Google's digital ad network declared an illegal monopoly, joining its search engine in penalty box

SAN FRANCISCO (AP) — Google has been branded an abusive monopolist by a federal judge for the second time in less than a year, this time for illegally exploiting some of its online marketing technology to boost the profits fueling an internet empire currently worth $1.8 trillion.

The ruling issued Thursday by U.S. District Judge Leonie Brinkema in Virginia comes on the heels of a separate decision in August that concluded Google’s namesake search engine has been illegally leveraging its dominance to stifle competition and innovation.

After the U.S. Justice Department targeted Google’s ubiquitous search engine during President Donald Trump’s first term, the same agency went after the company’s lucrative digital advertising network in 2023 during President Joe Biden’s ensuing administration in an attempt to undercut the power that Google has amassed since its inception in a Silicon Valley garage in 1998.

Although antitrust regulators prevailed both times, the battle is likely to continue for several more years as Google tries to overturn the two monopoly decisions in appeals while forging ahead in the new and highly lucrative technological frontier of artificial intelligence.

The next step in the latest case is a penalty phase that will likely begin late this year or early next year. The same so-called remedy hearings in the search monopoly case are scheduled to begin Monday in Washington D.C., where Justice Department lawyers will try to convince U.S. District Judge Amit Mehta to impose a sweeping punishment that includes a proposed requirement for Google to sell its Chrome web browser.

Brinkema’s 115-page decision centers on the marketing machine that Google has spent the past 17 years building around its search engine and other widely used products and services, including its Chrome browser, YouTube video site and digital maps.

The system was largely built around a series of acquisitions that started with Google’s $3.2 billion purchase of online ad specialist DoubleClick in 2008. U.S. regulators approved the deals at the time they were made before realizing that they had given the Mountain View, California, company a platform to manipulate the prices in an ecosystem that a wide range of websites depend on for revenue and provides a vital marketing connection to consumers.

The Justice Department lawyers argued that Google built and maintained dominant market positions in a technology trifecta used by website publishers to sell ad space on their webpages, as well as the technology that advertisers use to get their ads in front of consumers, and the ad exchanges that conduct automated auctions in fractions of a second to match buyer and seller.

After evaluating the evidence presented during a lengthy trial that concluded just before Thanksgiving last year, Brinkema reached a decision that rejected the Justice Department's assertions that Google has been mistreating advertisers while concluding the company has been abusing its power to stifle competition to the detriment of online publishers forced to rely on its network for revenue.

“For over a decade, Google has tied its publisher ad server and ad exchange together through contractual policies and technological integration, which enabled the company to establish and protect its monopoly power in these two markets.” Brinkema wrote. “Google further entrenched its monopoly power by imposing anticompetitive policies on its customers and eliminating desirable product features.”

Despite that rebuke, Brinkema also concluded that Google didn't break the law when it snapped up Doubleclick nor when it followed up that deal a few years later by buying another service, Admeld.

The Justice Department “failed to show that the DoubleClick and Admeld acquisitions were anticompetitive,” Brinkema wrote. “Although these acquisitions helped Google gain monopoly power in two adjacent ad tech markets, they are insufficient, when viewed in isolation, to prove that Google acquired or maintained this monopoly power through exclusionary practices.”

That finding may help Google fight off any attempt to force it to sell its advertising technology to stop its monopolistic behavior.

“This is a landmark victory in the ongoing fight to stop Google from monopolizing the digital public square,” U.S. Attorney General Pamela Bondi said in a statement.

In a statement, Google said it will appeal the ruling.

“We disagree with the Court’s decision regarding our publisher tools,” said Lee-Anne Mulholland, Google’s vice president of regulatory affairs. “Publishers have many options and they choose Google because our ad tech tools are simple, affordable and effective.”

Analysts such as Brian Pitz of BMO Markets had been predicting that Google would likely lose the case, helping to brace investors for the latest setback to the company and its corporate parent, Alphabet Inc., whose shares declined by about 1% Thursday to close at $151.22. Alphabet's stock has plunged by 20% so far this year.

On top of the setbacks in search and advertising, Google also is fighting a federal jury's 2023 verdict that determined its Play Store for apps on smartphones powered by its Android software is also an illegal monopoly.

As it did in the search monopoly case, Google vehemently denied the Justice Department’s allegations. Its lawyers argued the government largely based its case on an antiquated concept of a market that existed a decade ago while underestimating a highly competitive market for advertising spending that includes the likes of Facebook parent Meta Platforms, Amazon, Microsoft and Comcast.

The market as drawn in the Justice Department’s case didn’t include ads that appear on mobile apps, streaming television services, or other platforms to which internet users have increasingly migrated, prompting Google lawyer Karen Dunn to compare the government’s definition a “time capsule with a BlackBerry, an iPod and a Blockbuster video card” during her opening statement when the trial began last September.

At trial, the Justice Department’s lawyers emphasized the harm to news publishers that has arisen from Google’s alleged dominance of the marketplace. Witnesses from Gannett, the publisher of USA Today and other newspapers, and News Corp., the publisher of The Wall Street Journal, testified about the difficulties they have faced and what they said was a lack of alternatives to Google’s ad tech. Those companies rely on online advertising to fund their news operations and make their articles free to consumers on the internet, government lawyers have argued.

Now the government is in position to try to dismantle that byzantine ad system. When the case was filed more than two years ago during the Biden administration, the Justice Department asserted Google should be forced to sell, at a minimum, its Ad Manager product, which includes the technology used by website publishers and the ad exchange.