Class-action of advertisers admitted against AdWords’ ads on error pages
With a decision argued and submitted December 9, 2014 and filed September 25, 2015, the Ninth District Court of Appeals reverses and remands to a trial judge the ruling by the US District Court of Northern California in appeal case Pulaski & Middleman LLC v. Google because it erred to deny class-action status.
Pulaski & Middleman are AdWords advertisers that suit Google over ads appearing on error pages and parked domains. As the higher court states, the restitution calculation was not to be conflated with the liability inquiry for UCL and FAL claims and the lower court failed to follow the Yokoyama rule. Furthermore, the methods proposed by claimant appear to be appropriate for calculating restitution and not “arbitrary” under Comcast.
Subscribing AdWords advertisers can show their ads on Google and its partners
AdWords is one of the most famous Google’s services. By its means, Google acts as an intermediary between website hosts and advertisers, since it lets advertisers provide their ads to Google and its third-party website owner partners. It works by an auction-based algorithm that determines placement and price of the ad.
Advertisers willing to participate AdWords program, can enter their data into AdWords interface on Google’s website, explicating information as the maximum payable price per ad or their overall budget.
These are fundamental information to enter before joining AdWords. The program is not free for advertisers who pay a certain price to Google each time a user clicks on their ads. The price is tailored on how much other advertisers would bid for clicks based on the same search term, on the quality score of the advertisement, and on the Smart Pricing.
The Smart Pricing and the “rational advertiser”
Google instituted the Smart Pricing as a discount adjustment applied to the website where the ad is placed. The discount is calculated dividing a conversion rate for the lower quality website by a conversion rate for google.com and the goal of the ratio is levelling the advertisers’ bids to what a “rational advertiser” would bid had it known sufficient data about the performance of ads on each website.
Advertisers are called to choose the Google-defined categories of websites where they want their ads to be displayed. The selection is between Search Feed sites or Content Network sites and they can even choose both categories. If the advertiser selects Search Feed’s category, its ads would be displayed together with search results because, looking for an information through Google’s search engine, the user is provided with both ordinary search results and ads related to the search term he entered.
If the advertiser chooses its ads to appear on Content Network sites, they would be showed independently of search results, just because the ad’s keyword is matching with those of the website.
Search Feed and Content Network along with parked domains and error pages categories
Along with Search Feed and Content Network, there are other categories advertisers cannot choose simply because they are not showed during the registration process on AdWords. One of them are parked domains or second level domains, recognizable by their home pages that shows a courtesy message or information without working links because it is pertaining to a domain registered but not yet utilized. These home pages do not have a content but can show ads.
Another unknown category is the one of error pages. They are usually showing when a user is entering an unregistered web address into a web browser’s address bar and along with error message the page is offering ads.
The fact is that advertisers could not know in advance where their ads would appear and even if they listed only Search Feed and Content Network websites in the AdWords registration process, their ads appeared on both parked domains and error pages.
This happened during a class period between 2004 and 2008, when Google updated AdWords agreement allowing advertisers to opt out of having their ads show on error pages and parked domains.
Class action first denied by lower court then reconsidered by higher court
Plaintiff filed a complaint on behalf of a putative class consisting of everybody located within the United States who had an AdWords account with Google during the class period and whose ads appeared on parked domain and/or error page websites. Denied his motion for class certification, the Plaintiff filed a motion for reconsideration, which the district court denied. Granted permission to appeal the order denying class action certification, he filed before higher court.
Advertisers’ class seeking damages under three methods
By moving for class certification pursuant to Rule 23 of the Federal Rules of Civil Procedure, Plaintiff alleges that Google has violated California’s Unfair Competition Law (“UCL”), Cal Bus. & Prof. Code § 17200 et seq., 3 and California’s Fair Advertising Law (“FAL”), § 17500 et seq., by failing to disclose the placement of AdWords ads on parked domains and error pages. Therefore, they seek restitution for the difference between what they paid per click versus what they would have paid had Google told them their ads were appearing on error pages and parked domains proposing three methods of calculating damages.
Google dismisses allegation and states that the three methods are arbitrary and do not satisfy Rule 23(b)(3)’s predominance requirement of class actions.
The Higher Court dismiss Lower Court denial of class certification motion
Plaintiff proposes three different methods for calculating restitution.
The first is based on Google’s Smart Pricing formula of difference between the amount the advertiser actually paid, and the amount paid reduced by the Smart Pricing discount ratio. The second is based on the Content Pricing and the lower bidding that would have occurred had advertisers been allowed to bid separately on parked domains and error pages. The third method is the Full Refund approach allowing advertisers to receive full refunds for clicks on ads placed on parked domains and error pages.
Common questions must predominate on individual issues
Before coming to assess proposed methods, the court recalls issues related to the class certification motion that must address all of the criteria under Rule 23(a): numerosity, commonality, typicality, and adequate representation.
The lower court found them addressed, but when it came to the predomination of common questions on the issues of entitlement to restitution and amount of restitution due each class member, the lower court observed that individual question would have been raised in ascertaining entitlement to restitution among the hundreds of thousands of proposed class members and in determining the amount of restitution owed to the class and individual class members.
It concluded that proposed methods were insufficient to account for all advertisers involved and that individual questions predominated on the issue of restitution, denying motion for class certification.
Deciding to grant appeal and review the district’s court class certification ruling for abuse of discretion, the higher court disagrees with predominance of individual issues over common questions.
Determinations over entitlement to restitution are not related to individuals
To state a claim under California’s Unfair Competition Law (UCL) and Fair Advertising Law (FAL) for unlawful, unfair, or fraudulent business act or practice, or untrue or misleading statements in the course of business, it is only required to demonstrate that members of the public are likely to be deceived while the Plaintiff must allege suffered injury and loss of money or property as a result of the unfair practice.
Once liability is demonstrated under UCL and FAL provisions by the class representative, the restitution becomes available on a class-wide basis without need to make individual determinations regarding entitlement to restitution. Fundamental decision in the matter is the Yokoyama, which held that damages calculations alone cannot defeat class certification.
Proposed methods for calculating restitution of damages suffered by advertisers are not arbitrary
As to the proposed methods for calculating restitution, the higher court finds it not arbitrary as depicted by Google. One of the Plaintiff’s methods is based upon Google’s Smart Pricing ratio which, by setting advertisers’ bids to the levels a rational advertiser would have bid if it had access to all of Google’s data about how ads perform on different websites, fully reflects the difference between what was actually paid and what it would have been fair to pay without the fraudulent or omitted information as well as underlined by UCL and FAL restitution criteria.
Advertisers now are facilitated to act as a class
This ruling has a number of arguments in favor of advertisers. Since AdWords – and other similar programs conceived for online ads owners – is structured of hundreds of thousands agreement entered by advertisers, it is easy to figure out that there could be a lot of concerned by its clauses. Now, advertisers have made able to sue as a group without being blocked by entitlement and restitution related questions that are not seen as individual ones.
Furthermore, court has focused on the most satisfactory method for advertiser to calculate restitution of injuries and money losses suffered from the misleading business conduct.
AdSense has already brought Google before courts. For AdWords, back in January 2007 Google has faced a trademark case being sued for allegedly helping domainers to get revenues from cd. Typosquatters domains, putting into them ads even if they are not supposed to be inside AdWords, exactly as parked domains and error pages.