October 8, 2019
AUSTIN — Ken Paxton is no fan of Google. The Lone Star State’s Republican attorney general says he rarely even uses the company’s widely popular search engine, opting instead for rival services, because he has “always been concerned about tracking.”
But Paxton these days is more than a mere sideline skeptic: As one of the country’s most powerful law-enforcement officials, he’s forging ahead with a landmark investigation into Google’s decades-long dominance of the web, armed with the help of 50 other attorneys general, a stable of savvy experts that includes Google’s past foes, and a feeling that Washington for too long has turned a blind eye to some of Silicon Valley’s most troubling practices.
For now, the investigation, which Paxton and his peers announced in September, focuses on online advertising, responding to complaints that Google puts consumers and competitors at a disadvantage by controlling the exchanges where ads are bought and some of the most popular websites where they’re sold. It could result in tough punishments, Paxton signaled, if investigators determine Google broke the law.
“We’re prepared for whatever the right thing to do is for consumers,” he said during an interview with The Washington Post in his office in the Texas capital. Whether it’s standing down or forcing Google to sell off parts of itself, Paxton stressed: “All of that’s on the table based on what we learn.”
The probe marks the first major U.S. antitrust action against Google in roughly a decade, after Texas joined other states and the federal government in scrutinizing the company’s search engine in a competition probe that ended without major punishment for the tech giant.
Since then, Paxton said, Washington has failed to pursue key signs that Google and Silicon Valley are in violation of federal law. “Antitrust seems like it hasn’t been focused on for decades, through several administrations, not just Democrats but also Republicans,” he said, later adding: “I think this should have been looked at sooner than it is.”
The result is a significant legal and political challenge on the horizon for Google and its executives. Bipartisan in nature, and born out of a belief that the tech industry has escaped government accountability for too long, Paxton and his team said nothing is off limits — words that threaten a broad review of Google’s business in a way that could reshape not only the company but the rest of Silicon Valley.
“If we end up learning things that lead us in other directions, we’ll certainly bring those back to the states and talk about whether we expand into other areas,” he said.
Google declined to comment.
Overseeing an office with nearly 800 lawyers, Paxton emerged this year as a convening force in the sort of antitrust probe that’s long been sought by Democratic and Republican attorneys general alike. Eight states, including Arizona, Nebraska and North Carolina, are helping to steer the Google probe as part of an executive committee, but it’s Texas that started the legal action by sending a legal demand with hundreds of questions to Google on behalf of the group.
It is not the only probe of the tech giant under way: Investigators at the Department of Justice in Washington also are homing in on Google and its lucrative ad empire, and they sent their own battery of questions to the company this summer. Members of Congress similarly have targeted Google and other tech giants as part of a sweeping review of federal antitrust laws. And European regulators continue to scrutinize Google and its search, ad and smartphone practices, having already slapped it with roughly $9 billion in antitrust fines over the past three years.
For state attorneys general in the U.S., the driving question comes down to dollars, Paxton said. Ads targeted to people’s browsing behavior are Google’s lifeblood, accounting for much of the company’s roughly $117 billion in revenue last year, according to its financial statements. That puts Google in the pole position in the United States, where it takes in around 37 percent of all digital advertising revenue, according to eMarketer data from February. In search, Google captures even more — 74 percent — of the market, the firm computes.
Importantly, ads provide financial fuel for Google’s popular, free services, such as search, email and mapping, as well as its more audacious gambits, including self-driving cars. Paxton acknowledged these products are widely liked around the world, even if he personally doesn’t use all of them regularly. But the attorney general stressed Google’s dominance of the ad industry still has stifled the Internet.
“Consumers may feel really good about having free searches but the reality is nothing’s free. And if there’s no competition on the Internet for advertising, then consumers, unbeknownst to them, are paying much higher costs for products than they otherwise should,” he said.
Google has sought to tell a different story about its business. Appearing on Capitol Hill in July, Adam Cohen, Google’s director of economic policy, said that Internet advertising is cheaper and more effective than ever before. “We have created new competition in many sectors, and new competitive pressures often lead to concerns from rivals,” he said in testimony. “We have consistently shown how our business is designed and operated to benefit our customers.”
But Paxton said state investigators have heard from a torrent of competitors, particularly in the publishing industry, who say they cannot compete with Google’s scale, meaning they lose out on revenue that might fund their content or services.
The vocal opponents include some of Google’s long-time foes, such as News Corp., according to two Texas officials who requested anonymity to discuss private conversations in the probe. The Rupert Murdoch-backed empire previously has complained to antitrust regulators in Europe, Australia and elsewhere that Google’s ad dominance results in fewer dollars for publishers, and News Corp. has gone as far as to call for the tech giant to be broken up at times.
A spokesman for News Corp., James Kennedy, declined to comment on the company’s interactions with Texas. But, he added in a statement: “Our position regarding Google’s damaging anti-competitive behavior and existential threat to journalism has been made clear over the years.”
In probing those allegations, Paxton and his attorney general allies have turned to one of News Corp.’s past advisers. Among the experts the state has retained is Cristina Caffarra, who has assisted News Corp. and other Google foes on antitrust issues. A competition expert and economist at the consulting firm Charles River Associates, Caffarra boasts deep experience in Brussels, where Google has been repeatedly fined for competition violations. In those cases, including a recent decision finding Google’s Android smartphone violated regional competition laws. Caffarra has supplied considerable economic evidence in opposition to Google’s practices.
Caffarra also has worked on behalf of other Google foes, including the Russian search engine Yandex on its complaint in Moscow and the EU about Google’s business practices, she’s indicated in public reports. She declined to comment on her role in the states’ probe, other than to say that she is not working for a corporate client that’s opposing Google presently. But her participation in the states’ effort took center stage in September, when she appeared alongside more than a dozen attorneys general when they announced their plans from the steps of the U.S. Supreme Court.
For Google, the states’ probe could easily broaden beyond its ad business and its effects on publishers. Democratic and Republican attorneys general long have criticized the company for the way it collects users’ data and displays its search results, for example, along with the means by which it has piloted Android to become the world’s most widely used smartphone operating system. Some state officials raised these issues when they announced their ads probe in September.
Paxton’s office has additional concerns of its own: Texas is in the early stages of a consumer-protection investigation focused on allegations that Google makes decisions about the content it displays and suppresses that are biased against conservatives. Jeff Mateer, Paxton’s first assistant attorney general, confirmed the state’s interest last week, four months after he aired his concerns at a conference in Omaha that big tech should be “held accountable” if the industry misrepresents its political neutrality. Google has denied charges that it is politically biased.
Texas long has long been troubled by Google’s behavior. Roughly nine years ago, it became one of the first to embark on an antitrust investigation of Google when it opened a probe into the way the company presents search results. It was Paxton’s predecessor, Greg Abbott, now the state’s governor, who sought to determine if Google demoted competing services, such as shopping-comparison sites, that rivaled its own offerings, violating a principle that Texas called “search neutrality.”
Texas issued some of the initial orders demanding key documents from Google, at one point going to court to battle the company over access to information. The answers the state obtained ultimately appeared to influence some of the thinking at the Federal Trade Commission, which assumed the role of Google’s chief investigator in the United States. An inadvertently released staff report from that probe, which ended in 2013, cited emails, memos and other materials obtained by Texas in concluding Google had in fact put its rivals at a disadvantage.
In the end, though, the FTC opted against issuing steep penalties targeting the company’s search practices, sparking widespread criticism that the federal government had failed to capitalize on the evidence trove that Texas helped amass.
Gary Reback, a lawyer at the firm Carr & Ferrell and a longtime Google foe, said the documents at the time showed that Google had “jimmied their normal algorithm to demote certain sites.” It’s hard to “generalize” from one investigation to another, he cautioned, “but what we do know is the Texas attorney general can be effective in getting the kind of information that might lead to government action.”
But the timing of the states’ latest investigation — and the optics of their announcement — still triggered criticism that the attorneys general hoped to leverage their work for political gain. The Competitive Enterprise Institute, a advocacy group that opposes antitrust law and has received contributions from Google, blasted the probe in September as an exercise that would “benefit state AGs’ political ambitions, but impose harmful costs on consumers, businesses, and the economy.”
Paxton, in particular, has issued at least two emails to supporters through his campaign, including an Oct. 2 note that said he needed $25 or more to “fight Google’s dominance over so much of our lives,” including the effects it has on publishers.
As such scrutiny intensifies, Paxton and his team cautioned they’re at the beginning, not the end, of an investigation. With Google, in particular, “a lot of people just didn’t understand the model” until recently, he said. “The way it’s been done, it’s been hard to get a grip on what’s going on behind the scenes.”
While he said that the broad, national participation reflects the seriousness of states’ concerns, Paxton stressed they hadn’t reached “any kind of conclusion, there’s so much we don’t know.”
“Whatever that leads to,” he added, “it leads to.”
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