to settle with the DOJ. It might be less willing to settle, and thereby accept the court’s findings, if it would open the company up to billions in civil liabilities. I’m speculating here, so interested in other opinions.

Oh wait, there’s a third thing. The EU! Google was just fined $3.4 billion (with a “B”) by the EU on the same grounds. This is likely more money than the profit Google has made from owning AdX and DFP for the entire time it has existed. In addition, the EU gave Google 60 days to respond with its own remedies, for which the EU has separately said it only thinks a spin-out will be sufficient! Reading between the lines, the EU is delaying a spin-out order to sync up with the Virginia decisions.

Whew. And you thought Severance was complicated.

What’s at Stake?

So at the end of last season, Google was found to be a monopolist, and now we find out what the remedies will be. The DOJ’s goal (and the goal of antitrust law in general) is to stop the anti-competitive behavior and to create an environment in which competition can thrive. 

Here’s a summary of what the DOJ is asking for, roughly in the order they would like these to be implemented:

• AdX to bid into Prebid instead of directly into the ad server
• AdX to be spun out into a separate company
• GAM to open source its algorithm
• GAM to offer APIs to enable publishers to switch ad servers
• 50% of net revenue from GAM and AdX to be put into escrow for publishers
• (Contingently) GAM to be spun out if competition is not improved
• Google prohibited from using data from consumers to give it an advantage in the auctions.

Wow, that’s a lot. 

Meanwhile, Google’s proposal avoids divestiture and instead focuses on removing its historic advantages:

• AdX to bid into other ad servers via prebid
• Remove Unified Pricing Rules (UPR)
• Prevent future development of “first look,” “last look,” or similar technologies
• Appoint a trustee for three years of compliance

Reading: 

• The DOJ’s proposed remedies
• Google’s proposed remedies
• Google’s reaction to the DOJ’s remedies (new!)
• The DOJ’s reaction to Google’s remedies (new!)

What to Watch For

We know the basic outlines of the case. The DOJ is going to ask for the various remedies listed above, and Google is going to argue:

• The web is in decline, so why bother?
• Any remedy will hurt publishers.
• The remedies are not technically feasible because of [waves hands].
• The abuses were in the past anyway, let’s move on.

In my (non-legal) opinion, the most interesting arguments are going to be when Google pokes holes in the DOJ’s specific remedies. Coming back to the search remedies, a lot of Judge Mehta’s reasoning for why he did not make structural changes, like spinning on Chrome, revolved around the potentially unpredictable and negative consequences of doing so. The same arguments will be made here. 

Just off the top of my head, I could make some of these arguments:

• AdX spun out will generate less revenue for publishers and will be less efficient.
• GAM without AdX will be worth much less and will raise prices for publishers.
• The monopoly has only been established in open web display ads, so both AdX and GAM would need to be split up by ad type, which is both infeasible and bad for publishers.
• Since the DoubleClick acquisition itself was not found to be illegal, a spinout of that division is not the correct remedy.
• Etc.

How to Follow the Proceedings

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