The new lawsuit against Google opens a second major front for government claims that the company suppresses competition.

Photo: David Paul Morris/Bloomberg News

The Texas attorney general said he was suing Alphabet Inc.’s GOOG -0.53% Google unit on behalf of a coalition of states, alleging the company violated antitrust laws in manipulating digital advertising markets.

“This internet Goliath used its power to manipulate the market, destroy competition, and harm YOU, the consumer,” the office of Texas Attorney General Ken Paxton said on Twitter Wednesday.

The states’ case raises the legal stakes for Google, which depends on advertising for much of its profits. Its parent company reported digital advertising revenue of $37.1 billion in its latest quarterly report.

More on Tech Antitrust Actions

The new lawsuit targeting the company’s digital advertising business opens a second major front for government claims that Google illegally suppresses competition. The Justice Department and a number of states already have brought antitrust claims against the company focused on its search business.

A spokeswoman for Google had no immediate comment. In the past, Google has denied engaging in any anticompetitive behavior, saying it operates in highly competitive markets and that its services benefit consumers and businesses.

In a video posted on social media, Mr. Paxton said Texas was filing a “multistate lawsuit against Google” for “anticompetitive conduct, exclusionary practices and deceptive misrepresentations.” He alleged Google had used its monopoly position in the ad-tech market to control pricing and had colluded to rig advertising auctions.

States joining in the Texas-led case include Arkansas, Idaho, Indiana, Kentucky, Mississippi, Missouri, North Dakota, South Dakota and Utah.

Another coalition of states is expected to file a separate antitrust lawsuit against Google as soon as this week, focused on its search business.

Texas Attorney General Ken Paxton accused Google Wednesday of using its power to manipulate the advertising market, stifle competition and harm consumers.

Photo: Jay Janner/Austin American-Statesman via Associated Press

The Texas-led case follows the Justice Department’s Oct. 20 lawsuit against Google, which alleged that the company maintains its status as gatekeeper to the internet through an unlawful web of exclusionary and interlocking business agreements that shut out competitors.

In that lawsuit, the Justice Department highlighted Google’s relationship with another tech giant, Apple Inc. The government alleged that Google uses billions of dollars collected from advertising to pay for mobile-phone manufacturers, carriers and browsers such as Apple’s Safari to maintain Google as their preset, default search engine.

Alphabet publicly discloses that it pays other companies to funnel in search traffic. Analysts estimate that it pays Apple alone around $10 billion a year—another deal the government cited in alleging suppressed competition.

Taken together, the cases risk tarnishing Silicon Valley’s reputation with suggestions of preferential arrangements that harm both consumers and potential competitors.

The Texas-led coalition of state attorneys general has been zeroing in on Google’s dominant presence in the digital advertising market, according to people familiar with the matter, as well as a civil subpoena Mr. Paxton sent last year.

Apple and Google have one of Silicon Valley’s most famous rivalries, but behind the scenes they maintain a deal worth $8 billion to $12 billion a year according to a U.S. Department of Justice lawsuit. Here’s how they came to depend on each other. Photo illustration: Jaden Urbi

Google’s ad-tech business consists of software used to buy and sell ads on sites across the web. The company owns the dominant tool at every link in the complex chain between online publishers and advertisers, giving it unique power over the monetization of digital content. Many publishers and advertising rivals have accused Google of tying these tools to one another, and to its owned-and-operated properties such as its search engine and YouTube, in anticompetitive ways.

Google has argued that the ad-tech industry is competitive and that moves it has made to merge products were aimed at improving customers’ experience.

The states have coordinated closely with the Justice Department, which also has been posing increasingly detailed questions—to Google’s rivals and to executives inside the company—about how Google’s third-party advertising business interacts with publishers and advertisers, according to people familiar with that probe.

That digital business was built largely on the company’s 2008 acquisition of ad-technology provider DoubleClick. Publishers and rivals say Google leveraged its acquisition of that company, which was the dominant provider of tools for publishers to sell their digital ads online, to build out the dominant marketplace for digital ads—known as an ad exchange—and dominant ad-buying tools for advertisers.

Along the way, critics allege that Google created a system rife with conflicts of interest, in which it used its superior data advantage and unique dominance in the marketplace to give preference to its own tools and steer money to its own properties.

They point as evidence of anticompetitive behavior to moves like Google’s longtime practice of giving itself a “last look” in ad auctions; giving preference its own Accelerated Mobile Pages, or AMP, in search results to effectively force publishers to adopt a format that would make it harder to use alternative ad technologies; and requiring advertisers to use Google’s ad-buying tools to access YouTube ads.

Texas’ initial subpoena included more than 200 questions and demands for records. Many of the questions appear designed to solicit evidence that Google engaged in anticompetitive conduct in building up its powerful position.

For instance, the subpoena asked for information about Google’s “business rationale” for acquiring several of the companies that have helped it build up its advertising business, including DoubleClick in 2008, AdMob in 2010 and Admeld Inc. in 2011.

In another question, Google is asked to explain its business justification for prohibiting rival data-management platforms from operating on its own ad networks.

Still another asked Google to explain its “control or influence over” the AMP Project, an open-source initiative to standardize mobile website design. Google is also asked to explain its “business justification for removing YouTube [advertising] inventory from other Ad Exchanges.”

Leaders in the tech industry were asked at WSJ’s Tech Live 2020 what the Justice Department’s October antitrust suit against Google means for their industry. Photos: Andy Davis/WSJ, Philip Pacheco/AFP and David Paul Morris/Bloomberg

In its response to the subpoena, Google referred to a blog post by Kent Walker, its senior vice president for global affairs.

“We have answered many questions on these issues over many years, in the United States as well as overseas, across many aspects of our business, so this is not new for us,” Mr. Walker wrote. “The [Justice Department] has asked us to provide information about these past investigations, and we expect state attorneys general will ask similar questions. We have always worked constructively with regulators and we will continue to do so.”

In another blog post Sept. 11, the company said competition in the ad space is robust.

“To suggest that the ad tech sector is lacking competition is simply not true,” it said. “To the contrary, the industry is famously crowded. There are thousands of companies, large and small, working together and in competition with each other to power digital advertising across the web, each with different specialties and technologies.”

Wall Street Journal publisher News Corp, a longtime Google critic, was among the publishers contacted by antitrust investigators, along with New York Times Co. , Gannett Co. , Nexstar Media Group Inc. and Condé Nast, some of the people said.

Write to John D. McKinnon at [email protected] and Ryan Tracy at [email protected]

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This post first appeared on wsj.com

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