Google to Refund Advertisers After Suit Over Fraud Scheme--2nd Update

Date : 05/17/2019 @ 8:51PM
Source : Dow Jones News
Stock : Alphabet Inc. (GOOGL)
Quote : 1138.61  -6.73 (-0.59%) @ 12:38AM

Google to Refund Advertisers After Suit Over Fraud Scheme--2nd Update

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By Patience Haggin 

Alphabet Inc.'s Google has agreed to refund advertisers for ads purchased through its ad marketplaces that ran on websites with fraudulent traffic, following a lawsuit claiming the tech giant was withholding those back-payments, according to court documents and people familiar with the situation.

In 2017, Google offered limited refunds to hundreds of marketers and ad agencies who had purchased online ad space through its online ad-buying tool after the company discovered a wide-ranging fraud scheme that resulted in ads running on sites whose traffic was artificially boosted by "bots," software programs that mimic the website clicks of humans.

At the time, Google offered to refund the "platform fee" for its ad-buying tool, Display & Video 360, which represented a fraction of the total cost of the ad purchases. Google said it wasn't in a position to return money that had already flowed from its buying tool to third-party online ad marketplaces where publishers were selling ad space.

But some ad executives weren't satisfied. The online ad company AdTrader Inc. sued Google in California federal court, arguing the tech giant wasn't fully refunding everything it could repay, since some of the fraudulent traffic went to ad marketplaces that Google itself owns and fully controls: AdX and AdSense.

Google has planned these refunds since before the suit was filed, according to a Google spokeswoman.

Automated online ad marketplaces, known as exchanges, offer up for sale ad space from publishers of thousands of websites. Google's AdX is one of the giants in the ad marketplace business. Advertisers and their agencies use ad-buying tools to target audiences that have specific characteristics with those exchanges.

In internal Google memos detailed in the court proceedings, portions of which were unsealed this week and reviewed by The Wall Street Journal, a Google engineer said the company didn't pay about $75 million of refunds linked to its own products. The engineer blamed technical difficulties related to the links between the different arms of Google's vast ad operation.

Google has offered to pay refunds linked to its own marketplaces. the people familiar with the situation said. The company said in a statement, "while we have had a longstanding policy of refunding advertisers for invalid traffic, we recently expanded this policy to include ads purchased via Display & Video 360."

The revelations highlight Google's unique role in the online ad world, where it is dominant in multiple areas. It is a major player in facilitating ad buying on behalf of marketers and agencies, but also operates powerful marketplaces that serve up ad space for sale across thousands of sites, receiving about 37.2% of digital ad spending in the U.S., according to eMarketer. Google dominance, including its role in online advertising, has become an issue of interest for regulators around the world and some candidates on the 2020 presidential campaign trail.

The complexity of online ad purchasing -- which includes layers of middlemen separate buyers and sellers -- makes it susceptible to fraud and very difficult for advertisers to recoup money wasted on sites with invalid traffic. Some $5.8 billion in ad spending will be wasted this year to fraud, according to a report released this month by the Association of National Advertisers.

One challenge for Google is that it doesn't always detect fraud schemes soon after they occur. Under its earlier policy, if the company discovered fraud well after the fact -- once money had already been paid through marketplaces to publishers -- Google's online ad-buying tool didn't systematically provide refunds. But that policy has been updated, the company says, and it will now pay such refunds.

In the memos that surfaced in the court proceedings, the Google engineer described how Google's automatic system for issuing refunds through its ad-buying tool wasn't connected to the database of ads flowing through AdX. Relevant teams within Google weren't even aware of the automatic refund system, he said, according to the court documents.

Google said in court that while it has agreed to make the retroactive refunds, its contracts with advertisers don't require the company to do so, according to according to a Google spokeswoman.

AdTrader works with both advertisers and publishers, giving it visibility into Google's dealings with both ad buyers and sellers. Google determined that some of AdTrader's publisher clients had sites with invalid traffic and withheld payments to them after discovering the 2017 fraud, according to the complaint.

Separately, Google promised AdTrader that its advertiser clients would receive refunds for ads that ran on sites with fraudulent traffic. Based on its view of the situation, AdTrader determined it wasn't being compensated for money flowing through AdX.

AdTrader and its clients filed suit in the Northern District of California in December 2017, months after the fraud scheme was detected and initial refunds had been paid. The suit is pending. AdTrader is seeking certification to represent a class of advertisers -- ad agencies and their clients -- who were customers of AdX and AdSense.

"This may be only the tip of the iceberg, so we'll keep at it," said AdTrader's attorney Randolph Gaw in a written statement.

Google has modified its contracts to alter its policies regarding litigation brought by advertisers, a person familiar with the matter said. In September 2017, after the fraud scheme was discovered and some refunds were being paid, Google added retroactive clauses that would waive advertisers' rights to bring class actions, unless they opted out of that provision.

AdTrader says it opted out of the class-action waiver.

Write to Patience Haggin at patience.haggin@wsj.com

 

(END) Dow Jones Newswires

May 17, 2019 15:36 ET (19:36 GMT)

Copyright (c) 2019 Dow Jones & Company, Inc.

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