Class Action Lawsuit Claims Facebook Overcharged Advertisers During Auction Process

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A proposed class action lawsuit alleges Meta Platforms systematically overcharged businesses advertising on Facebook between roughly 2013 and 2017 due to a “flawed” auction process.

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According to the 22-page lawsuit, a Facebook software update in 2013 secretly changed how advertisers were charged in the auction process used to determine the placement of ads in users’ newsfeeds, resulting in Facebook “reaping billions of dollars in illicit profits,” all without advertisers’ knowledge.

For years, Facebook claimed to use a “second price” auction process for pricing and running social media advertisements—meaning that a winning bidder would pay the amount of the second-highest bid rather than its own higher bid, the case explains.

“Accordingly, the process by which the Facebook advertising auction was supposed to work was well known to Facebook advertisers,” the suit shares. “In simple terms, it was widely understood that Facebook’s ‘second price’ auction protected advertisers against being overcharged when they submitted high bids, because their winning bids would not be used to calculate the price paid.”

However, in 2013, a single line of code in a software update shifted Facebook’s second price auction process to a “blended price” auction process with no disclosure to advertisers, the complaint alleges. In a blended price auction, the winning bidder must pay the average of the highest and second-highest bids, the filing explains.

The complaint argues that Facebook’s secret use of a blended price auction process inflated the prices paid by the winning bidders. Moreover, advertisers were tricked into submitting higher bids than they otherwise would have, given they were under the false impression that Facebook’s auction calculations would exclude the highest bid, the lawsuit contends.

Per the filing, the 2013 software update resulted in a substantial increase in Facebook’s advertising revenues, generating billions of dollars in additional profits that Facebook engineers “could not explain” at the time. Facebook did not begin investigating the source of the overcharges until 2016, and a corrected auction system was gradually rolled out starting in 2017, the complaint alleges.

“This slow rollout of the correction was done specifically to conceal the overcharges from advertisers,” the suit contends. Indeed, the lawsuit claims Facebook has never publicly disclosed that it had systematically overcharged advertisers and has unfairly retained the massive overpayments.

From the Facebook lawsuit:

The lawsuit looks to represent all Facebook customers that purchased advertisements during the period when the 2013 coding change caused Facebook to overcharge advertising customers and were damaged thereby.

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