Les Hostetler is MMi's Paid Search Insights Lead

Recently, the California’s 9th Circuit Court of Appeals reversed a ruling from a lower court and allowed Gurminder Singh, a California businessman, to proceed with his lawsuit alleging that Google understates click-fraud. Back in 2016, Singh brought a class-action suit against Google, saying Google’s assurances that it was effectively managing click fraud in its display network were overstated. Click fraud is both widespread and, like the oft-repeated Gibson quote, “not evenly distributed” – the volume of fraudulent clicks your campaigns incur may differ widely from those experienced by a different agency or client.  Is it indeed possible that click fraud is more prevalent than Google claims, and if so what does this mean for advertisers?

How Significant Is It?

Most search marketers assume that some amount of click fraud is inevitable, but most also assume Google is working diligently to fight it. Click fraud is without question an enormous business: Cheq.ai released a University of Baltimore study this past April that said 14% of the $144B spent on paid search and social is fraudulent – higher than Google’s 10% average – and will ultimately result in an estimated $23.7B loss to advertisers globally by the end of this year. Unless addressed, the bulk of that money will go to Google (which owns 87%+ of US paid search) and Facebook (which owns 56% of US paid social). Other search engines and social platforms may be more fertile (read: less scrutinized) fields where fraud can grow, but Google and Facebook remain the most lucrative targets by dint of their traffic volume.  

As might be expected considering those numbers, 3rd party click fraud discovery and remediation is a substantial business as well. A cadre of organizations led by companies like WhiteOps, DoubleVerify and Pixalate provide large advertisers and publishers with ad fraud protection in the form of traffic analysis and detection software. Concrete industry-wide revenue figures are scarce, but the three companies mentioned collectively earned approximately $75M in 2019 (although it should also be noted that click fraud detection is not their only service offering).

Will the Suit Go Anywhere?

Singh’s suit is one of several click fraud lawsuits that have wound up in court, to varied success. Filed in July, 2016 after he conducted a series of tests to try and verify his suspicions regarding fraudulent clicks in his campaigns, Singh’s initial lawsuit revolved around two claims, namely that:

  • Google’s estimated 10% click fraud rate is significantly and knowingly low, and that in reality the click fraud rate is nearly half of all clicks
  • Google is misleading AdWords users by falsely claiming that they have a global team monitoring click fraud and a fraud-filtering system – and further, that they are financially incentivized to do so

These are bold claims, and damning if true. At least one of Singh’s assertions is intuitively valid: Google stands to benefit financially from undiscovered click fraud. Google filters invalid clicks from reporting, invalid costs from invoices, and will issue “invalid activity adjustments” to advertisers who can demonstrate that fraudulent clicks have slipped past Google’s defenses. This is largely how companies like WhiteOps demonstrate value to their clients – finding undiscovered fraud and retrieving those advertising dollars on their clients’ behalf. But most advertisers and agencies take Google’s word for it, apparently satisfied with the reductions on the invoices.

By February of 2018, Singh’s lawsuit had gone through no less than four iterations before being again rejected by a California judge. Yet despite the many rejections, judges always left the door open for Singh to amend the complaint and reapply to the court, refusing to dismiss the suit outright. This reversal on appeal hinged on two elements that the 9th Circuit said the lower court got wrong:

  • Singh did meet the requirements for suing under California’s False Advertising Law and Unfair Competition Law, which requires that he had incurred financial losses by paying for fraudulent clicks, which he’d only discovered by hiring a 3rd party to review his campaigns in 2018; and
  • The existence of a Google “your mileage may vary” blog post separate from other click fraud discussions does not in itself mean that AdWords users know about it when they read elsewhere about the 10% average click fraud rate that Google claims.

After this most recent courtroom reversal, Singh’s suit is now sent back to a lower court, and the suit lives for another day.

What’s the Bottom Line For Google and For Advertisers?

Can this suit hurt Google if Singh is ultimately vindicated? Theoretically yes, but probably not a lot. Google’s star has waned a bit, from a public relations standpoint, and the pandemic has driven some financial setbacks - in June, eMarketer predicted a 5% advertising revenue drop for 2020 (Google’s first ever), after Google cut its internal marketing budgets by half and instituted a hiring freeze at the beginning of the pandemic in April. But Google’s market share is strong, and remain close to historic highs throughout the pandemic.

That the 9th Circuit overturned the dismissal of Singh’s suit – alongside all the previous instances in which lower courts advised Singh’s attorney to amend and resubmit the case to make it – would indicate that the court believes Singh’s case has at least some merit. Add that Singh’s suit is a class action suit, which could potentially widen to include many prospective litigants – Google settled a similar click fraud suit in 2006 for approximately $90M, all of which went to counsel.  

But even in 2020, amid Google’s first decline in ad revenues, they are still on track to earn almost $40B in the US. If Singh’s lawsuit does attract a class action and lands a settlement – never guaranteed, and keep in mind that this suit has been getting bounced around California courtrooms for over four years and close to a half-dozen revisions – 2006’s $90M settlement would represent about 3/10th of a percent of Google’s US revenue.

Perhaps more importantly, though, the continuing suit calls into question the efficacy of Google’s internal fraud detection and elimination technology, as well as Google’s claims to vigorous action against click fraud on search marketers’ behalf.  What a victory for Singh is more likely to accomplish is getting large advertisers’ attention, prompting some awkward questions and forcing Google to demonstrably improve their existing click fraud detecting technology.  Until Google does so, many major advertisers may turn to other providers to help assure that their Google clicks are legitimate.

Search Enginge Marketing veteran Les Hostetler is MMi's Paid Search Insights Lead. Prior to joining MMi, Hostetler held positions as Search Director at RPA, Essence, Neo@Ogilvy and GroupM working across a broad spectrum of business sectors including banking, consumer electronics, energy, and consumer packaged goods.  

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