Yahoo Finance Google Takes Questions Over Ads as US Trial Comes to a Close
(Bloomberg) -- Judge Amit Mehta presided over two days of closing arguments, concluding on Friday, in the US antitrust challenge to Alphabet Inc. Now he’ll head off for weeks or months to consider a ruling that could have significant consequences across the tech industry.
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Yet despite frequent pointed questions to both sides, the Obama-appointed federal judge gave few hints about what he plans to decide.
Antitrust enforcers allege that Alphabet’s Google has illegally maintained a monopoly over online search and related advertising. On Thursday and Friday, Mehta went over the exclusive multibillion-dollar deals Google has struck with Apple Inc. and others to be the default search engine on mobile phones and browsers. Then the judge turned to the lucrative advertising business Google runs by placing ads in search queries and the government’s view that the company’s dominance has allowed it to raise prices on advertisers without consequences.
The closing arguments come six months after testimony ended last November, in order to give the judge time to review the evidence. The case is the first antitrust trial pitting the federal government against a US technology company in more than two decades. Mehta is expected to issue a decision later this year on whether Google broke the law and his ruling could force the tech giant to change the way it does business, by demanding the separation of Alphabet’s search business from other products, like Android and Chrome.
In its defense, Google argued that search ads are just one avenue for advertisers to reach consumers and that it’s losing business to Amazon.com Inc. and ByteDance Ltd.’s TikTok.
Mehta appeared skeptical.
“Advertisers came in and consistently said, ‘we can’t move away from search ads. They are unique,’” Mehta said.
No Other Choices
Justice Department lawyer David Dahlquist said advertisers have no choice to reach the most consumers other than through Google’s search ads product — the text and shopping promotions that appear at the top of a results page in response to user queries.
Google sells search ads through automated auctions that take place in less than a second after a person initiates a search. The Justice Department alleges that Google has made changes to its auction rules to increase prices by as much as 15%, while limiting the information marketers have about where their spending is going and making it harder for them to opt-out of specific advertising auctions.
“Google kept advertisers in the dark as to how search advertising works and how their advertising dollars were spent,” Dahlquist said. “Only a monopolist can make a product worse, and still make money,” he said.
In response, Google’s lead litigator John Schmidtlein argued that Google raised the prices of search ads in conjunction with improving the quality of its ads.
Mehta asked why Google wasn’t more transparent about some of the changes it has made to its advertising auctions.
“Isn’t that proof that Google is able to change prices in the background and advertisers are none the wiser?” he asked.
Trade Secrets
Schmidtlein said Google is “not in a position to go out and advertise its trade secrets, all the things it’s doing to improve. We’re not running around advertising all the improvements we are making so Bing can go out and copy them.”
The DOJ’s Dahlquist said that Google, even as a monopolist, still has some incentive to invest in improving its ad technology. But it’s a mistake to assume that improvements would necessarily lead to higher prices, he said, using the television market as an analogy: a TV bought today is less expensive than one from five years ago, in spite of the quality of the display having been improved, he asserted.
Dahlquist said such a scenario was an example of pricing having been bound by healthy competition in the market — something that isn’t happening in search advertising.
“Just to be clear, your contention is that in a more competitive environment, advertisers would be paying less?” Mehta asked.
“Yes,” said Dahlquist.
Chat Destruction
Near the end of the hearing, Mehta chastised Google for failing to preserve documents that should have been turned over to the Justice Department during its antitrust investigation, suggesting he may find the company was negligent.
“Google’s document retention policy leaves a lot to be desired,” he said, adding that it was “shocking to me that a company would leave it to their employees” to decide what would be retained.
“We won’t know if there was a treasure trove of material not saved,” he added.
The Justice Department alleged that Google intentionally withheld key evidence through its “Communicate with Care” program, in which employees were instructed to have sensitive conversations over chats that would be automatically deleted after 24 hours, as well as to copy company lawyers when they didn’t need to.
Colette Connor, a lawyer for Google, said the company was clear with investigators from the Texas attorney general’s office and the Justice Department that the chats were deleted as part of the company’s regular practices.
When the company first created its internal chat product, conversations were automatically archived. But in 2008, top executives announced a change so that conversations would disappear after 24 hours unless a person changed the archive settings.
Google changed the policy last year after the Justice Department and other antitrust plaintiffs complained that the company was violating its legal obligations to retain all records for use in litigation.
The Justice Department’s Kenneth Dintzer said Google engaged in a “breathtaking” policy of “systemic document destruction” to avoid giving antitrust enforcers evidence of illegal behavior. It involved “communications that were not like, ‘Let’s have lunch,’” Dintzer said.
“This was an intent to hide documents,” he said, showing a slide that read simply: “This is wrong.” “The evidence is unequivocal.”
The Justice Department asked that Mehta assume the destroyed evidence would have supported their case and sanction Google, which could take the form of a fine.
In subsequent comments, Mehta said Google’s policy was “unrealistic” to expect employees to know in advance that they should turn on a chat’s history. Given other evidence that Google was sensitive about words that could raise antitrust concerns, the failure to preserve chat “could be interpreted as intentional,” he said.
“Shouldn’t there be some consequence?” Mehta said. “At a minimum this was not best practices.”
(Updates with details on sanctions beginning in the 19th paragraph.)
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