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DOJ Sues Google, Seeking to Break Up Online Advertising Business

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The Justice Department is seeking the breakup of Google’s business brokering digital advertising across much of the internet, a major expansion of the legal challenges the company faces to its business in the U.S. and abroad.

A lawsuit filed Tuesday, the Justice Department’s second against the

Alphabet Inc.

GOOG -1.98%

unit following one filed in 2020, alleges that Google abuses its role as one of the largest brokers, suppliers and online auctioneers of ads placed on websites and mobile applications. The filing promises a protracted court battle with wide-ranging implications for the digital-advertising industry.

Filed in federal court in Virginia, the case alleges that Google abuses monopoly power in the ad-tech industry, hurting web publishers and advertisers that try to use competing products. Eight states, including California and New York, joined the Justice Department’s lawsuit.

The lawsuit asks the court to unwind Google’s “anticompetitive acquisitions,” such as its 2008 purchase of ad-serving company DoubleClick, and calls for the divestiture of its ad exchange.

“For 15 years Google has pursued a course of anticompetitive conduct that has allowed it to halt the rise of rival technologies, manipulate auction mechanics, insulate itself from competition, and forced advertisers and publishers to use its tools,” Attorney General

Merrick Garland

said at a press conference Tuesday. “Google has engaged in exclusionary conduct that has severely weakened if not destroyed competition in the ad-tech industry.”

Attorney General Merrick Garland said Tuesday that the digital-advertising industry was harmed by Google’s allegedly monopolistic conduct.



Photo:

Al Drago/Bloomberg News

A Google spokesman said the lawsuit “attempts to pick winners and losers in the highly competitive advertising technology sector.”

“DOJ is doubling down on a flawed argument that would slow innovation, raise advertising fees, and make it harder for thousands of small businesses and publishers to grow,” the spokesman said.

By calling for specific divestitures from Google’s ad-tech business, the Justice Department lawsuit went further in seeking a breakup than some antitrust experts had expected. Shares of Alphabet fell by about 2% in trading on Tuesday.

Though largely invisible to internet users, the ad-tech tools controlled by Google facilitate much of the buying and selling of digital ads that helps fund online publishers. Google’s business includes a tool publishers can use to offer ad space, a product for advertisers to buy those slots and an exchange that automatically links bidders with webpages as they are being loaded for individual users.

Big tech companies such as Google are under a barrage from lawmakers and regulators across multiple continents who have targeted the companies’ dominance in online markets. Justice Department officials also are investigating

Apple Inc.

The Federal Trade Commission has sued

Meta Platforms Inc.’s

Facebook unit over antitrust allegations and

Microsoft Corp.

to block its planned $75 billion acquisition of

Activision Blizzard Inc.

President Biden recently urged lawmakers from both parties to unite behind legislation seeking to rein in tech giants. The European Union also has opened cases looking at alleged anticompetitive conduct by Google, Meta and other companies.

The Justice Department’s 2020 lawsuit against Google targeted its position in online search markets, including an agreement to make Google search the default in Apple’s Safari web browser. Google is fighting the case, which is expected to go to trial this year.

Alphabet gets about 80% of its business from advertising. The Justice Department’s new suit targets the subset of that ad business that brokers the buying and selling of ads on other websites and apps. Google reported $31.7 billion in revenue in 2021 from that ad-brokering activity, or about 12% of Alphabet’s total revenue. Google distributes about 70% of that revenue to web publishers and developers.

Last year, Google offered to split off parts of its ad-tech business into a separate company under the Alphabet umbrella to fend off the most recent Justice Department investigation. DOJ officials rejected the offer and decided to pursue the lawsuit instead.

For years, Google has faced allegations from advertising- and media-industry executives, lawmakers and regulators that its presence at multiple points of the online ad-buying process harms publishers and gives it an unfair advantage over rivals. Google also operates the most popular search engine and the largest online video-streaming site, YouTube, giving rise to allegations it has tilted the market in its own favor.

Rivals say that Google’s power in digital advertising stems from a series of acquisitions Google used to build its ad-tech business, beginning with the company’s $3.1 billion purchase of DoubleClick. The FTC approved the merger in a controversial decision. Google went on to purchase a host of other startups including the mobile-advertising company AdMob.

“Having inserted itself into all aspects of the digital advertising marketplace, Google has used anticompetitive, exclusionary, and unlawful means to eliminate or severely diminish any threat to its dominance over digital advertising technologies,” the complaint read.

Google has said it has no plans to sell or exit the ad-tech business. It has also strongly contested claims in a lawsuit filed by state attorneys general, led by Texas, containing allegations similar to the Justice Department complaint. A federal judge denied the bulk of Google’s motion to dismiss the case last year, allowing it to proceed to the discovery stage and ultimately toward trial.

Google’s Android operating system is the most popular in the world—you can find Android code on everything from Peloton bikes to kitchen appliances and even NASA satellites. WSJ’s Dalvin Brown explains why it is the world’s most-used OS. Illustration: Rami Abukalam

Any divestiture of parts of Google’s ad-tech business would cause big ripple effects across the online advertising industry, which has recently shown signs of weakness as consumers dial back purchases in response to worsening economic conditions.

Breaking off parts of Google’s ad-tech business from the rest of the company could take years of litigation to resolve. Depending on the outcome of the case, ad-tech executives have said the results could range from a higher share of ad dollars flowing to publishers to lower overall spending because digital ads would be less efficient without Google brokering them.

The 149-page complaint makes detailed allegations about the internal workings of Google’s ad-tech operations. The suit alleges, for instance, that Google used anticompetitive tactics to build up the market share of its own ad server, which issues requests for advertisements on behalf of websites, and then used that market power to effectively push publishers into sending their ad inventory only to Google’s in-house ad exchange, AdX.

The Justice Department argues, in part, that this conduct locked out rival ad-tech providers, increasing prices for advertisers and costs of publishers.

“Google keeps at least thirty cents—and sometimes far more—of each advertising dollar flowing from advertisers to website publishers through Google’s ad tech tools,” the lawsuit alleges. “Google’s own internal documents concede that Google would earn far less in a competitive market.”

The lawsuit also alleges that Google executives worked to kill a rival online-bidding technology called “header bidding,” which the lawsuit says the company referred to internally as an “existential threat.” As part of a plan dubbed Project Poirot, the company allegedly changed its own ad-buying tools to underbid on behalf of advertisers when they turned to outside ad exchanges that used header bidding, so those rivals would lose more auctions and “dry out,” the complaint says.

At one point, Google also approached

Amazon.com Inc.,

to ask “what it would take for Amazon to stop investing in its header bidding product,” the complaint alleges, adding that Amazon rebuffed those requests.

“Google uses its dominion over digital advertising technology to funnel more transactions to its own ad tech products where it extracts inflated fees to line its own pockets at the expense of the advertisers and publishers it purportedly serves,” the complaint read.

The Justice Department case overlaps in some ways with the late 2020 lawsuit from the group of U.S. states led by Texas.

In Tuesday’s complaint, the Justice Department quotes some of the same internal communications as the Texas-led lawsuit, including how one Google executive compared the company’s control over ad-tech to the financial sector: “The analogy would be if Goldman or Citibank owned the NYSE,” referring to the New York Stock Exchange.

The case also shares similarities with an investigation that the EU’s top antitrust enforcer, the European Commission, opened in 2021, as well as one by the U.K.’s Competition and Markets Authority. Those probes are exploring allegations that Google favors its own ad-buying tools in the advertising auctions it runs, but also look at other elements of Google’s ad-tech business. The EU, for instance, is also looking at Google’s alleged exclusion of competitors from brokering ad-buys on its video site YouTube.

Mr. Garland said Tuesday that the Justice Department filed its own lawsuit because the federal government was harmed by Google’s allegedly monopolistic conduct. Federal agencies have since 2019 spent over $100 million on display ads, the complaint says. The government paid inflated fees and was harmed by manipulated advertising prices because of Google’s anticompetitive conduct, the lawsuit alleges.

Microsoft is deepening its partnership with OpenAI, the company behind ChatGPT and Dall-E. That has investors and analysts speculating whether Microsoft could challenge Google’s dominance in search. WSJ Heard on the Street columnist Dan Gallagher joins host Zoe Thomas to discuss how AI could affect search and at what cost.

Jonathan Kanter,

the assistant attorney general for antitrust, said while there are similarities with other lawsuits against Google, the Justice Department’s complaint is based on its own investigation that yielded “meticulous detail” about Google’s ad-tech business.

“We detail many facts, many episodes that in the individual and in the aggregate have maintained numerous monopolies,” Mr. Kanter said.

Google has attempted to settle the claims against its ad-tech business. In addition to offering to split off parts of its ad-tech business to avoid the Justice Department suit, the company last year discussed with the EU an offer to allow competitors to broker the sale of ads directly on the video service.

In 2021, the company agreed to give U.K. antitrust regulators effective veto power over elements of its plans to remove a technology called third-party cookies from its Chrome browser to settle an investigation there into the plan.

In France, Google agreed to pay a fine of 220 million euros, equivalent to about $239 million, and to improve data access to competing ad-tech companies, to not use its data in ways rivals couldn’t reproduce to settle a similar antitrust investigation in the country.

—Keach Hagey contributed to this article.

Write to Miles Kruppa at miles.kruppa@wsj.com and Sam Schechner at Sam.Schechner@wsj.com

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Technology

Microsoft Prepares to Go to Battle With FTC Over Activision Deal

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Microsoft Corp.

MSFT -1.73%

has signaled it plans to challenge the Federal Trade Commission’s lawsuit to block its $75 billion deal for

Activision

ATVI -0.38%

Blizzard Inc., and is expected to argue that it is an underdog in videogame developing.

The personal-computing company has been publicizing its position for months, saying the acquisition wouldn’t threaten competition in the industry because Microsoft trails rivals in videogame consoles and has a limited presence in mobile-game development. The company has also said it expects the industry to get more competitive in the future with the rise of cloud gaming.

Legal experts say Microsoft will likely build its case around those talking points as well as the fact that it is pursuing what is called a vertical merger, meaning it is buying a company in its supply chain as opposed to a direct competitor.

The deal “is fundamentally good for gamers, good for consumers, good for game developers and good for competition,” said

Brad Smith,

Microsoft’s president and vice chair, at the company’s annual shareholders meeting Tuesday. “We will have to present this case to a judge in a court because this is a case in which I have great confidence.”

Microsoft has until Thursday to respond to the FTC’s suit, which was filed Dec. 8 in the agency’s administrative court.

In its complaint, the FTC alleged the deal is illegal because it would give Microsoft the ability to control how consumers access Activision’s games beyond the Redmond, Wash., company’s own Xbox consoles and subscription services. The company could raise prices or degrade Activision’s content for people who don’t use its hardware to access the developer’s games, or even cut off access to the games entirely, the FTC said.

“If you can control an important source of content like Activision Blizzard, you have a variety of tools to leverage at your disposal,” which could stifle competition, an agency official said earlier this month.

At the shareholder meeting, Mr. Smith challenged the FTC’s concerns that Microsoft’s chief rival, PlayStation maker

Sony Group Corp.

, would be harmed by the deal, saying Sony has too big a lead in the high-performance console space to warrant protection.

Microsoft Gaming CEO Phil Spencer discusses growth in cloud gaming, gaming subscriptions and the planned acquisition of Activision Blizzard.

He further argued that the FTC’s case largely hinges on a worry that Microsoft could one day make games from Activision’s “Call of Duty”—which has been a hit among PlayStation users—exclusive to its Xbox system. Mr. Smith said Sony has about four times as many exclusive games on its consoles today as Microsoft has on its gaming machines.

Sony didn’t respond to a request for comment.

Microsoft said it made a last-minute offer to keep “Call of Duty” games accessible to others through a legally binding consent decree, augmenting an offer that the company had made months earlier to keep it accessible for at least 10 years.

A hearing would take place in the FTC’s administrative court in August, unless a resolution is reached before then. After the case is heard, legal experts say it could take months before a decision is handed down, and the losing side can then appeal it with the full commission. If an appeal is filed, the commission reviews the entire record anew and hears oral arguments, before deciding to uphold or overturn the administrative law judge’s order. At that point, if Microsoft loses, the company can appeal the commission’s decision to a federal appeals court.

“This is no way a slam-dunk case for the FTC,” said

Eric Talley,

a professor at Columbia Law School. “Even if the odds are a little bit long, they’re showing they’re willing to kick the tires to budge legal precedent a little bit more in their favor.”

Microsoft recently made a last-minute move to augment its offer to keep Activision’s ‘Call of Duty’ games accessible to others.



Photo:

Martin Meissner/Associated Press

Some analysts said Microsoft might want to drop the acquisition, which the company values at $68.7 billion after adjusting for Activision’s net cash, to avoid executive distraction and expensive regulatory concessions. Microsoft has said it is committed to addressing regulators’ concerns.

While the litigation is continuing, Microsoft could offer the FTC additional commitments or implement them itself, said

Benjamin Sirota,

an antitrust attorney with the law firm Kobre & Kim LLP in New York. But to be satisfied, the government would have to enforce those commitments, which “takes resources and circumstances often change,” he said. The agency might also consider how “commitments that solve a competition problem now might not work in the future,” he added.

The FTC faces hurdles in its case because of the deal’s vertical-merger status, according to

David Hoppe,

mergers and acquisitions, tech and media attorney with Gamma Law in San Francisco.

“With these cases, it’s hard to prove consumer harm,” he said. “It’s not two competitors combining, in which case the harm to consumers is typically self-evident.”

The FTC has been clear about its intention to expand the scope of harm beyond a merger’s likely impact on consumer prices, Mr. Hoppe said. The agency might be concerned about actions that could indirectly put consumers at risk, he said, such as the misuse of sensitive competitor information by the combined enterprise. That information could give Microsoft a way to keep newcomers in videogame distribution from succeeding, which could result in fewer options for consumers, he said.

“It’s all about the network effect,” Mr. Hoppe said.

Write to Sarah E. Needleman at Sarah.Needleman@wsj.com

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Technology

FTC’s Tussle With Microsoft Puts Spotlight on Cloud Gaming

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Cloud gaming is an emerging technology that allows people to stream videogames to nearly any internet-connected device, similar to how movies and shows are viewed on

Netflix,

Hulu and other streaming platforms.

The business model being developed alongside cloud gaming is a subscription service, where consumers get to play a catalog of games for a flat monthly or annual fee. With cloud gaming, players can avoid downloading games to their devices, which takes up memory, and they don’t need to invest in hardware such as a console or high-end computer. 

The FTC and videogame industry participants anticipate cloud gaming will become a much larger part of the market in years to come. With its lawsuit, the FTC says it is protecting the videogame-distribution market—as it is today and how it is expected to evolve—from being dominated by a few companies.

Microsoft is an early leader in cloud gaming with its Xbox Game Pass subscription service. The company’s $75 billion deal for Activision would bolster its content library, adding several blockbuster franchises including “Call of Duty,” “World of Warcraft” and “Candy Crush Saga.”

Microsoft, which has pledged to fight the FTC’s suit, has said it is an underdog in the existing console market, with Xbox’s position trailing

Sony Group Corp.’s

PlayStation and

Nintendo Co.

’s Switch. The company doesn’t disclose Xbox sales by volume.

Shoppers are seeing more out-of-stock messages than ever, but inventory tracking websites like HotStock and Zoolert are giving people a better chance of finding the hot-ticket products they’re looking for. Here’s how those websites work. Illustration: Sebastian Vega

The technology giant has also said that it has no meaningful presence in mobile, the biggest corner of the overall videogame industry by revenue.

Apple Inc.

and

Alphabet Inc.’s

Google, makers of the predominant smartphone operating systems, play a critical role in how people access mobile games, and they take a cut of developers’ in-app and subscription sales.

Xbox Game Pass, which Microsoft launched in 2017, offers a library of hundreds of games for subscribers to play starting at $9.99 a month. The basic plan allows subscribers to download individual games on their Xbox or PC to play whenever they want. For $14.99 a month, subscribers can play some of those games via the cloud, all part of Microsoft’s ambitions to build a “Netflix of gaming.” The company in January said Game Pass had 25 million subscribers.

Global consumer spending on cloud-gaming services and games streamed via the cloud will reach a combined $2.4 billion by the end of this year, according to an estimate from Newzoo BV. That is a tiny fraction—1.4%—of the $184.4 billion in overall spending on videogame software.

Sony, which has aggressively lobbied governments around the world to oppose the Microsoft-Activision tie-up, and others have attempted to grow their own cloud-gaming subscription services. Microsoft, for now, is the dominant player, accounting for 60% of the overall cloud-gaming business last year, according to an estimate from research firm Omdia.

Microsoft is an early leader in cloud gaming with its Xbox Game Pass subscription service.



Photo:

etienne laurent/Shutterstock

The FTC appears concerned that it “can’t see the unintended consequences even just a few years down the road for an acquisition like this,” said

Paul Swanson,

a Denver-based antitrust lawyer at Holland & Hart LLP. “What they’re saying here is we’re going to err on the side of preserving as many independent competitors as we can.”

Over the past decade, Microsoft has poured billions into its cloud operations primarily for selling software and infrastructure for enterprise customers. It is now building out a separate cloud infrastructure to power its videogaming ambitions, which have been under development since it launched its first Xbox console in 2001.

Cloud gaming hasn’t been an easy business to navigate. The technology is difficult for companies to execute smoothly because games need to support multiple players with minimal delay regardless of where players are located. Earlier this year, Google shut down its game-streaming service, Stadia, after struggling to gain traction with users.

Microsoft remains heavily invested in its Xbox hardware, but cloud gaming gives it an opportunity to reach more gamers. It wants to build its own mobile app store, a move it says would create more competition in mobile videogames, not less. The Redmond, Wash., company has argued that Apple and Google’s app marketplaces have policies that pose technical and financial barriers to its goals.

Representatives for Apple and Google didn’t respond to requests for comment. Apple has said that it doesn’t prevent cloud-gaming apps from appearing in the App Store and that it isn’t trying to block their emergence. 

Industry researcher and academic

Joost van Dreunen

said Microsoft’s mobile move would likely benefit the videogame ecosystem by diminishing Apple and Google’s grip.

Microsoft has said it is an underdog in the console market, with Xbox trailing consoles such as Nintendo’s Switch.



Photo:

Guillaume Payen/Zuma Press

“It breaks down the so-called walled-garden strategy that has dominated the game industry for 20 years,” he said.

Since Microsoft announced its deal for Activision, which it values at nearly $69 billion after adjusting for the developers’ net cash, some videogame players have been concerned about what it means for industry competition. 

Steve Schweitzer of State College, Pa., is worried that Microsoft will raise the price of Game Pass over time. He said that it is affordable now but that in a few years, if Microsoft becomes more dominant, it could bump up the price and start cutting back on quality. Mr. Schweitzer, 55 years old, said he remembers back in the 1990s when Microsoft was able to use its market power to capture market share in the browser wars. “I’ve seen this game before,” he said.

Before its lawsuit, the FTC had been reviewing the deal for months. Regulators in other jurisdictions, including the European Union and the United Kingdom, are doing the same. The company has gained approval for the deal in smaller markets such as Brazil and Saudi Arabia.

Write to Sarah E. Needleman at sarah.needleman@wsj.com and Aaron Tilley at aaron.tilley@wsj.com

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Technology

FTC’s Move to Block Microsoft’s Deal for Activision Blizzard Came Despite Charm Offensive

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Microsoft Corp.

MSFT -0.80%

had been working for close to a year to calm regulators’ concerns about its acquisition of videogame developer

Activision Blizzard Inc.,

ATVI 0.54%

but the Federal Trade Commission’s suit to block the deal raised doubts about the company’s pledge not to shut out rivals. 

The FTC this week took one of its biggest swings ever against a big technology company and sued to stop the planned $75 billion acquisition, setting the stage for a court challenge over a deal the antitrust agency said would harm competition.

The commission’s complaint said the deal is illegal because it would give Microsoft the ability to control how consumers beyond users of its own Xbox consoles and subscription services access Activision’s games. Microsoft has repeatedly said it wouldn’t engage in such actions. The FTC’s complaint accused Microsoft of reneging on a similar pledge to a European regulator in the past, a criticism the company disputes.

Earlier this week, as the possibility of a lawsuit grew, Microsoft touted the deal’s benefits to gamers through an op-ed article in The Wall Street Journal and announced an agreement to give a competitor access to one of Activision’s most popular games. The FTC filed its lawsuit on Thursday.

“The Proposed Acquisition, if consummated, may lessen competition substantially or tend to create a monopoly,” the FTC said in its complaint against Microsoft.

Executives at the Redmond, Wash., company have said it would take a long time to get all the approvals needed from regulators around the world, and it had given itself close to 18 months for the process. The deal could now miss Microsoft’s mid-2023 deadline, and some analysts said Microsoft might want to drop the acquisition.

Microsoft should “take the hint and give up the deal that, if completed, might end up a Pyrrhic victory of executive distraction and expensive regulatory concessions,” John Freeman, vice president at investment-research firm CFRA Research, wrote in a note to investors.

Competitors had expressed concerns the deal would block them from access to Activision games such as the popular ‘Call of Duty’ franchise.



Photo:

Allison Dinner/Associated Press

At stake is Microsoft’s big ambitions for its videogaming business, which had revenue of $16 billion in the company’s last fiscal year. That total represents less than 10% of Microsoft’s overall revenue. The business is a crucial part of Microsoft’s plans to diversify to attract more noncorporate customers.

The FTC’s move came after the company had avoided the brunt of the anti-tech backlash of recent years.

The suit represents a “somewhat meaningful setback” for Microsoft because of the company’s longtime lobbying efforts, said Stifel Nicolaus analyst Brad Reback. “They’ve worked very hard to stay on the right side of government agencies.”

Microsoft’s representative in Washington—its vice chairman and president,

Brad Smith

—has been building relationships in the capital for decades. He had helped cultivate an image of the software giant as one of the friendly technology leaders, an enviable position in a regulatory environment that has been increasingly hostile toward tech titans.

One of the longest-serving leaders inside Microsoft, Mr. Smith joined the company in 1993 and was a legal adviser through its bitter antitrust disputes with regulators worldwide in the 1990s.

“We have been committed since Day One to addressing competition concerns, including by offering earlier this week proposed concessions to the FTC,” Mr. Smith said after the lawsuit was filed. “While we believed in giving peace a chance, we have complete confidence in our case and welcome the opportunity to present our case in court.”

In its complaint, the FTC accused Microsoft of previously suppressing competition from rivals through its 2021 acquisition of ZeniMax Media Inc., parent of “Doom” developer Bethesda Softworks, despite giving assurances to European antitrust authorities that it would do otherwise. Microsoft said the FTC’s ZeniMax allegation is misinformed.

Brad Smith, Microsoft’s vice chairman and president, has been building relationships in Washington for decades.



Photo:

Zed Jameson/Bloomberg News

Microsoft officials have expressed confidence in closing the Activision deal, which it has valued at $68.7 billion after adjusting for Activision’s net cash. Lawmakers and industry representatives have said it would be hard for any of the biggest U.S. tech companies—including

Apple Inc.,

Amazon.com Inc.,

Google parent

Alphabet Inc.

or

Facebook

owner Meta Platforms Inc.—to win approval for a large acquisition in the current political environment.

In recent years, as government scrutiny and competition between the biggest tech companies have been increasing, Microsoft has tried to appease regulators.

For example, in May, Microsoft announced a set of principles it would abide by when dealing with cloud-service providers in Europe, hoping to assuage concerns its cloud business was hurting European cloud companies. The principles included pledges to work with European cloud providers and support the success of software vendors running on Microsoft’s cloud.

Amid concern the deal could hurt attempts to unionize at Activision or elsewhere in the gaming industry, Microsoft in June said it was open to working with any labor unions that want to organize.

As PlayStation maker

Sony Group Corp.

and others said they were concerned the acquisition could leave competitors locked out of Activision’s popular “Call of Duty” franchise, Microsoft this week said it would make it available for the first time on Nintendo Co.’s Switch gaming consoles for at least 10 years.

Microsoft this week also made its case to the public. “Blocking our acquisition would make the gaming industry less competitive and gamers worse off,” Mr. Smith, wrote in the Monday op-ed article in the Journal. “Think about how much better it is to stream a movie from your couch than drive to Blockbuster. We want to bring the same sort of innovation to the videogame industry.”

It is too soon to tell whether the FTC can succeed in blocking the acquisition. The agency likely will have to go before a federal judge, a process that could take months to unfold, said Eric Talley, a professor at Columbia Law School.

The case could be difficult for the regulator to win because courts have traditionally not seen deals among companies that specialize in different phases of the same industry’s production process—so-called vertical mergers—as competitive dangers, he said.

“It may require the commission to convince a judge to change the law somewhat,” he said. “That makes it a difficult case for the FTC to win, though they presumably knew this going in.”

Write to Sarah E. Needleman at Sarah.Needleman@wsj.com

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Business

Judge Rejects Antitrust Challenge to UnitedHealth Acquisition

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U.S. District Judge Carl Nichols ruled for the companies in an opinion that he kept under seal for now because he said it “may contain competitively sensitive information.” The judge said he would release a redacted public version of the ruling in the coming days. In a one-page public order, he denied the Justice Department’s request to block the companies from completing the deal.

The court ruling represents an early blow to stepped-up antitrust enforcement by the Biden administration, which sued in February to block the deal. The Justice Department’s top antitrust official,

Jonathan Kanter,

said the department disagreed with the decision and was considering its next steps.

“Protecting competition and access to affordable healthcare is of the utmost importance to the antitrust division and the Department of Justice,” Mr. Kanter said.

The decision is a triumph for UnitedHealth, which owns the largest U.S. health insurer and a healthcare operation that comprises thousands of doctors as well as clinics, surgery centers and other assets, along with a powerful conglomeration of health data.

In a statement, a UnitedHealth spokesman said, “We are pleased with the decision and look forward to combining with Change Healthcare as quickly as possible so that together we can continue our work to make the health system work better for everyone.”

Change provides services related to payment processes for healthcare systems, analytics for financing and billing and tools that help hospitals make decisions about patient care.

UnitedHealth had agreed to divest business assets related to claims-processing to address competition concerns, an offer the Justice Department had dismissed as insufficient.

Judge Nichols in his order required UnitedHealth to make that divestiture.

UnitedHealth’s deal for Change, announced in January 2021, will bring the health-technology company under the company’s Optum health-services arm. UnitedHealth had argued that its combination with Change could help improve care by getting better information to doctors, and reduce waste. It agreed to pay nearly $8 billion for Change and assume about $5 billion in debt.

The Justice Department had argued that the deal would give UnitedHealth a virtual monopoly on an important tool that health insurers use to determine when a claim should be paid. And it said the company shouldn’t be allowed to own Change Healthcare’s data clearinghouse, which rival insurers use to compete with UnitedHealth.

The judge, an appointee of former President

Donald Trump,

signaled his skepticism of the lawsuit in a hearing earlier this month. A trial took place in August.

The lawsuit was part of an early batch of antitrust cases brought by the Justice Department under President Biden, a Democrat, that were designed to take a harder line on corporate deal activity. Among other cases, the department is waiting on a ruling in its challenge to a major publishing industry deal, Penguin Random House’s planned acquisition of Simon & Schuster. And it is preparing to go to trial next week in its lawsuit challenging a partnership between

American Airlines Group Inc.

and

JetBlue Airways Corp.

The current crop of antitrust officials, backed by calls from Democrats for a more aggressive approach, have sought to set new court precedents that would steer the law in a broader direction, after years of rulings in which the judiciary has tended to read the antitrust laws more narrowly than a generation ago. Monday’s decision served as a reminder that the Justice Department’s goals are dependent on proving their cases in front of a judge.

The Federal Trade Commission, which shares antitrust authority with the department, also is facing hurdles. It recently lost a ruling from its own in-house administrative law judge, in a case where it was challenging

Illumina Inc.’s

acquisition of cancer-testing developer Grail Inc.

Monday’s decision comes as UnitedHealth and its rivals have continued to move more deeply into vertical integration of health assets, spanning insurance and healthcare provider businesses, as well as pulling together ever-larger troves of health data.

Even after the Justice Department filed suit to block the Change deal, UnitedHealth moved ahead with other acquisitions, including a $5.4 billion takeover of home-health company

LHC Group Inc.

announced last March.

Earlier this month,

CVS Health Corp.

—the parent of health insurer Aetna, a pharmacy-benefit operation and its eponymous drugstores—announced an $8 billion deal to take over home-healthcare company Signify Health Inc. CVS has said it wants to get deeper into the business of primary care.

Write to Anna Wilde Mathews at anna.mathews@wsj.com and Brent Kendall at brent.kendall@wsj.com

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Business

Google Loses Most of Appeal of EU Android Decision

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BRUSSELS—

Alphabet Inc.’s

GOOG 0.57%

Google suffered legal blows on two continents this week, a significant setback in the company’s efforts to fight allegations that it is abusing its dominance in digital advertising and on mobile phones.

The EU’s General Court in Luxembourg on Wednesday largely upheld a 2018 decision by the EU competition regulator that fined Google $4.33 billion for allegedly abusing the market dominance of its Android operating system for mobile phones to promote and entrench its Google search engine and Chrome browser on mobile devices.

The decision came shortly after a federal judge in the United States District Court for the Southern District of New York on Tuesday denied the bulk of Google’s motion to dismiss the claims brought by a coalition of states led by Texas alleging Google abused its dominance in digital advertising tools, allowing the case to proceed to the discovery stage and ultimately toward trial.

The EU ruling means Google will very likely continue applying some of the changes it has made since to comply with the 2018 decision, including offering users in the EU a choice screen of different search engines. The Android case was the biggest of three antitrust fines totaling more than $8 billion that the EU has levied against Google since 2017—and it focused on mobile phones, one of the company’s fastest growth areas.

The ruling is also a vote of confidence for the European Commission, the bloc’s antitrust enforcer, which has been aggressive in targeting big U.S. tech companies and other firms over concerns about anticompetitive behavior. Last week, the Commission blocked

Illumina Inc.’s

$7.1 billion merger with cancer-test developer Grail Inc., two U.S. companies.

In the U.S., Judge P. Kevin Castel’s decision was closely watched because the Justice Department has been preparing a similar antitrust case against Google over its position in the advertising technology industry.

In both cases, Google did score some partial victories.

In the EU, the court annulled one element of the decision that alleged Google had broken competition laws by making revenue-sharing payments to manufacturers to exclusively pre-install only Google Search, not competing search engines. As a result, the court reduced the overall fine by about 5% to €4.13 billion, about the same in dollars.

“We are disappointed that the court did not annul the decision in full,” a Google spokesman said, adding that Android has created more competition in the mobile phone industry. The company has previously said it should be able to recoup the money it spends developing Android by encouraging manufacturers to install Google Search.

The court’s decision can still be appealed to the EU’s top court, the Court of Justice. Google said it would review the decision before deciding whether to appeal.

In the U.S., the judge tossed out claims pertaining to Google’s “Jedi Blue” ad agreement with rival Facebook—now known as Meta Platforms Inc. The plaintiffs alleged the deal was part of a plan to “kill” an alternative ad technology called header bidding that Google executives feared would harm its business. He also knocked down the plaintiffs’ claim that Google’s Accelerated Mobile Pages, or AMP, technology was part of an anticompetitive plot to curtail header bidding, among several other claims from the plaintiffs.

In a blog post Tuesday in response to the U.S. decision, Google called the Jedi Blue allegations the “centerpiece” of Texas’s case, and cited the various allegations that were tossed out as evidence that the case was “deeply flawed.”

In a statement on Wednesday, Texas Attorney General

Ken Paxton

applauded the judge’s decision, calling it “a major step in the right direction to make our free market truly free.”

The 2018 EU Android case has been significant because it focused on Google’s efforts to increase its mobile business, but also because it underscored Google detractors’ arguments that antitrust enforcement takes too long. By the time the commission had issued its decision, those detractors said Android had already helped make Google Search as dominant on mobile devices as it had been on desktops.

Shortening the time it takes to force companies to make changes in the market was a major reason that the EU pursued new digital-competition legislation called the Digital Markets Act, passed earlier this year. The new law will eventually make it illegal for Google and other very large tech companies to engage in a range of practices that the bloc considers to be anticompetitive, including some of the practices the commission has previously issued fines for.

The 2018 decision focused in large part on how Google bundled together the licensing of its apps for Android devices. In that decision, the EU ordered Google to stop requiring smartphone manufacturers to pre-install the company’s search app and Chrome web browser as a condition for licensing Google’s popular Play app store. It also said the company would have to allow manufacturers to install Google apps on systems that run alternative versions of the Android operating system.

The EU argued Google’s practices had made it harder for potential competitors to emerge and were part of a strategy that was meant to ensure that Google’s search engine would remain dominant as consumers began using search engines on their smartphones.

Google quickly appealed the 2018 decision but also had to comply with it while its appeal was under way. Google changed its licensing deals for manufacturers and implemented what it called a Choice Screen on Android devices, allowing users of new phones in the EU to select alternate default search engines. So far that choice screen doesn’t appear to have had an appreciable impact on the market share for Google Search in Europe.

Google’s appeal of the case centered in part on whether its Android operating system is dominant, arguing that the Commission was wrong to consider Android devices as their own market without seeing them as competitors to

Apple’s

iPhone and iPad devices. The company also argued that requirements to bundle Google Search with its app store weren’t anticompetitive, and that restrictions on use of other versions of Android were needed to ensure Android phones would be compatible with the company’s apps. The court dismissed Google’s arguments on all those points on Wednesday.

Google also argued that the revenue-sharing agreements that required phone makers not to pre-install other search engines covered less than 5% of the market and didn’t have an impact on competitors. The court on Wednesday sided with Google, ruling that the Commission didn’t prove its case on that point.

It is the European Commission’s second court victory against Google in as many years. Last year, Google lost its appeal of a separate, $2.42 billion antitrust fine over allegedly directing users of its search engine to Google’s own comparison-shopping ads at the expense of other services. A second appeal to the EU’s top court is pending.

Google was also fined $1.49 billion in 2019 for limiting how some websites could show ads that were sold by the company’s rivals. Its appeal of that case is still under way.

Google continues to attract scrutiny from antitrust regulators in the EU. Last year, the commission opened a formal antitrust investigation into allegations that Google abuses its dominant position in advertising technology. Google said its ad-tech tools are competitive and that it would work with the commission to resolve its questions.

The Wall Street Journal reported earlier this year that Google had offered concessions to try to ward off a potential antitrust lawsuit in the U.S. targeting the company’s ad-tech business.

The Wall Street Journal reported earlier this year that Google had offered concessions to try to ward off the Justice Department’s antitrust lawsuit targeting the company’s ad-tech business, but people familiar with the matter say the offer wasn’t likely to satisfy regulators.

Write to Sam Schechner at sam.schechner@wsj.com and Kim Mackrael at kim.mackrael@wsj.com

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Business

FTC Investigating Amazon Deal to Buy One Medical Network of Health Clinics

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WASHINGTON—The Federal Trade Commission is investigating

Amazon.com Inc.’s

AMZN -0.24%

$3.9 billion deal to buy

1Life Healthcare Inc.,

ONEM 0.35%

which operates One Medical primary care clinics in 25 U.S. markets.

1Life, which went public in 2020, disclosed the investigation in a securities filing. The disclosure says One Medical and

Amazon

AMZN -0.24%

each received a request on Friday for additional information about the deal from the FTC.

Amazon’s

AMZN -0.24%

bid for One Medical added momentum to the push by technology and retail giants to make inroads into the nation’s $4 trillion healthcare economy. The deal was the first major acquisition announced during the tenure of Chief Executive

Andy Jassy,

for whom expansion into healthcare is a priority.

The FTC’s move to investigate the deal could delay its completion as federal competition investigations often take months to finish. Significant U.S. antitrust probes on average take about 11 months, according to data compiled by law firm Dechert LLP.

FTC Chairwoman Lina Khan is a critic of Amazon, having written a 2017 law review article that argued Amazon’s conglomerate-like structure shouldn’t have escaped antitrust scrutiny. Ms. Khan said Amazon’s entry into businesses beyond its e-commerce platform allowed it to gather data it could use to undercut other companies.

The FTC is investigating Amazon’s Prime membership program, according to a legal petition Amazon filed last month. The company argued that FTC staff had made excessive demands on founder

Jeff Bezos

and other company executives and asked officials to quash the subpoenas.

An Amazon spokeswoman declined to comment.

Mr. Jassy is focused on healthcare as an industry in which Amazon could find significant growth opportunities. The company recently revealed that it plans to shut down a healthcare unit it launched in 2019 called Amazon Care after it announced the One Medical deal.

The transaction would give Amazon more than 180 clinics with employed physicians across roughly two dozen U.S. markets. One Medical Chief Executive

Amir Dan Rubin

is expected to remain as CEO once the deal closes.

The line between Amazon and Walmart is becoming increasingly blurred, as the two companies seek to maintain their slice of the estimated $5 trillion retail market while chipping away at the other’s share, often by borrowing the other’s ideas. Photos: Amazon/Walmart

As Amazon seeks to grow in healthcare, the company faces added challenges from competitors such as

UnitedHealth Group Inc.’s

Optum health-services arm and

CVS Health Corp.

, in addition to hospital systems.

In a memo to employees,

Neil Lindsay,

senior vice president of Amazon Health Services, said the healthcare industry continues to be an important arena for innovation.

“As we take our learnings from Amazon Care, we will continue to invent, learn from our customers and industry partners, and hold ourselves to the highest standards as we further help reimagine the future of health care,” Mr. Lindsay wrote.

Write to Dave Michaels at dave.michaels@wsj.com

Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

Appeared in the September 3, 2022, print edition as ‘FTC Probes Amazon Deal for One Medical.’

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Business

Illumina Wins Case Against FTC on Grail Acquisition

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Illumina said the judge rejected the FTC’s position that the deal would hurt competition in the market for multicancer early-detection tests.

“As we’ve stated from the outset, this transaction is procompetitive, will advance innovation, lower healthcare costs and save lives,” said Charles Dadswell, general counsel of Illumina.

The decision, which the FTC staff can appeal, suggests the agency could face hurdles as it tries to push into newer theories of harm that can result from unchecked merger activity. The FTC alleged Illumina’s purchase of Grail could diminish innovation—a concern that goes beyond antitrust’s traditional focus on price levels and output.

In a statement, FTC Bureau of Competition Director Holly Vedova said the agency’s staff is disappointed with the decision and believes it mounted a strong case. “We are reviewing the opinion and evaluating our options,” Ms. Vedova said.

San Diego-based Illumina, which makes genetic-sequencing products, agreed in 2020 to acquire Grail, which is developing blood tests for early cancer detection. Illumina founded Grail and had spun it off in 2017, retaining a minority ownership stake. The 2020 deal was to acquire the part of Grail that it didn’t already own.

But in 2021, the FTC moved to block the deal, claiming that it would harm competition in an emerging field of tests for early-stage detection of multiple types of cancers.

The FTC said Grail and other developers of early-stage cancer tests all rely on Illumina’s DNA-sequencing platform. “If the acquisition is consummated, Illumina will gain the incentive to foreclose or disadvantage firms that pose a significant competitive threat to Grail,” the FTC wrote in its complaint last year. Illumina countered that it has made an open offer to provide continued access to its DNA sequencing to any Grail competitors.

Illumina closed its acquisition of Grail in 2021, despite the pending legal challenges.

The case isn’t the first time that Chief Administrative Law Judge D.

Michael Chappell

has ruled against the FTC on one of its lawsuits. Earlier this year, he rejected the FTC’s challenge of

Altria Group Inc.’s

purchase of a large stake in e-cigarette maker Juul Labs Inc. The FTC’s staff appealed that decision. The case is now pending before the commissioners.

Judge Chappell also ruled against the FTC in a data-security case in 2015.

The FTC under Chair Lina Khan has investigated more proposed mergers and vowed to take a stronger position against deals that could threaten competition. Ms. Khan has said antitrust enforcers need to be more forward-looking, prioritizing concerns such as preserving incentives for innovation, protecting workers and buttressing small businesses.

Illumina’s deal was an example of vertical merger, a type of transaction that integrates complementary instead of competing companies, allowing the combined firm to expand into new or related businesses or lower its input costs. Vertical deals have often been viewed with far less skepticism, but the FTC last year withdrew guidelines for reviewing them, indicating enforcers planned to apply tougher scrutiny to them.

“This case was always something of a stretch,” said

Stephen Calkins,

a law professor at Wayne State University. “It was a vertical case, which is a challenging area of law, and the law judge conspicuously noted during the oral arguments that there were very high stakes in terms of healthcare innovation.”

Illumina’s legal challenges aren’t over, as the FTC’s staff could appeal Judge Chappell’s decision to the agency’s commission. The commission authorized the legal challenge to the deal in March 2021 on a bipartisan vote. If the commission overruled Judge Chappell, the companies could take their case to a federal appeals court.

The FTC had initially sought a federal court injunction that would have blocked the closing of the acquisition, but it backed off because Illumina and Grail were facing antitrust scrutiny in Europe.

Instead, the FTC proceeded with an administrative complaint over the deal, resulting in a trial before an administrative law judge in August and September of 2021. The new ruling arises from that trial and post-trial briefs filed by Illumina and the FTC.

In July, a European Union court ruled that the EU’s competition regulator has jurisdiction to review the Illumina-Grail deal under European merger regulations. Illumina said it intends to appeal that decision. The European Commission said in July that Illumina’s decision to complete the Grail deal breached European regulations.

Illumina is keeping the Grail business separate from the rest of its business while these legal challenges play out.

For Illumina, full control of Grail would give it a solid position in what analysts estimate could be a $50 billion market for tests that can detect multiple cancers early.

Last year, Grail introduced Galleri, a test designed to detect more than 50 types of cancer. The test is intended for people with elevated risk of cancer, such as adults 50 and older, and as a complement to standard single-cancer screening tests. Galleri costs about $950 per test and generally isn’t covered by insurers.

But Galleri sales to date have been lower than expected, as some health systems have taken a measured approach toward using the test.

“We believe it’s a fantastic test,” Illumina Chief Executive Francis deSouza said in an interview. “We believe that in Illumina’s hands, we can make this test available to more people, more affordably and more quickly than in Grail’s hands.” He added that it could save many lives and healthcare costs.

Illumina shares declined 0.5% to $200.62 Thursday. SVB Securities analysts said in a research note that despite the win, there continues to be regulatory uncertainty around the deal, delaying Illumina’s full integration of Grail and its benefits.

Write to Peter Loftus at peter.loftus@wsj.com and Dave Michaels at dave.michaels@wsj.com

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Sports

Phil Mickelson and 10 Other LIV Golfers File Antitrust Lawsuit Against PGA Tour

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Eleven golfers on the Saudi-backed LIV Golf circuit—including Phil Mickelson and Bryson DeChambeau—filed an antitrust lawsuit against the PGA Tour Wednesday challenging their suspensions, the opening salvo in a legal fight that could reverberate across professional sports. 

The group includes three players—Talor Gooch, Hudson Swafford and

Matt Jones

—who are seeking a temporary restraining order that would allow them to play in the Tour’s

FedEx

Cup Playoffs, which begin next week. Each had qualified for the playoffs before signing on to play for LIV, before being told by the PGA Tour they were being excluded from the event because of their participation in the LIV series.

The PGA Tour has suspended players lured to its rival by extraordinary appearance fees and record prize funds, pointing to Tour bylaws that bar members from appearing in other events without the permission of the commissioner. Many of the LIV golfers, such as Dustin Johnson, resigned their PGA Tour memberships.  

The PGA Tour has said it believes those rules are appropriate, and legal. People familiar with the Tour’s thinking expect the Tour will say that its arrangement with players is akin to similar agreements that are ubiquitous across the economy.

In a memo Wednesday to players, PGA Tour commissioner

Jay Monahan

defended the suspensions. He wrote that the Tour has been preparing for this attempt to “disrupt” the Tour and that the players should be confident in the legal merits of the Tour’s position. 

“Fundamentally, these suspended players – who are now Saudi Golf League employees – have walked away from the TOUR and now want back in,” Monahan’s memo said. “With the Saudi Golf League on hiatus, they’re trying to use lawyers to force their way into competition alongside our members in good standing.”

LIV Golf had been readying to bring an antitrust challenge against the PGA Tour, even before it launched, arguing that the PGA Tour has monopoly power in the golf market and is using that power to try to exclude an upstart challenger, by trying to restrict or drive up the price of LIV’s access to players.

The complaint and application for a temporary restraining order were filed in ​​the U.S. District Court for the Northern District of California. Ian Poulter, Abraham Ancer, Carlos Ortiz, Pat Perez, Jason Kokrak and Peter Uihlein round out the golfers putting their names to the suit, arguing that the PGA Tour is trying to hurt their careers.

“The Tour’s conduct serves no purpose other than to cause harm to players and foreclose the entry of the first meaningful competitive threat the Tour has faced in decades,” they say.

Talor Gooch acknowledges the crowd during a LIV Golf event in Bedminster, N.J.



Photo:

Seth Wenig/Associated Press

LIV Golf and the extraordinary money behind it has plunged the sport into tumult and financial upheaval. LIV is offering $25 million in prize money at its tournaments—far more than is currently offered on the PGA Tour—and top pros appear to have been offered hundreds of millions of dollars as sign-up inducements alone. The PGA Tour has responded by upping its purses at select tournaments and creating alternate routes, including new proposed international events, but has said it cannot compete with Saudi Arabia’s sovereign wealth fund. 

The result has been a schism inside the sport that is upending the business unlike ever before. LIV is a richly funded startup. The PGA Tour has historical cache and billions of dollars in television deals—and now has to fend off an unprecedented challenge, on and off the golf course. 

In their motion for a temporary restraining order, Gooch, Swafford and Jones say they appealed to the PGA Tour to be allowed to play in the playoffs, and that under Tour rules they should be allowed to play in the playoffs while their appeals are heard. It adds that the Tour violated its own disciplinary process when it told the players this week they wouldn’t be permitted to play while the appeals are pending. 

“The purpose of this action is to strike down the PGA Tour’s anti-competitive rules and practices that prevent these independent-contractor golfers from playing when and where they choose,” that motion says. 

The LIV players’ lawyers also cite the Tour’s efforts with the European tour and the PGA Tour’s alleged efforts to coordinate with the major championships as evidence that the body is acting unlawfully to cut off the players’ access to the golf ecosystem.

The lawsuit also provides new details about Mickelson’s status on Tour, which had been the subject of significant intrigue after he ceased playing in the wake of controversial comments regarding Saudi Arabia’s record on human rights that were published earlier this year. The lawsuit says Mickelson was suspended by the PGA Tour back in March for allegedly recruiting players to play for LIV, among other reasons, and that his appeal was denied. When he applied for reinstatement in June, the suit says, the Tour denied it based on his participation in the first LIV event that month outside London. It said he was forbidden from applying for reinstatement until March 2023, which was extended until March 2024 after he played the second LIV event. 

The FedEx Cup Playoffs caps the PGA Tour’s season with a series of events that feature increasing hype—and increasingly small fields—culminating with the Tour Championship. The FedEx Cup is also a season-long event in which players accumulate points based on their play, and the top points-getters land lucrative payouts. The top finisher in the FedEx Cup, currently world No. 1 Scottie Scheffler, is in line for an $18 million prize. 

The perks of playing in the playoffs are significant. The prizes and bonus money are large. Strong performances can qualify players for major championships. They are also some of the Tour’s highest-profile events that draw attention to the golfers and, along with that, big branding opportunities.  

Under the current rules, the top 125 players are invited to the first event of the FedEx Cup playoffs, the St. Jude Championship that begins next week. Then 70 make the BMW Championship before a slim field of 30 competes for the Tour Championship. 

But the LIV Golf defections led to questions about how those fields would be managed when players in the top 125 included LIV defectors who had been suspended. To address the issue, the PGA Tour modified its protocols recently to allow players from outside the top-125 to move up and take the spots of the players who had departed. 

The lawsuit filed by the golfers means that the PGA Tour is now facing legal battles over its practices on multiple fronts. In addition to this lawsuit, the Justice Department has launched an antitrust investigation into whether the Tour has engaged in anticompetitive behavior, The Wall Street Journal first reported. 

The Tour, however, has already begun fighting back, commanding support on Capitol Hill from lawmakers in both parties suspicious of LIV’s Saudi backers. It has previously said that it expects to prevail in the Justice Department inquiry, noting that it faced a similar inquiry in the mid-1990s from the Federal Trade Commission and quashed that with striking political backing.

The PGA Tour is expected to respond to the LIV golfers’ pursuit of an injunction by arguing that the players do not face a real emergency; have known about the situation for some time; should not be rewarded for filing at the last minute; and that letting them in would mean other players lose out, according to people familiar with the Tour’s thinking. 

Monahan’s memo to players emphasized that point, saying that Gooch, Jones and Swafford had filed now “despite knowing they would be ineligible for tournament play as early as June.”

The Tour will also say that they don’t have the right to play the FedEx Cup under the rules that they had previously agreed to after violating those bylaws by playing for LIV. 

The lawsuit says Phil Mickelson was suspended by the PGA Tour back in March for allegedly recruiting players to play for LIV.



Photo:

Seth Wenig/Associated Press

On the antitrust arguments more broadly, it is likely to argue that LIV and its golfers are seeking to “free ride” on value created by the collective efforts of participants in the Tour and that the Tour does not have to cooperate with a competitor, the people said.

That argument was also previewed in Monahan’s memo, when he described LIV players’ desire to compete in PGA Tour events as “an attempt to use the TOUR platform to promote themselves and to freeride on your benefits and efforts.”

“To allow reentry into our events compromises the TOUR and the competition, to the detriment of our organization, our players, our partners and our fans.”

The PGA Tour could also argue that LIV is acting in a predatory fashion, seeking to harm the Tour to the detriment of all the players who don’t get big contracts with LIV, maybe with the ultimate goal of hobbling the Tour so that it could be taken over by the Saudi Public Investment Fund. 

This lawsuit is the first in the U.S. that has pitted the two sides against one another, but LIV players had previously secured a favorable outcome in Europe. 

A handful of players successfully won a stay on their suspensions from the Genesis Scottish Open, which is co-sanctioned by the PGA and European tours. Days before the event, a judge hearing the golfers’ complaint through a dispute resolution service said those bans should be temporarily enjoined.

Write to Louise Radnofsky at louise.radnofsky@wsj.com and Andrew Beaton at andrew.beaton@wsj.com

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Business

Amazon Has Been Slashing Private-Label Selection Amid Weak Sales

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Amazon.com Inc.

AMZN 0.21%

has started drastically reducing the number of items it sells under its own brands, and the company has discussed the possibility of exiting the private-label business entirely to alleviate regulatory pressure, according to people familiar with the matter.

Amazon’s private-label business, with 243,000 products across 45 different house brands as of 2020, has been a source of controversy because it competes with other sellers on its platform. The decision to scale back the house brands resulted partly from disappointing sales for many of the items, the people said. It also came as the retail-and-technology giant has faced criticism in recent years from lawmakers and others that it sometimes gives advantages to its own brands at the expense of products sold by other vendors on its site.

Over the past six months, Amazon leadership instructed its private-label team to slash the list of items and not to reorder many of them, the people said. Executives discussed reducing its private-label assortment in the U.S. by well over half, one of them said.

Dave Clark initiated a review of Amazon’s private-label business.



Photo:

LINDSEY WASSON/REUTERS

The move was initiated after a review of the business by

Dave Clark,

a longtime Amazon executive who took over as head of its global consumer business in January 2021, the people said. Mr. Clark left the company last month. As a result of that review, Mr. Clark pushed the team to focus on bestselling commodity goods, along the lines of

Target Corp.’s

“Up & Up” or

Walmart Inc.’s

“Great Value” brands, rather than offer the extensive range of items Amazon currently does, the people said.

Amazon’s private-label business started in 2009 with consumer electronics products such as cables and expanded into other categories. It now encompasses everything from vitamins and coffee to clothing and furniture, with brand names such as Amazon Basics, Goodthreads and Solimo. However, Amazon has said that its house brands only account for about 1% of its retail sales. Amazon’s revenue last year, including other businesses such as its cloud-computing operation, totaled $469.8 billion.

The growing scale of its own offerings increasingly put Amazon in competition with other sellers on its platform, angering those sellers and resulting in antitrust scrutiny.

In 2020, The Wall Street Journal detailed how Amazon employees used data from its platform on individual third-party sellers to develop Amazon-branded products that compete with those sellers. The Journal also reported that year how some major brands were angered by products Amazon developed for its own labels that closely resembled their items, claiming the tech company copied their designs.

Amazon at the time said it was opening an internal investigation into how its private-label employees use seller data and if they were violating a company policy not to use such data. In testimony to Congress, then-CEO

Jeff Bezos

said “I can’t guarantee you that policy has never been violated.”

Amazon’s handling of such competition issues has been under scrutiny from a congressional committee investigating big tech companies and from regulators including the Securities and Exchange Commission, which the Journal reported in April was examining how the company disclosed some details of its business practices. The Federal Trade Commission has been investigating Amazon’s competitive practices.

Amazon Basics products on display at an Amazon 4-star store in Berkeley, Calif., in 2019.



Photo:

Cayce Clifford/Bloomberg News

Amazon has said its platform provides opportunity for nearly two million small- and medium-size businesses that sell there, and that it competes fairly and in a way that benefits its customers.

The scrutiny has prompted Amazon executives over the past year to consider fully exiting private brands, and how the company might go about that, the people said. The executives decided not to take any action until necessary, potentially as a concession they could offer if the FTC or another regulatory agency were to threaten or file litigation, some of the people said.

After a version of this article published online, Amazon said in a statement that: “We never seriously considered closing our private label business and we continue to invest in this area, just as our many retail competitors have done for decades and continue to do today.”

A spokeswoman declined to comment on whether it has discussed the possibility, or to say how many private label items it is cutting.

U.S. lawmakers have proposed legislation aimed at big tech companies including Amazon that would bar dominant tech platforms from favoring their own products and services. On Thursday, Amazon proposed concessions to settle two antitrust cases against it in the European Union. Amazon promised not to use nonpublic data about sellers on its marketplace, after the EU accused Amazon of violating competition law by using nonpublic information from merchants to compete against them.

Mr. Bezos, who stepped down as CEO last year to be executive chairman, has long been a backer of the private-label business. In the past he has bristled at its relatively small sales, said some of the people.

A few years ago, Mr. Bezos gave the private-label team a goal to reach 10% of Amazon sales by 2022, the Journal has reported. The team responded by rapidly adding thousands of items to try to juice sales, said the people involved.

Many items ended up sitting in warehouses or needing to be marked down.

Under Mr. Clark, private-label teams did a profitability review of each private-label item, determining which ones didn’t sell enough to hit their profit threshold and targeting them to be phased out. The strategy now is to make fast-selling private-brand items, such as Amazon’s phone-charging cables, that it can place at warehouses all over the country to deliver quickly, some of the people said, instead of tens of thousands of items that sell in low quantities.

Write to Dana Mattioli at dana.mattioli@wsj.com

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