Setback for Facebook! Meta fails to stop fraud case

Meta Platforms Inc. failed to stop a lawsuit accusing Facebook of overstating its advertising audience from being expanded to include more than 2 million small ad buyers.

User metrics have also been at the heart of challenges against  social media companies such as Facebook. (REUTERS)

Meta Platforms Inc. failed to stop a lawsuit accusing Facebook of overstating its advertising audience from being expanded to include more than 2 million small ad buyers.

Dismissing what he called a “blunderbuss of objections” by the company, a federal judge in San Francisco ruled on Tuesday that the case can proceed as a class action on behalf of small business owners and individuals who bought ads on Facebook or Instagram since Aug. 15, 2014. 

The decision is another setback for the social networking giant after court filings in 2021 revealed that its audience-measuring tool was known by high-ranking Facebook executives to be unreliable because it was skewed by fake and duplicate accounts.

Facebook's lawyers argued in filings that the social media company has made “updates” to improve its user estimates. They also pushed back against the request for class-action status, saying the ad buyers didn't show that all class members uniformly relied on the metrics to increase their spending and had ad budgets of various sizes.

“It may be that class members differ in advertising budgets and scope of purchases, as Meta suggests, but Meta has not shown that these differences” make the case unsuited to be a class action,  U.S. District Judge James Donato said.

User metrics have also been at the heart of challenges against other social media companies. LinkedIn is facing a suit accusing it of inflating video-viewing metrics to lure and overcharge advertisers. 

Snap Inc., the parent of the Snapchat social-media app, was sued in 2017 by a former employee who claimed the company was inflating growth metrics ahead of its initial public offering. The case was moved into closed-door arbitration and court records don't indicate how it was resolved.

In 2019, Facebook agreed to a $40 million settlement of a class-action suit brought by advertisers who claimed they overpaid for video ads based on overstated video-viewing metrics shared by the company.

The current case was filed in 2018 by an e-commerce business that spent more than $1 million on ads and a seller of firearm accessories who spent around $350.

Facebook executives, including Chief Operating Officer Sheryl Sandberg, knew the user metric called “Potential Reach” shown to digital ad buyers to help them set their target audience and budget was inflated and “not based on people,” the advertisers said in their complaint. As a result, advertisers ended up buying ads at a premium price, they said.

“For years Facebook repeatedly confronted a choice between telling customers the truth or preserving its revenue: at every turn, Facebook chose its revenue,” lawyers for the ad buyers said in a court filing. 

Meta didn't immediately respond to a request for comment on the ruling.

The case is DZ Reserve v. Meta, 18-cv-04978, U.S. District Court, Northern District of California (San Francisco).