EU and UK take on ‘Jedi Blue’ – Keep your friends close, but your enemies closer?

A big development in European competition enforcement in digital markets occurred today as both the European Commission and the UK Competition and Markets Authority (CMA) announced simultaneously that they are investigating the ‘Jedi Blue’ agreement. This is an agreement between Google and Meta (formerly Facebook) that may have targeted a disruptive advertising technology known as Header Bidding which competes with Google’s Open Bidding programme.

In this post, we remind our readers of the Jedi Blue agreement, study today’s announcements and their possible consequences, and highlight where these investigations might go next.

What is Jedi Blue?

We discussed the Jedi Blue agreement in our October 2021 post summarizing what could be learned from the unredacted US States complaint against Google.

Header Bidding was invented by publishers and rival ad tech vendors in reaction to Google using its publisher ad server (and the related control over publisher inventory) to favor its own ad exchange (which, as the name suggests, is a form of exchange organizing real-time advertising auctions). Header Bidding was an effort to level the playing field, in that it enabled for the first time publishers to have several ad exchanges compete against each other in a unified auction where no participant would have special advantages. As Header Bidding drastically improved publisher revenue, it caught like wildfire among publishers. Internally, Google became increasingly concerned about this new technology and its potential to destabilize its control over the ad tech ecosystem (brief reminder: Google is the largest ad tech vendor across each step of the ad tech supply chain, with market shares as high as 90-100%). According to internal documents cited in the US States complaint, as Header Bidding rose to prominence, Google employees discussed in October 2016 “options for mitigating growth of header bidding infrastructure.” In particular, Google developed its own Header Bidding-like solution, now called Open Bidding (which it internally code-named “Jedi”).  While at the time Google marketed Open Bidding as a move towards a more level-playing field, we know from the CMA market study and the French decision of last June that Google in fact designed Open Bidding to disadvantage rivals and shield its ad exchange.

Google was worried that large entrants might support Header Bidding. In response to Meta signaling its support for Header Bidding, a Google executive impressed in a company deck the “Need to fight off the existential threat posed by Header Bidding and [Facebook Audience Network]. This is my personal #1 priority. If we do nothing else, this need[s] to [be] an all hand[s] on deck approach.”

Google eventually invited Meta to the negotiating table. According to the US lawsuit Google promised Meta a series of advantages when bidding on Open Bidding auctions, in return for Meta curtailing its Header Bidding initiatives. This led to the two companies entering into the Jedi Blue agreement in September 2018. Signed by top executives Philipp Schindler of Google and Sheryl Sandberg of Meta, the agreement governs the participation of Meta in Google’s Open Bidding auctions. In internal communications, Facebook executives noted that “They [Google] want this deal to kill header bidding.”

Two sworn rivals thus appear to have entered into a deal in which Google may have offered advantages to Meta, in return for which Meta would curtail its Header Bidding initiatives, taking inspiration from Mario Puzo’s old adage that it may be better to keep your friends close, but your enemies closer. The question the CMA and the Commission will be asking is whether Google ‘bought off’ Meta’s competition in this way.

Post-Brexit coordination

But these are not the only rivals working together it seems. Today both the European Commission and the CMA announced they are investigating the Jedi Blue agreement. It is positive to see the two agencies working together closely after Brexit. While there is no doubt a healthy dose of rivalry there too, it seems the agencies have decided that when taking on Big Tech, it makes sense to stay close to one another and to avoid divergence. Indeed, the same approach was taken in relation to an abuse of dominance case against Meta, launched by both authorities on the same day in June 2021 (see here and here).

Of course it is easier to launch a case in parallel than to conclude it in the same way, and as we discuss below, there are some differences in the case announcements by the Commission and the CMA. That being said, UK and EU markets remain closely linked, with for example many EU consumers reading UK publications like the Guardian, the FT and the Daily Mail, and many UK advertisers looking to promote their products to EU consumers. It is good that practices that may have an adverse effect on those consumers, publications and advertisers are assessed in parallel by the EU and UK authorities.

What do today’s announcements say?

Both authorities have launched their investigations under both the prohibition on anti-competitive agreements (Article 101 in the EU and the Chapter I prohibition in the UK) as well as the prohibition on abuse of a dominant position (Article 102 and the Chapter II prohibition). However, there is a clear difference.

The EU’s investigation focusses on the Jedi Blue agreement only. While it notes that the agreement may form part of efforts to exclude ad tech services competing with Google’s Open Bidding programme, it is nonetheless clear that the investigation is aimed at assessing whether the Jedi Blue agreement breached EU competition rules.

That is also one of the aims of the UK inquiry: to assess whether the Jedi Blue agreement broke UK competition law. However, the CMA announced that it is also scrutinising Google’s conduct in relation to header bidding services “more widely” to see if the firm abused a dominant position and gained an unfair advantage over competitors trying to provide a similar service.

That is a significantly wider inquiry than the one opened by the Commission. That may well be because the Commission already has an investigation, open since June 2021, into Google’s practices in the online advertising technology (AdTech) sector. While that investigation does not explicitly refer to Google’s actions to curtail Header Bidding, it may nonetheless be that the Commission is considering those actions under its open investigation, or that it simply felt that having two abuse of dominance investigations into Google’s conduct with respect to digital advertising was too much.

It is however clear that in this difference in scope lies a danger of divergence. If the Jedi Blue agreement is found to be anti-competitive, the obvious response for competition authorities would be to impose penalties and, insofar as the agreement is still in force, to require the infringement to be terminated. That is the approach taken, for example, in the pay-for-delay agreements in the pharmaceutical sector, which also involve an incumbent trying to offer advantages to a challenger in return for which that challenger delays its efforts to enter the market.

However, if Google’s conduct in relation to header bidding “more widely” was found to be abusive, then this requires a different type of remedy, which could go as far as to impose remedies on Google requiring it to participate in Header Bidding.

Another issue is the availability of commitments as a means to resolve the investigation. If Jedi Blue is an agreement to reward a competitor for curtailing its efforts to compete with the incumbent, it would depart from practice to resolve the case with commitments. Agreements that restrict competition ‘by object’ tend not to be resolved with commitments.

Wider concerns about Google’s conduct with respect to Header Bidding may on the other hand be perfectly suited to commitments, should Google be willing to offer them. For the CMA this does not need to be a problem, it resolved a case involving pharmaceutical companies Aspen, Amilco and Tiofarma with a combination of fines and commitments. However, the Commission may find it hard to accept commitments in its case which focusses purely on the Jedi Blue agreement.

Where do we go from here?

Today’s announcements may seem like the first step in the investigation, but it can be assumed that case teams on both sides of the Channel have been reviewing the available evidence for the past few months already. They will now be requesting information from both Google and Meta under formal powers, as well as seeking information from third parties who may have been affected by the conduct.

The next development will depend a lot on how Google and Meta approach this investigation. If they choose to cooperate, it is likely that they would engage in settlement and/or commitment discussions. If not, and the authorities consider they have sufficient evidence of an infringement, the case will progress on a contested basis.

In particular if the case is contested, it will be hard for the two authorities to continue to present a united front. If the CMA’s ‘wider’ concerns are confirmed, the agency would have significantly more analysis to carry out and its remedies would need to be more far-reaching than would be the case in an investigation focusing only on the Jedi Blue agreement, like the Commission’s case.

How the two agencies will proceed will perhaps tell us whether the Commission and CMA remain true friends who continue to cooperate, or whether today’s announcements were a good example of Brexit rivals who also felt it was better to keep your friends close, but your enemies closer.

Stijn Huijts is a partner at Geradin Partners. He worked previously as a Legal Director at the CMA. Hat-tip to Dimitrios Katsifis for his input. Photo by Eric & Niklas on Unsplash.

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