California Firms Can’t Use Blinders on Real-Time Bidding Suits

Companies spend billions of dollars every year to ensure their advertisements are shown to the right types of users at the right time. With that amount of investment, it was only a matter of time before the consumer class actions were filed.

At least eight class actions have been filed against several well-known companies in the last couple of months, including Trade Desk Inc. and Experian Data Corp. The suits each claim that the companies’ participation in real-time bidding violates California and federal wiretapping statutes, invades users’ privacy, and unjustly enriches the defendants.

These class actions could have a significant effect on how companies engage in digital advertising in the future, and being willfully blind to their progress only exposes companies to increased litigation exposure.

RTB Process

RTB is the process by which website operators decide which ads to show their users. When a user visits a website with available ad space, the website operator (publisher) auctions off that ad space to interested companies (advertisers). Because this auction occurs in near real time, the user is usually unaware that it has occurred.

Nevertheless, the auction involves several key players, including the publishers and advertisers; the supply-side platforms, or SSPs, that work directly with the publishers to sell their available ad space; the demand-side platforms, or DSPs, that work directly with the advertisers to bid on the available ad space; and the ad exchanges that host the auction.

Advertisers rely on “bidstream data” to determine which users to bid on and how much to bid. Bidstream data includes information on the ad space being sold, user device information (such as screen size and resolution), and the user’s public IP address. It may even contain some user some browsing history. The success of a specific advertisement often depends on the ability to extrapolate from the available data the user’s interests and align those interests with the advertised product.

Plaintiffs’ New Theory

In the past, plaintiffs’ lawsuits have focused almost exclusively on the collection of bidstream or other similar data by publishers. Large media companies found themselves the defendants in putative class actions alleging that they had engaged in unlawful wiretapping—or in installing and/or using a pen register or trap-and-trace device—under California’s Invasion of Privacy Act.

Plaintiffs have now shifted focus, filing suit against SSPs and DSPs instead of publishers. While this change in defendants does affect the types of claims asserted (as discussed below), the real impact is in the scope of the claims asserted. Because SSPs offer for-sale ad space across multiple web properties and because DSPs bid on ad space across multiple web properties, these platforms obtain more bidstream data than could otherwise be obtained by a single publisher or advertiser.

In fact, the plaintiff in one RTB class action claims that this sharing of information happens “178 trillion times annually across the U.S. and Europe.”

Claims Broken Down

The claims asserted in these new RTB class actions can be divided into one of two groups: online tracking claims or RTB-specific claims.

The online tracking claims differ very little from the claims plaintiffs have historically asserted against publishers. Whereas in the past, the plaintiffs sued publishers for assisting the wiretapping of their communications, they now are suing the RTB defendants for engaging in the wiretapping itself.

Similarly, the plaintiffs used to sue publishers for installing pen registers; now they are suing the RTB defendants for using them. In other words, the online tracking claims are just a different side of the same coin.

The RTB-specific claims—invasion of privacy and unjust enrichment—center on what the RTB companies do with the bidstream data after they have collected it. Essentially, the plaintiffs claim that the RTB defendants leverage the RTB process to accumulate “vast amounts of personal information for as many people as possible” and then, with that information, create “identity graphs,” which can be used to better predict a user’s interests in the future.

The better advertisers are at predicting a specific user’s interests, the more likely their ads are to be successful, the more money they are willing to pay to place them, and the more money the RTB defendants stand to gain. The plaintiffs claim that the RTB defendants are monetizing the plaintiffs’ data to unjustly enrich themselves.

Whether those claims have merit is still to be determined.

The Takeaways

Companies may brush these lawsuits aside because they aren’t SSPs or DSPs themselves. But doing so would be a mistake. As noted above, companies generally aren’t sued for wiretapping their own communications; they’re sued for assisting a third party to do so. And companies generally aren’t sued for using a pen register/trap-and-trace device; they’re sued for installing one.

That means if the plaintiffs prevail in one of these RTB class actions, companies may be stuck with the outcome. The fight may shift from whether a wiretap occurred to simply whether the company assisted that wiretap—just as the fight may shift from whether a tracker is a pen register to whether the company installed it.

While the sale of ad space can be lucrative, it isn’t without risk. Companies should ensure that they know exactly what is happening on their sites and that the disclosures they are making are clear and conspicuous. The last thing any company wants is to be dragged into litigation over something it didn’t even know it was doing in the first place.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Matthew Pearson is a partner at Womble Bond Dickinson, where he litigates class actions across the country.

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