Antitrust Law Daily Wrap Up, ADVERTISING—9th Cir: Class action by advertisers against Google revived, (Sep 22, 2015)

By Edward L. Puzzo, J.D.

In a claim by advertisers that Google violated the California Unfair Competition Law (UCL) and Fair Advertising Law (FAL) by failing to disclose that certain ads paid for by the advertisers had been placed on websites that were dormant or otherwise unlikely to be seen, the Ninth Circuit U.S. Court of Appeals in San Francisco reversed the district court’s denial of class certification. The court ruled that the lower court had erred in finding that the putative class did not meet the predominance requirement, by conflating the restitution calculation for the UCL and FAL claims with the liability inquiry, and by characterizing as arbitrary the restitution method proposed by plaintiffs (Pulaski & Middleman, LLC v. Google, Inc., September 21, 2015, Paez, R.).

This putative class action seeking restitution from Google arose from advertisers’ use of the Google AdWorks program during the period of July 2004 though March 2008. The auction-based AdWorks program placed Google as the intermediary between advertisers and website hosts. Advertisers could request that their ads be placed on Search Feed sites—those that displayed ads alongside search results—or Content Network sites—those that displayed ads in full content websites—or both. The action alleges that Google violated the UCL and FAL by failing to disclose during the relevant time period that some of the ads advertisers paid for had been placed on much less valuable locations for advertising, such as Parked Domains—undeveloped sites without content—and Error Pages.

Plaintiffs moved for class certification, and to calculate restitution, proposed methods based on a “but for” or “out of pocket” calculations, that is, the difference between what advertisers actually paid and what they would have paid had Google informed them that their ads were being placed on parked domains and error pages.

The district court ruled against plaintiffs’ motion for class certification. That court conceded that the action met the numerosity, commonality, typicality, and adequate representation requirements for certification. However, the district court maintained that it failed the predominance requirement of Rule 23(b) because common questions did not predominate on the issues of entitlement to restitution and amount of restitution due each class member. Due to the ruling, the further question under Rule 23(b) of whether class treatment was a superior method of resolving the dispute was not addressed. Plaintiffs’ motion for reconsideration of the district court ruling was denied by that court, and plaintiffs appealed.

Entitlement to restitution. Under the UCL and FAL, the appellate court explained, entitlement to restitution was a separate inquiry from the amount of restitution. To state a claim under either the UCL or the FAL based on false advertising or promotional practices, it was necessary only to show that members of the public were likely to be deceived. A court need not make individual determinations as to deception, reliance and injury in order to ascertain entitlement to restitution. Instead, California created what amounts to conclusive presumption that with a threshold showing of deceptive practices under the UCL and FAL, the defendant had thereby has caused an injury, for which restitution, available on a class-wide basis, was the appropriate remedy. Consequently, the appellate court ruled, the district court’s holding—that a lack of the predomination of common questions precluded the putative class’s entitlement to restitution—was legal error.

Applicability of Yokoyama. The appellate court in Yokoyama v. Midland National Life Insurance Co., 594 F.3d 1087 (9th Cir. 2010) held that mere differences in damage calculations among class members alone could not defeat certification. Here, the court rejected Google’s assertion that the holding in Yokoyama had been called into question by the later U.S. Supreme Court case of Comcast Corp. v. Behrend, 133 S. Ct. 1426 (2013). Comcast, the appellate court stated, held that a model for determining class-wide damages relied upon to certify a class under Rule 23(b)(3) must actually measure damages that result from the class’s asserted theory of injury. Comcast did not hold that proponents of class certification must rely upon a class-wide damages model to demonstrate predominance. Therefore, the appellate court continued, the district court’s ruling that Yokoyama did not apply here was erroneous.

Arbitrariness. UCL and FAL restitution is based on the difference between what was paid and what a reasonable consumer would have paid at the time of purchase without the fraudulent or omitted information. Google argued that plaintiffs’ proposed method for calculating restitution was arbitrary and thus barred by Comcast. The court disagreed, stating that the fact that the amount of damages may not be susceptible of exact proof or may be uncertain, contingent or difficult of ascertainment did not bar recovery.

Here, the harm alleged was Google’s placement of ads on lower-quality web pages without the advertisers’ knowledge. To calculate restitution, plaintiffs used Google’s Smart Pricing ratio to set 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. This method targeted the alleged harm and did not turn on individual circumstances. This method was not arbitrary and met California’s requirement that there be a reasonable basis for the computation of damages, even if the result reached was an approximation, the appellate court ruled.

The appellate court concluded that the district court had erred by conflating the restitution calculation for the UCL and FAL claims with the liability inquiry, by failing to follow the Yokoyama ruling regarding damages calculations and certification, and by ruling that the method used to calculate damages was arbitrary. The appellate court therefore reversed the lower court’s denial of class certification and remanded.

The case is Civil Action No. 12-16752.

Attorneys: Miranda P. Kolbe, Robert C. Schubert, and Willem F. Jonckheer (Schubert Jonckheer & Kolbe LLP) for Pulaski & Middleman, LLC, JIT Packaging, Inc., RK West, Inc. and Richard Oesterling. Michael G. Rhodes, Whitty Somvichian, Kyle C. Wong and Heather Meservy (Cooley LLP) for Google, Inc.

Companies: Pulaski & Middleman, LLC, JIT Packaging, Inc., RK West, Inc., Google, Inc.

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