The Google ad tech remedies show why Congress must act

For more than a decade, publishers have been telling policymakers that something is fundamentally wrong with the digital advertising marketplace. Now, after years of antitrust litigation against Google, a federal court has imposed remedies that point toward a remarkably straightforward principle: companies that act as intermediaries in the advertising market should not be able to use market power to secretly put their own interests ahead of the customers they serve.

The problem is complicated in its details but remarkably simple at its core. Google built an advertising business in which it could represent publishers selling advertising, represent advertisers buying advertising, and operate the exchange where those transactions occurred. Then it could write the rules governing how all of those products interacted.

Think about how differently we treat another marketplace where brokers execute transactions on behalf of their clients. When you hire a stockbroker to buy or sell securities for you, we don't simply trust the broker to manage conflicts of interest however it sees fit. Federal securities laws and regulations establish obligations governing that relationship. Under the SEC's Regulation Best Interest, for example, a broker-dealer making a recommendation to a retail customer cannot put its own financial interests ahead of the customer's interests.

There is a good reason for that. A broker occupies a position of trust. The client depends on the broker to navigate a complicated, real-time marketplace and execute high-speed transactions on the client's behalf. If the broker can quietly use information asymmetries to steer those transactions toward whatever produces the most money for the broker, rather than the best outcome for the client, the market doesn't work the way it should.

The same common-sense principle should apply to digital advertising.

Judge Leonie Brinkema previously found that Google unlawfully acquired and maintained monopoly power in the publisher ad server and ad exchange markets and unlawfully tied those products together allowing it to take a supra-competitive portion of the transactions but maybe more importantly to steer the pricing, winners and losers of the auctions. The remedies she issued this month impose significant restrictions on how Google can use its position across the ad tech ecosystem.

Google must integrate its products to interoperate equally with competing technologies, including Prebid. Publishers must be able to access and export their own data. And importantly, Google's AdWords cannot preferentially bid into Google's own ad exchange, or another Google ad tech service simply because Google owns it. The court also established a monitor and technical committee to oversee Google's compliance.

A significant loophole

But the order also contains a significant loophole. The prohibition against discriminatory bidding includes what the court calls a "narrow exception for advertiser values," recognizing that the central purpose of a buy-side tool such as Google Ads is to deliver return on investment for advertisers. That may sound reasonable, but "return on investment" can become a remarkably elastic justification when the company calculating it also controls the bidding system, the underlying data, and significant advertising inventory of its own.

This could still leave Google room to steer advertising spending toward its own products and properties, including YouTube, if its opaque systems can spin outcomes as delivering better ROI for advertisers. For now, the principal assurance against that possibility is testimony from Google executives that its buying tools do not favor the ad tech systems Google owns.

And there is reason to treat that assurance cautiously. In arguing against breakup, Google warned the court that separating its ad exchange or publisher ad server would force it to direct more of its demand, what Judge Brinkema called "the golden goose," toward its owned-and-operated properties, particularly YouTube. In other words, Google itself has already told the court that its incentives could lead it to steer spending toward its own inventory. That makes rigorous monitoring of the ROI exception essential. It also underscores the danger of relying on Google's own AI-masked algorithms to distinguish legitimate advertiser optimization from self-preferencing.

Despite that vulnerability, there is an important principle running through these remedies: Google should not be able to use its position as an intermediary to benefit itself at the expense of the customers it is supposed to serve. The challenge is ensuring that the principle is not swallowed by an exception that Google itself gets to interpret. This is where legislation can help.

From antitrust remedy to market rule

Congress has already written legislation largely based on the same common-sense principle.

The AMERICA Act, introduced by Senators Mike Lee (R-Utah) and Amy Klobuchar (D-Minn.) along with a bipartisan group of senators, addresses conflicts of interest in digital advertising. For the largest companies, it would require divestitures that prevent one company from simultaneously having extraordinary market power on multiple sides of the market. For other large ad tech intermediaries, it establishes a series of obligations designed to protect their customers.

The best-interest obligation is particularly important as Google would have a statutory obligation not to put its own interests ahead of the advertiser's. The legislation would require covered digital advertising brokers to act in the best interests of their customers, including by obtaining the best execution for their transactions. It pairs that obligation with requirements involving transparency, fair access and protections against conflicts of interest.

Again, we already recognize the logic of these protections in financial markets. We don't tell investors that they simply have to cross their fingers and hope their broker isn't putting its own financial interests first. We have established rules governing brokers' conduct. The AMERICA Act applies that same basic principle to another enormously valuable marketplace dominated by intermediaries executing transactions on behalf of customers.

Publishers entrust ad tech companies with the sale of valuable advertising inventory. Advertisers entrust those same intermediaries with billions of dollars in advertising spending. When an intermediary executes those transactions, its first obligation should be to the customer whose interests it has agreed to represent-not to another part of its own vertically integrated business.

The Google case demonstrates what can happen when that principle is absent. The Justice Department documented multiple ways in which Google designed its products to benefit its own ad tech businesses, and Judge Brinkema ultimately found that Google had unlawfully abused its monopoly position in critical markets to squelch competitors and further enrich its bottom line. The court is now requiring nondiscrimination, interoperability, and data access in an effort to restore competition.

In other words, after years of litigation, we have arrived at something remarkably close to the basic proposition underlying the AMERICA Act: Powerful intermediaries shouldn't be permitted to put themselves ahead of their customers.

We need a law, not a six-year fix

But there is a major difference, and it's one that should cause concern. Judge Brinkema's remedies apply only to Google and only for six years. The AMERICA Act would establish basic common-sense rules so that the entire marketplace is on a level-playing field.

Congress should not assume that six years of court supervision will permanently fix a market whose problems developed over decades. Nor should publishers, advertisers and consumers have to depend on the Justice Department bringing another massive antitrust case if similar conflicts emerge in the future.

The AMERICA Act would establish durable rules of the road regardless of which company dominates digital advertising five, ten or twenty years from now. And its best-interest obligation would establish an extraordinarily reasonable expectation: if you are being paid to act on behalf of a customer, you should act in that customer's best interest.

The Justice Department's case was enormously important. Judge Brinkema's liability findings put a spotlight on Google by documenting the violations of the law and the subsequent harms to publishers. And her remedies are an important step toward restoring competition. But antitrust enforcement and legislation serve different purposes. Courts remedy violations of existing law. Congress can establish rules that prevent the same problems from happening again.

After years of litigation, we now have a real-world demonstration of why these protections are necessary. Congress should make them permanent by passing the AMERICA Act.