By Diane Bartz and Paresh Dave
WASHINGTON (Reuters) - Texas and nine other states sued Google on Wednesday, accusing it of working with Facebook Inc (NASDAQ:FB) in an unlawful manner that violated antitrust law to boost its already-dominant online advertising business.
The states asked that the Alphabet (NASDAQ:GOOGL) Inc-owned company, which controls a third of the global online advertising industry, compensate them for damages and sought "structural relief," which is usually interpreted as forcing a company to divest some of its assets.
The Texas lawsuit is the second major complaint from regulators against Google and the fourth in a series of federal and state lawsuits aimed at reining in alleged bad behavior by Big Tech platforms that have grown significantly in the past two decades.
Google called the Texas lawsuit "meritless." Facebook did not immediately respond to a request for comment.
Wednesday's action raises the legal stakes for Google, which is expected to face a third antitrust lawsuit from more than 30 attorneys general on Thursday, according to a source familiar with the matter.
Online publishers including Genius Media Group and news website The Nation alleged on Wednesday in a separate antitrust lawsuit, which seeks class action status, that they lost revenue because of Google's dominance in online ads. They demand Google divest part of its ads business.
In its lawsuit, Texas asks a judge to find Google guilty of breaking antitrust law and to order the violations to stop. It accuses Google of abusing its monopoly over the digital ads market, allowing its own exchange to win ad auctions even when others bid higher and overcharging publishers for ads.
It also accused Google of working with Facebook. The two companies compete heavily in internet ad sales and together capture over half of the market globally.
"As internal Google documents reveal, Google sought to kill competition and has done so through an array of exclusionary tactics, including an unlawful agreement with Facebook, its largest potential competitive threat," the lawsuit said.
The lawsuit, filed in the Eastern District of Texas, also hews closely to concerns publicly raised by Rupert Murdoch-owned News Corp (NASDAQ:NWSA) and other media companies to regulators in the United States and Europe over the last two years. It said Google lowered its fees to near zero to gain dominance among publishers, used deceptive tricks to broker transactions between publishers and advertisers, and extracted high fees from both parties for playing referee.
FREE MARKET
In a video posted on Twitter, Texas Attorney General Ken Paxton said, "If the free market were a baseball game, Google positioned itself as the pitcher, the batter and the umpire."
Paxton, who faces allegations he abused the power of his office and committed bribery, also recently contested the results of Nov. 3's U.S. presidential election in several battleground states. The Supreme Court rejected that suit.
A Google spokeswoman said the company will defend itself from the Texas lawsuit's "baseless claims in court." She added: "Digital ad prices have fallen over the last decade. Ad tech fees are falling too. Google's ad tech fees are lower than the industry average. These are the hallmarks of a highly competitive industry."
Paxton, along with 10 other state attorneys general, also joined a U.S. Justice Department's lawsuit against the company in October that accused the $1 trillion California-based company of illegally using its market power to hobble rivals.
The nine states that joined Texas on Wednesday are Arkansas, Indiana, Kentucky, Missouri, Mississippi, South Dakota, North Dakota, Utah and Idaho. All have Republican prosecutors.
Google ad sales account for over 80% of Alphabet's revenue. But most of the sales and the bulk of Alphabet's profits come from Google's high-margin operation of placing text ads above search results.
The business targeted on Wednesday - placing ads on partner apps and websites - matters far less to Google.
Alphabet reported quarterly digital advertising revenue of $37.1 billion in its latest financial report. Alphabet shares ended 0.2% lower at $1,757.19 on Wednesday. Facebook shares, which briefly turned negative after details of the Texas lawsuit were published, reversed losses and ended little changed