Facebook and Google have been accused of striking a secret, illegal advertising deal

• A coalition of state attorneys general filed an antitrust case against Google on Wednesday.
• They accused Google of giving Facebook unfair advertising advantages to stop it from getting into an area of adtech called "header bidding." Google perceived a move by Facebook into this space as a threat, they said.
• Per Wired, if this deal is proved to be true, it could spell big trouble for Google and Facebook, as it would fall under part of the Sherman Antitrust Act that has a relatively low bar for illegality.
• Google denied the claims, and Facebook was not immediately available for comment.

A coalition of state attorneys general is accusing Google of striking an illegal, under-the-table deal with Facebook.

The coalition, led by Texas' attorney general, Ken Paxton, on Wednesday filed an antitrust lawsuit against Google. The suit accuses Google of unfairly leveraging monopoly power in its adtech business.

The heavily redacted lawsuit covered large swaths of Google's ads business, and in one segment the states accused Google of giving Facebook unfair advertising advantages to stop the social-media giant from getting into an area of adtech called "header bidding." The states said Google perceived a Facebook move into this space as a threat.

The attorneys general said Facebook had effectively baited Google into making the deal.

Google denied the claims, while Facebook was not immediately available for comment.

Header bidding is a way for publishers - i.e., websites and apps - to sell ad space online. It allows multiple advertisers to bid on the same bit of ad space simultaneously, with the publisher taking the highest bidder's offer and placing its ad. It's seen an alternative to Google's ad-placement system, which runs the auction in a sequence, known in the adtech industry as "waterfalling" or a "daisy chain."

In the suit, the states accuse Google of striking a deal with Facebook to stop it from getting into header bidding, affording Facebook privileges in advertising auctions on its platform.

"An internal Facebook communication at the highest level suggested that Facebook's header bidding announcement was part of a planned long-term strategy [...] to draw Google in," they said.

"Facebook decided to dangle the threat of competition in Google's face and then cut a deal to manipulate the auction," they added.

A Google representative denied the lawsuit's claims in a statement to Business Insider.

"Attorney General Paxton's ad tech claims are meritless, yet he's gone ahead in spite of all the facts," the person said.

"We've invested in state-of-the-art ad tech services that help businesses and benefit consumers. 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. We will strongly defend ourselves from his baseless claims in court."

Per Wired, if this deal is proved to be true, it could spell big trouble for Google and Facebook, as it would fall under Section 1 of the Sherman Antitrust Act.

Section 1 forbids entities from striking agreements that "unreasonably restrain trade," and the threshold for establishing illegality is relatively low.

"If you can prove an agreement between two firms, once you have proof of that agreement, it is called per se illegal," Sally Hubbard, a director at the anti-monopoly think tank the Open Markets Institute, told Wired.

"This is why antitrust enforcers love to bring Section 1 cases, because if you can find evidence of more than one firm agreeing to fix prices, agreeing not to compete, agreeing to allocate a market - once you prove that agreement, it's automatically illegal. It ends there," Hubbard said.

Per Reuters, corporations that violate Section 1 of the Sherman Act face penalties of up to $100 million.

Both Google and Facebook have shouldered bigger fines than $100 million before, but it would set a troubling precedent for the companies, both of which are facing antitrust scrutiny.

The US Department of Justice filed a separate antitrust lawsuit against Google in October over its ads and search business, and Politico reported Tuesday that another group of state attorneys general, led by Colorado and Nebraska, were planning to file another antitrust suit as soon as Thursday.

Facebook, meanwhile, was hit with two simultaneous lawsuits last week from the Federal Trade Commission and 46 state attorneys general, focusing on its acquisitions of Instagram and WhatsApp.