Senator Elizabeth Warren (D-Mass) recently sent a letter to Acting CFTC Chair Rostin Behnam in an effort to focus the CFTC’s enforcement powers on certain activities by Alphabet, Inc.’s Google unit in the online advertising space. According to Sen. Warren, Google’s AdX advertising exchange trades "[d]isplay advertising impressions" in a manner that may violate both antitrust laws and the Commodity Exchange Act (CEA). The senator’s letter suggested that the CFTC could pursue manipulation charges against Google for the way it facilitates the trading of online advertising on its own advertising exchange, which she said confers upon Google a dominant market position.
Project Bernanke. Senator Warren explained that Google’s AdX sits at a critical juncture between advertisers and publishers and that Google has significant control over the software that advertising buyers and sellers use to find each other in the market for display advertising impressions. The senator points specifically to a purported secret Google project code-named "Project Bernanke" (presumably a reference to former Fed Chair Ben Bernanke, although the exact reference appears to be unknown publicly) which, if implemented, would allow Google to use bid data that it collects via AdX to promote its own advertising software (DV360 and Google Ads) to buyers and sellers of advertising to the disadvantage of tools available from competitors.
According to Sen. Warren, Google holds a nearly 86 percent share of the market for online display advertising in the U.S. She also noted that federal and state investigators have already begun examining Google’s online advertising business for potential antitrust violations.
Although not mentioned directly in the senator’s letter, antitrust regulators could examine whether an advertising exchange hindered the exchange of information in advertising markets because "[a]greements restricting advertising are a form of output restriction in the production of information useful to consumers" that can result in the inability of some firms being able to communicate effectively with consumers who might buy their services; advertising restrictions also may increase "consumer search costs" (See, Phillip E. Areeda (late) & Herbert Hovenkamp, Antitrust Law: An Analysis of Antitrust Principles and Their Application, at 2023b. (footnotes omitted), a Wolters Kluwer Legal & Regulatory U.S. publication).
Senator Warren explained Google’s behavior thus: "The allegations around Project Bernanke, if true, would constitute deeply troublesome market manipulation by Google. To ensure that it maintains its dominant position, Google appears to be using its control over the exchanges to prevent other ad-buying tools from gaining market share against it. Google is not hiding this fact. In its court filings in Texas, Google acknowledges that Project Bernanke used customer bid data submitted in the past to make it more likely that Google Ads would win ad auctions ‘that would otherwise be won by other buying tools’" (footnotes omitted).
Is almost everything a commodity? The CEA defines "commodity" quite broadly by both explicitly labeling certain items as commodities (with the exception of onions and motion picture box office receipts) and by providing more general language that can bring additional items within the definition of commodity. As Sen. Warren’s letter notes, "commodity" is a term that can evolve over time to include items not previously contemplated to be commodities, most recently, for example, virtual currencies.
Senator Warren’s letter, however, is somewhat vague as to how "display advertising impressions" would fit within the definition of commodity, other that to cite in a footnote the more general language of the CEA, which applies to: "all other goods and articles and all services, rights, and interests... in which contracts for future delivery are presently or in the future dealt in" (See CEA Section 1a(9)). The senator also refers to the trading of "display advertising impressions" on advertising exchanges, although it is unclear if that form of trading involves futures trading.
The treatise Derivatives Regulation, by Philip McBride Johnson, et. al., and published by Wolters Kluwer Legal & Regulatory U.S., explains how an item becomes a commodity through futures trading. Two passages from the treatise state:
- "A fair reading of the amended and expanded definition suggests that, as for "all goods and articles … and all services, rights and interests," their status as statutory commodities does not emerge until they become the subject of futures trading. Although this method of converting something into a commodity may seem curious, it illustrates an important principle of commodities regulation: its interest is in a form of economic activity, rather than in the attributes or character of the underlying subject. The economic activity in question is futures and commodity options trading; the nature of the commodity does not affect the regulatory result."
- "Because an item or interest does not become a commodity until futures trading in it is initiated, it is unlikely that jurisdiction under the Act arises for cash or spot transactions in these newer subjects unless and until they become traded for future delivery. This result is consistent with the concept that the CFTC's interest in normal commercial transactions is related primarily to their interaction with a parallel market in futures contracts or similar instruments."
Senator Warren’s commodities theory regarding Google’s AdX could, if the advertising traded on AdX meets the definition of "commodity," result in potential liability for Google on a theory of manipulation. The senator posited that the CFTC would not be constrained by its exclusive jurisdiction over futures but could instead assert its general jurisdiction as authority to investigate Google. The senator further posited that a CFTC investigation of Google would not preempt or hinder investigations now underway or being contemplated by other government regulators.