Google acknowledges it foresaw possibility of probe of 'Jedi Blue' advertising deal with Facebook

07 Apr 2021 10:26 pm by Michael Acton, Mike Swift

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Google has acknowledged that its previously secret 2018 advertising agreement with Facebook, code-named “Jedi Blue,” allowed the companies to terminate the deal “in the event of certain government investigations of the agreement” — behavior that state attorneys general have cited as evidence the companies knew they were violating antitrust laws.

In a federal court document whose improperly redacted portions have been seen by MLex, Google also confirmed that the “network bidding agreement” was signed by senior Google and Facebook executives, including Google Senior Vice President and Chief Business Officer Philipp Schindler and Facebook Chief Operating Officer Sheryl Sandberg. The redacted document, filed overnight in a federal court in Plano, Texas, failed to effectively mask the redacted portions, but has since been refiled with the redacted parts hidden.

The filing was made in answer to an amended antitrust complaint from a Texas-led group of 15 attorneys general.

Google acknowledged in the document the existence of a feature of Google’s display ad-targeting systems internally dubbed “Project Bernanke” that, unknown to ad publishers, boosted “advertisers’ win rates in Google’s ad exchange.” The previously unrevealed feature used data about bids submitted in the past to make it more likely that Google Ads’ bids would win auctions “that would otherwise be won by other buying tools (or go unfilled),” Google acknowledged.

Publicly, Google has stopped short of confirming details of the Jedi Blue agreement with Facebook, which the states say was an illegal attempt by Google to prevent competition by keeping Facebook from adopting a new type of ad-targeting technology called “header bidding” that Google feared would become a powerful alternative to its display advertising products.

The previously secret deal struck by Google and Facebook in 2018, the newly filed Google document acknowledges, required Facebook to use “commercially reasonable efforts” to bid on at least 90 percent of the bid requests it got from Google, with Facebook committed to spend at least $500 million a year in Google’s Ad Manager or AdMob advertising auctions by the fourth year of the agreement.

Facebook would be required to make its best efforts to achieve a “win rate” of at least 10 percent of the auctions it participated in, Google acknowledged in the new filing.

The revelations in the Google filing pertain to the computer auction that happens in a few milliseconds that matches up advertisers seeking websites or apps to display their ads with the people who are most likely to be interested in those ads, based on Google’s data about them.

Details about the amount of money the states alleged Facebook would pay and some other aspects of the Jedi Blue arrangement were redacted from the states’ antitrust and deceptive trade practices complaint, but have been reported by the Wall Street Journal and New York Times, which gained access to the redacted sections of the states’ complaint that have not been seen by MLex. Google’s new filing, however, discusses the facts behind some of the allegations redacted in the original complaint filed in December and the amended complaint filed last month.

Google has complained in court hearings before US District Judge Sean Jordan that previous leaks prove its sensitive business secrets are not safe, and Google sought disclosure requirements from the court about which of the states’ expert witnesses can get access to its sensitive business information.

In an amended version of the complaint filed in March, the states added new allegations that Google violated the privacy of more than 750 million users of Android phones by storing backups of communications from Facebook’s WhatsApp on the Google Drive cloud storage service without telling users that it could access the content of supposedly private messages.

A key element of the states’ case — that Google violated federal antitrust laws and a long list of state deceptive trade practices laws — is the Jedi Blue relationship with Facebook, one of its primary competitors in digital ads.

Google’s alternative to header bidding is called “Open Bidding.” The states allege, however, that Google “secretly devised” Open Bidding as “a way to foreclose exchange competition,” because Open Bidding limited the information competing ad exchanges could see about users targeted for ads.

“Google’s new program prohibited exchanges from directly accessing the user’s page. As a result, they identified users in auctions even less often, causing them to bid and win less often,” the states alleged.

Google countered in the overnight filing that it designed “Exchange Bidding,” which it later renamed Open Bidding, “to solve many of the problems associated with header bidding.”

Texas Attorney General Ken Paxton, who is leading the group of 15 states and territories that have sued Google over its advertising technology practices, has said the consequences for Google’s alleged practices will be severe. Facebook is not a defendant in the suit.

“Texas is seeking hundreds of billions, if not more, in monetary damages for Google’s deceptive practices,” Paxton said in a combative video he put on social media last month to announce that Alaska, Florida, Montana, Nevada and Puerto Rico were joining the original 10 states in the suit. “Texas is coming for you Google, and we’re bringing backup.”

The amended complaint filed by the states alleges that Google and Facebook “discussed, negotiated, and memorialized how they would cooperate with one another” in the event of a government probe of that agreement. In last night’s filing, Google refutes that claim of illegal activity and others.

“Plaintiffs’ Amended Complaint reflects a deep misunderstanding of the digital advertising sector in general and Google’s ad tech products and services in particular,” Google said in an unredacted section of its answer to the states’ complaint. “And while antitrust laws are in place to promote consumer welfare, the 450 paragraphs of Plaintiffs’ Amended Complaint say remarkably little about how this lawsuit would help consumers. That’s because it would actually break many of the services that facilitate the kind of high-quality, relevant advertising that helps consumers connect with merchants and see a wide choice of goods and services.”

Google in January also challenged claims by Paxton and the other states that the company manipulated its Open Bidding product to favor Facebook and the Facebook Audience Network, or FAN.

"AG Paxton inaccurately claims that we manipulate the Open Bidding auction in FAN’s favor," Adam Cohen, Google's director of economic policy, said in the post. "We absolutely don’t. FAN must make the highest bid to win a given impression. If another eligible network or exchange bids higher, they win the auction. FAN’s participation in Open Bidding doesn't prevent Facebook from participating in header bidding or any other similar system."

Facebook did not immediately reply to a request for comment today. While Google denied that it violated any law in the new court filing last night, it did concede in the improperly redacted part of the complaint that the deal with Facebook included explicit provisions regarding how the two companies would act if their arrangement attracted government attention.

Google said that the deal contained “a provision governing cooperation between Google and Facebook in the event of certain government investigations” including “a provision governing the parties’ options to terminate the agreement in the event of certain government investigations or lawsuits.”

Google’s main argument in the answer and affirmative defenses it filed with Jordan overnight is that any deal with Facebook didn’t harm competition, and that “advertisers and publishers who choose not to use Google’s ad tech products — or who want to use other products in addition to Google’s — have a wide array of competitive alternatives available throughout the digital advertising sector.”

The Texas-led lawsuit would damage the quality of the digital advertising market, Google said, rather than helping consumers and advertisers.

“Entry and innovation are thriving, output is expanding, and ad quality is increasing,” Google said. “The last thing this competitive marketplace needs is radical government intervention that would harm consumers and businesses, especially in the form of Plaintiffs’ extreme demands to ‘break up’ a successful American company.”

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