Case 4:20-cv-00957-SDJ Document 138 Filed 08/04/21 Page 1 of 173 PageID #: 2483
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`Civil Action No.: 4:20-CV-957-SDJ
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`JURY TRIAL DEMANDED
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`UNITED STATES DISTRICT COURT
`EASTERN DISTRICT OF TEXAS
`SHERMAN DIVISION
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`STATE OF TEXAS
`By Attorney General Ken Paxton
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`STATE OF ALASKA
`By Attorney General Treg R. Taylor
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`STATE OF ARKANSAS
`By Attorney General Leslie Rutledge
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`STATE OF FLORIDA
`By Attorney General Ashley Moody
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`STATE OF IDAHO
`By Attorney General Lawrence G. Wasden
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`STATE OF INDIANA
`By Attorney General Todd Rokita
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`COMMONWEALTH OF KENTUCKY
`By Attorney General Daniel Cameron
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`STATE OF LOUISIANA
`By Attorney General Jeff Landry
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`STATE OF MISSISSIPPI
`By Attorney General Lynn Fitch
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`STATE OF MISSOURI
`By Attorney General Eric Schmitt
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`STATE OF MONTANA
`By Attorney General Austin Knudsen
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`STATE OF NEVADA
`By Attorney General Aaron D. Ford
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`STATE OF NORTH DAKOTA
`By Attorney General Wayne Stenehjem
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`COMMONWEALTH OF PUERTO RICO
`By Attorney General Domingo Emanuelli-
`Hernández
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`i
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`STATE OF SOUTH CAROLINA
`By Attorney General Alan Wilson
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`STATE OF SOUTH DAKOTA
`By Attorney General Jason R. Ravnsborg
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`and
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`STATE OF UTAH
`By Attorney General Sean D. Reyes
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`Plaintiffs,
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`vs.
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`GOOGLE LLC,
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`Defendant.
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`SECOND AMENDED COMPLAINT
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`ii
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`Case 4:20-cv-00957-SDJ Document 138 Filed 08/04/21 Page 3 of 173 PageID #: 2485
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`TABLE OF CONTENTS
`I. NATURE OF THE CASE ............................................................................................................ 1
`II. PARTIES .................................................................................................................................. 8
`III. JURISDICTION ......................................................................................................................... 9
`IV. VENUE ................................................................................................................................... 10
`V.
`INDUSTRY BACKGROUND ..................................................................................................... 10
`A. Online Display Advertising Markets ................................................................................ 12
`1. Publishers’ Inventory Management Systems: Ad Servers ............................................ 13
`2. Electronic Marketplaces for Display Advertising: Exchanges and Networks .............. 16
`i. Display Ad Exchanges .............................................................................................. 17
`ii. Ad Networks for Display and Ad Networks for Mobile In-App Inventory ............. 19
`3. Ad Buying Tools for Large and Small Advertisers ...................................................... 21
`VI. THE RELEVANT MARKETS AND GOOGLE’S MARKET POWER ........................................... 26
`A. Publisher Inventory Management: Publisher Ad Servers ................................................. 26
`1. Publisher ad servers for web display inventory in the United States are a relevant
`antitrust market. .................................................................................................................... 26
`2. Google has monopoly power in the publisher ad server market. .................................. 28
`B. Ad Exchanges ................................................................................................................... 31
`1. Exchanges for web display inventory in the United States are a relevant antitrust
`market. .................................................................................................................................. 31
`2. Google has monopoly power in the exchange market. ................................................. 33
`C. Ad Networks ..................................................................................................................... 35
`1. Networks for web display inventory in the United States are a relevant antitrust market.
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`35
`2. Google has monopoly power in the network market. ................................................... 36
`D. Ad Buying Tools for Large and Small Advertisers .......................................................... 37
`1. Web display ad buying tools for small advertisers in the United States constitute a
`relevant antitrust market. ...................................................................................................... 39
`2. Web display ad buying tools for large advertisers in the United States constitute a
`relevant antitrust market. ...................................................................................................... 40
`3. Google has monopoly power in the web display ad buying tool market for small
`advertisers. ............................................................................................................................ 40
`E. YouTube ........................................................................................................................... 42
`1.
`Instream online video advertising is a relevant antitrust market in the United States. . 42
`2. Google has market power in the instream online video advertising market. ................ 43
`VII. ANTICOMPETITIVE CONDUCT .............................................................................................. 43
`A. Google forces publishers to license Google’s ad server and trade in Google’s ad
`exchange. .................................................................................................................................. 44
`B. Google uses its control over publishers’ inventory to block exchange competition. ....... 49
`1. Google blocks publishers from sending their inventory to more than one marketplace at
`a time. .................................................................................................................................... 50
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`2. Google blocks competition from non-Google exchanges and deceives publishers about
`Dynamic Allocation. ............................................................................................................. 51
`3. Google restricts information to foreclose competition and advantage itself. ............... 53
`i.
`Information asymmetry causes publishers and advertisers to trade on non-Google
`exchanges at their own risk. .............................................................................................. 55
`ii. Google forecloses competition by using inside information to win auctions. .......... 55
`iii. While Google cites “privacy” as the justification for restricting access to user IDs,
`Google does not actually care about privacy. ................................................................... 59
`4. Google blocks competing exchanges from accessing publishers’ high-value inventory
`and reaps the benefits for itself. ............................................................................................ 65
`C. A new industry innovation called “header bidding” promotes exchange competition;
`Google wants to kill it. .............................................................................................................. 67
`1. Header bidding facilitates competition among ad exchanges. ...................................... 68
`2. Google creates an alternative to header bidding that secretly stacks the deck in
`Google’s favor. ..................................................................................................................... 70
`D. Facebook helps Google “kill” header bidding with an unlawful agreement. ................... 72
`1. Google gives Facebook a leg up in its auctions in return for Facebook backing off from
`header bidding. ...................................................................................................................... 77
`2. Google and Facebook agree in the
` agreement to a secret
` ........ 81
`E. Google forces market participants to re-route trading through Google. ........................... 85
`1. Google trades ahead of bid orders to foreclose exchange competition. ....................... 85
`2. Google deceives exchanges to forgo header bidding. ................................................... 86
`3. Google deceives publishers to disable rival exchanges in header bidding. .................. 87
`4. Google cripples publishers’ ability to measure the success of rival exchanges in header
`bidding. ................................................................................................................................. 88
`5. Google obstructs publishers’ use of header bidding through caps. .............................. 89
`6. Google uses its scale in search to punish publishers that use header bidding. ............. 89
`7. Google’s ad server gives exchanges that forego header bidding a leg up. ................... 92
`8. Google excludes competition through “nontransparent pricing.” ................................. 93
`9. Google is trying to foreclose competition and create a “walled garden” on the open
`web. 94
` ........................................................................................................... 94
`i.
`Project
`ii. Privacy Sandbox ....................................................................................................... 96
`10.
`Google excludes competition though Unified Pricing rules. .................................. 100
`F. Google forces advertisers to use Google’s ad buying tools. ........................................... 102
`1. Google conduct that excludes competition in the exchange market also excludes
`competition in the ad buying tool markets. ......................................................................... 102
`2. Google excludes competition in the market for ad buying tools by cutting YouTube off
`from competing ad buying tools. ........................................................................................ 103
`VIII.
`ANTICOMPETITIVE EFFECTS...................................................................................... 105
`A. Anticompetitive Effects in the Publisher Ad Server Market .......................................... 106
`B. Anticompetitive Effects in the Exchange Market ........................................................... 108
`C. Anticompetitive Effects in the Network Market ............................................................. 109
`D. Anticompetitive Effects in the Markets for Display Ad Buying Tools for Small
`Advertisers and Display Ad Buying Tools for Large Advertisers .......................................... 110
`E. Harm to Innovation ......................................................................................................... 112
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`IX. CLAIMS ............................................................................................................................... 113
`A. COUNT I – MONOPOLIZATION IN VIOLATION OF SECTION II OF THE SHERMAN ACT, 15
`U.S.C. § 2 ................................................................................................................................ 113
`B. COUNT II – ATTEMPTED MONOPOLIZATION IN VIOLATION OF SECTION II OF THE SHERMAN
`ACT, 15 U.S.C. § 2 .................................................................................................................. 115
`C. COUNT III – UNLAWFUL TYING IN VIOLATION OF SECTION II OF THE SHERMAN ACT, 15
`U.S.C. § 2 ................................................................................................................................ 117
`D. COUNT IV – UNLAWFUL AGREEMENT IN VIOLATION OF SECTION I OF THE SHERMAN ACT,
`15 U.S.C. § 1 ........................................................................................................................... 119
`E. COUNT V – SUPPLEMENTAL STATE LAW ANTITRUST CLAIMS ......................................... 120
`F. COUNT VI – SUPPLEMENTAL STATE LAW DECEPTIVE TRADE PRACTICES CLAIMS .......... 127
`X. PRAYER FOR RELIEF .......................................................................................................... 142
`XI. DEMAND FOR A JURY TRIAL .............................................................................................. 150
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`1.
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`The States of Texas, Alaska, Arkansas, Florida, Idaho, Indiana, Louisiana, Mississippi,
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`Missouri, Montana, Nevada, North Dakota, South Carolina, South Dakota, and Utah, and the
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`Commonwealths of Kentucky and Puerto Rico, by and through their Attorneys General
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`(collectively, the “Plaintiff States”), in the above-styled action, file their Second Amended
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`Complaint (“Complaint”) against Google LLC (“Google”) under federal and state antitrust laws
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`and deceptive trade practices laws and allege as follows:
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`I. NATURE OF THE CASE
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`2.
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`The halcyon days of Google’s youth are a distant memory. Over twenty years ago, two
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`college students founded a company that forever changed the way that people search the internet.
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`Since then, Google has expanded its business far beyond search and dropped its famous “don’t be
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`evil” motto. Its business practices reflect that change. As internal Google documents reveal,
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`Google sought to kill competition and has done so through an array of exclusionary tactics,
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`including an unlawful agreement with Facebook, its largest potential competitive threat, to
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`manipulate advertising auctions. The Supreme Court has warned that there are such things as
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`antitrust evils. This litigation will establish that Google is guilty of such antitrust evils, and it seeks
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`to ensure that Google won’t be evil anymore.
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`3.
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`Google is an advertising company that makes billions of dollars a year by deceptively
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`using individuals’ personal information to engage in targeted digital advertising. Google has
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`extended its reach from search advertising to dominate the online advertising landscape for image-
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`based ads on the web, called “display ads.” In its complexity, the market for display ads resembles
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`the most complicated financial markets; publishers and advertisers trade display inventory through
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`brokers and on electronic exchanges and networks at lightning speed. As of 2020, Google is a
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`company standing at the apex of power in media and advertising, generating over $161 billion
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`annually with staggering profit margins, almost all from advertising.
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`4.
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`Google’s advertising apparatus extends to the new ad exchanges and brokers through
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`which display ads trade. Indeed, nearly all of today’s online publishers (be they large or small)
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`depend on one company—Google—as their middleman to sell their online display ad space in “ad
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`exchanges,” i.e., the centralized electronic trading venues where display ads are bought and sold.
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`Conversely, nearly every consumer goods company, e-commerce entity, and small business now
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`depends on Google as their respective middleman for purchasing display ads from exchanges in
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`order to market their goods and services to consumers. In addition to representing both the buyers
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`and the sellers of online display advertising, Google also operates the largest exchange, AdX. In
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`this electronically traded market, Google is pitcher, batter, and umpire, all at the same time.
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`5.
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`The scale of online display advertising markets in the United States is extraordinary.
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`Google operates the largest electronic trading market in existence. Whereas financial exchanges
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`such as the NYSE and NASDAQ match millions of trades to thousands of company symbols daily,
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`Google’s exchange processes about
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` online ad spaces each day. In Google’s words,
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` At the same time, Google owns the largest buy-side and sell-side brokers. As one
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`senior Google employee admitted,
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` Or more accurately, the analogy would be if
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` were a monopoly
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`financial broker and owned the
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` which was a monopoly stock exchange.
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`6.
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`Google, however, did not accrue its monopoly power through excellence in the
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`marketplace or innovations in its services alone. Google’s internal documents belie the public
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`image of brainy Google engineers having fun at their sunny Mountain View campus while trying
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`to make the world a better place. Rather, to cement its dominance across online display markets,
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`Google has repeatedly and brazenly violated antitrust and consumer protection laws. Its modus
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`operandi is to monopolize and misrepresent. Google uses its powerful position on every side of
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`online display markets to unlawfully exclude competition. It also deceptively claims that “we’ll
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`never sell your personal information to anyone,” but its entire business model centers on targeted
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`advertising—the purchase and sale of advertisements targeted to individual users based on their
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`personal information. From its earliest days, Google’s carefully curated public reputation of “don’t
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`be evil” has enabled it to act with wide latitude. That latitude is enhanced by the extreme opacity
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`and complexity of digital advertising markets, which are at least as complex as the most
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`sophisticated financial markets in the world.
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`7.
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`The fundamental change for Google dates back to its 2008 acquisition of DoubleClick,
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`the leading provider of the ad server tools that online publishers, including newspapers and other
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`media companies, use to sell their graphical display advertising inventory on exchanges. After
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`acquiring the leading middleman between publishers and exchanges, Google quickly monopolized
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`the publisher ad server and exchange markets by engaging in unlawful tactics. For instance,
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`Google started requiring publishers to license Google’s ad server and to transact through Google’s
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`exchange in order to do business with those in another market in which Google possessed
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`monopoly power: the one million plus advertisers who used Google as their middleman for buying
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`inventory. So Google was able to demand that it represent the buy-side (i.e., advertisers), where it
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`extracted one fee, as well as the sell-side (i.e., publishers), where it extracted a second fee, and it
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`was also able to force transactions to clear in its exchange, where it extracted a third, even larger,
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`fee.
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`8.
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`Within a few short years of executing this unlawful tactic, Google successfully
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`monopolized the publisher ad server market and grew its ad exchange to number one, despite
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`having entered those two markets much later than the competition. With a newfound hold on
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`publisher ad servers, Google then proceeded to further foreclose publishers’ ability to trade in non-
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`Google exchanges. Google imposed a one-exchange-rule on publishers, barring them from routing
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`inventory to more than one exchange at a time. At the same time, Google’s ad server blocked
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`competition from non-Google exchanges through a program called Dynamic Allocation and
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`falsely told publishers that Dynamic Allocation maximized their revenue. As internal documents
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`reveal, however, Google’s real scheme with Dynamic Allocation was to permit its exchange to
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` One industry
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`publication put it succinctly: “[t]he lack of competition was costing pub[s] cold hard cash.”
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`9.
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`In an attempt to reinject competition in the exchange market, a new innovation called
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`header bidding was devised. Publishers could use header bidding to simultaneously route their ad
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`inventory to multiple exchanges in order to solicit the highest bid for the inventory. At first, header
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`bidding promised to bypass Google’s stranglehold on the exchange market. By 2016, about 70
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`percent of major online publishers in the United States had adopted the innovation. Advertisers
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`also migrated to header bidding in droves because it helped them to purchase from exchanges
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`offering the same inventory for the lowest price.
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`10.
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`Google quickly realized that this innovation substantially threatened its exchange’s
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`ability to demand a very large—
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` percent—cut on all advertising transactions. Header
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`bidding also undermined Google’s ability to trade on inside and non-public information from one
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`side of the market to advantage itself on the other—a practice that in other markets would be
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`considered insider trading or front running. Google deceptively
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` But privately, Google’s internal
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`communications make clear Google viewed header bidding’s promotion of genuine competition
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`as a major threat. In Google’s own words, header bidding was an—
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`11.
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`Google responded to this threat through a series of anticompetitive tactics. First,
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`Google appeared to cede gr01md and allow publishers using its ad server to route their inventory
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`to more than one exchange at a time. However, Google secretly made its own exchange win, even
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`when another exchange submitted a higher bid. Google’s codename for this program was -—a
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`reference to Star Wars. And as one Google employee explained internally, Google deliberately
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`designed. to avoid competition, and. consequently harmed publishers. In Google’s words,
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`we I eeeeem—
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`— Next, Google tried to come lip with other creative ways to shut
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`out competition from exchanges in header bidding. Dln'ing one internal debate, a Google employee
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`eeeeeee.e— Aeeeeeeemeleeee
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`captured Google’s ultimate aim of destroying header bidding altogether, noting in response that
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`— eeeele
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`wanted to be more aggressive.
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`12.
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`Google grew increasingly brazen in its effofis to undermine competition. In March
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`2017, Google’s largest Big Tech rival, Facebook, announced that it would throw its weight behind
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`header bidding. Like Google, Facebook brought millions of advertisers on board to reach the users
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`on its social network. In light of Facebook’s deep knowledge of its users, Facebook could use
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`header bidding to operate an electronic marketplace for online ads in competition with Google.
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`Facebook’s marketplace for online ads is known as “Facebook Audience Network” or FAN.
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`Google Imderstood the severity of the threat to its position if Facebook were to enter the market
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`and support header bidding. To diffuse this threat, Google made overtures to Facebook. Internal
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`Facebook communications reveal that
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`13.
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`Any collaboration between two competitors of such magnitude should have set off the
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`loudest alarm bells in terms of antitrust compliance. Apparently, it did not. Internally, Google
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`documented that if it could not
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` Indeed, Facebook understood Google’s rationale as a monopolist very
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`well. An internal Facebook communication at the highest level reveals that Facebook’s header
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`bidding announcement was part of a pre-planned long-term strategy—an
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`—to draw Google in. Facebook decided to dangle the threat of competition in
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`Google’s face so it could then cut a deal to manipulate publishers’ auctions in its favor.
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`14.
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`In the end, Facebook curtailed its involvement with header bidding in return for Google
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`giving Facebook information, speed, and other advantages in the
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` Google runs
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`for publishers’ mobile app advertising inventory each month in the United States. As part of this
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`agreement, Google and Facebook work together to identify users using Apple products. The parties
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`also agreed up front on
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` for how often Facebook would
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` publishers’ auctions—literally
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`manipulating the auction with
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` for how often Facebook would bid and
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`win. In these auctions, Facebook and Google compete head-to-head as bidders. Google’s internal
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`codename for this agreement, signed at the highest-level, was
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`—a twist on the Star Wars
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`reference.
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`15.
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` Above and beyond its unlawful agreement with Facebook, Google employed a number
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`of other anticompetitive tactics to shut down competition from header bidding. Google deceived
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`non-Google exchanges into bidding through Google instead of header bidding, telling them it
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`would stop front running their orders when in fact it would not. Google employees also deceived
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`publishers, telling one major online publisher that it should cut off a rival exchange in header
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`bidding because of a strain on its servers. After this misrepresentation was uncovered, Google
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`employees discussed playing a trick—a
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`—on the industry to nonetheless get
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`publishers to cut off exchanges in header bidding. Google wanted to
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` Google then proceeded to cripple publishers’
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`ability to use header bidding in a variety of ways.
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`16.
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`Having reached its monopoly position, Google now uses its immense market power to
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`extract a very high tax of
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` percent of the ad dollars otherwise flowing to the countless
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`online publishers and content producers such as online newspapers, cooking websites, and blogs
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`who survive by selling advertisements on their websites and apps. These costs invariably are
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`passed on to the advertisers themselves and then to American consumers. The monopoly tax
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`Google imposes on American businesses—advertisers like clothing brands, restaurants, and
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`realtors—is a tax that is ultimately borne by American consumers through higher prices and lower
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`quality on the goods, services, and information those businesses provide. Every American suffers
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`when Google imposes its monopoly pricing on the sale of targeted advertising.
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`17.
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`From its earliest days, the internet’s fundamental tenet has been its decentralization:
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`there is no controlling node, no single point of failure, and no central authority granting permission
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`to offer or access online content. Online advertising is uniquely positioned to provide content to
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`users at a massive scale. However, the open internet is now threatened by a single company.
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`Google has become the controlling node and the central authority for online advertising, which
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`serves as the primary currency enabling a free and open internet.
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`18.
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`Google’s current dominance is also merely a preview of its future plans. Google’s latest
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`announcements with respect to its Chrome browser and privacy will further its longstanding plan
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`to create a “walled garden”—a closed ecosystem—out of the otherwise-open internet. At the same
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`time, Google uses “privacy” as a pretext to conceal its true motives.
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`19.
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`In sum, Google’s anticompetitive conduct has adversely and substantially affected the
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`Plaintiff States’ economies, as well as the general welfare in the Plaintiff States. Google’s illegal
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`conduct has reduced competition, raised prices, reduced quality, and reduced output in each of the
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`Plaintiff States. This conduct has harmed the Plaintiff States’ respective economies by depriving
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`the Plaintiff States and the persons within each Plaintiff State of the benefits of competition.
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`20.
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`As a result of Google’s deceptive trade practices and anticompetitive conduct,
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`including its unlawful agreement with Facebook, Google has violated and continues to violate
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`Sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1, 2, as well as state antitrust and consumer
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`protections laws. Plaintiff States bring this action to remove the veil of Google’s secret practices
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`and put an end to Google’s anticompetitive abuses of its monopoly power in online advertising
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`markets. Plaintiff States seek to restore free and fair competition to these markets and to secure
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`structural, behavioral, and monetary relief to prevent Google from ever again engaging in
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`deceptive trade practices and abusing its monopoly power to foreclose competition and harm
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`consumers.
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`II. PARTIES
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`21.
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`Plaintiff States, by and through their respective Attorneys General, bring this action in
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`their respective sovereign capacities and as parens patriae on behalf of the citizens, general
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`welfare, and economy of their respective States under their statutory, equitable, or common law
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`powers, and pursuant to Section 16 of the Clayton Act, 15 U.S.C. § 26.
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`22.
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`Google is a limited liability company organized and existing under the laws of the State
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`of Delaware, with its principal place of business in Mountain View, California. Google is an online
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`advertising technology company providing internet-related products, including various online
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`advertising technologies, directly and through subsidiaries and business units it owns and controls.
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`Google is owned by Alphabet Inc., a publicly traded company incorporated and existing under the
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`laws of the State of Delaware and headquartered in Mountain View, California.
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`III. JURISDICTION
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`23.
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`The Court has jurisdiction over this action under Sections 1, 2, and 4 of the Sherman
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`Act, 15 U.S.C. §§ 1-2 & 4; Section 16 of the Clayton Act, 15 U.S.C. § 26; and under 28 U.S.C.
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`§§ 1331 and 1337.
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`24.
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`In addition to pleading violations of federal antitrust law, the Plaintiff States allege
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`violations of state antitrust and consumer protection laws and seek civil penalties, restitution,
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`disgorgement, damages, equitable relief, and/or other relief, as applicable, under those state laws.
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`All claims under federal and state law are based upon a common nucleus of operative facts, and
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`the entire action commenced by this Complaint constitutes a single case that would ordinarily be
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`tried in one judicial proceeding.
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`25.
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`This Court has jurisdiction over the non-federal claims under 28 U.S.C. § 1367(a), as
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`well as under principles of pendent jurisdiction. Pendent jurisdiction will avoid unnecessary
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`duplication and multiplicity of actions and should be exercised in the interests of judicial economy,
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`convenience, and fairness.
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`26.
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`This Court may exercise personal jurisdiction over Google because Google conducts
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`business in this District. Google has established sufficient contacts in this District such that
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`personal jurisdiction is appropriate. Google sells the products at issue throughout the United States
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`and across state lines. Google is engaged in, and its activities substantially affect, interstate trade
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`and commerce. Google provides a range of products and services that are marketed, distributed,
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`and offered to consumers throughout the United States, in the Plaintiff States, across state lines,
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`and internationally.
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`
`
`9
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`

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`Case 4:20-cv-00957-SDJ Document 138 Filed 08/04/21 Page 15 of 173 PageID #: 2497
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`IV. VENUE
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`27.
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`Venue is proper in this District under Section 12 of the Clayton Act, 15 U.S.C. § 22,
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`and 28 U.S.C. § 1391. A substantial part of the events or omissions giving rise to the Plaintiff
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`States’ claims occurred in this District. Google transacts business and is found within this District.
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`V. INDUSTRY BACKGROUND
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`28.
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`The internet revolutionized the way people consume content, and along with it, the
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`types of advertisements that companies can purchase to reach consumers. Image-based ads on the
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`internet (called “display ads”), as well as audio and video ads in the online world, have largely
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`supplanted their traditional print, radio, and television counterparts. In addition, the internet
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`ushered in completely new advertising formats, including targeted text-based ads on search
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`engines, shareable ads on social media, and specialized ads inside mobile phone applications.
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`29.
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`For online publishers and advertisers alike, the different online advertising formats are
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`not interchangeable. Online media companies that operate websites and mobile applications
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`(“online publishers”) are necessarily restricted in the types of ad formats they ca