Google and Facebook: Secret advertising agreements end up in US court

The two mega-corporations are alleged to have entered into unfair agreements. In addition, the indictment accuses Google of manipulating header bidding.

Nine US states have filed a lawsuit accusing Google of abusing its market power in the online advertising market. The focus is on a series of illegal agreements between parent company Alphabet and Facebook. The two companies control more than half of the market worldwide. In a deal that became public in 2018, the two reportedly agreed to let Facebook's advertisers run ads through Google's ad exchange. The search engine giant had entered into similar partnerships with other market players under the alias "Project Jedi" to maintain its market share.

In return, Facebook received preferential treatment in the form of market-distorting exemptions, prosecutors write. The social media company subsequently withdrew from competing software that publishers brought to market to break Google's market power. Literally, the document says, "Facebook decided to confront Google with the threat of competition and cut a deal to rig the auction."

The deal in question is "header bidding," a software for the auction process of advertising placements. It allows website operators to solicit bids for ad space from multiple exchanges to obtain higher prices. Initially, Facebook said it would work with operators who used header bidding. Google reportedly saw this as a provocation. Through the Facebook Audience Network, Facebook customers buy ads across the web - and more than any other network. If they were using header bidding, Google would have suffered immense losses. Google reportedly adopted header bidding practices as a result. However, according to the indictment, the advertising multinational manipulated the system so that requests went to its own exchange even though a competitor had submitted a higher bid.

Facebook is said not to have had in mind to outbid the market leader, but to have hoped for a deal. That came about in September 2018. Facebook dropped its header bidding initiatives and agreed to let the Audience Network's millions of advertisers bid on Google's platform. In return, Google gave the network auction benefits. For example, the Google exchange suspended a quota for ad placements even if the company in question did not submit the highest bid. The lawsuit says the agreement fixed prices and divided the market between the contracting parties.

Further collusion is said to have involved the exchange of data. For example, Google obtained access from Facebook to millions of Whatsapp messages, photos, videos and audio files of U.S. citizens. In addition, prosecutors allege that Google illegally exploited its control over every step of the online advertising chain. They say this is done in a way that stifles competition in the segment and increases Google's profits.

Alphabet is defending itself against the allegations. They are unfounded and Google's ad tech fees are lower than the industry average. In addition, he said, prices for digital advertising have fallen in recent years. "We will vigorously defend ourselves in court against his [editor's note: referring to plaintiff Attorney General Ken Paxon of Texas] unfounded allegations."