COMMENTARY

Let's Hold Ad Platforms 'Strictly Liable' When They Sell Fraudulent Ads

• by Dave Morgan , Featured Contributor, August 27, 2020

On Aug. 13, the Court of Appeals in the State of California ruled that Amazon could be held strictly liable for injuries suffered by someone who purchased a defective laptop battery on the Amazon site, even though it claimed it was merely acting as a neutral marketplace connecting buyers and sellers, and had satisfied its obligations by refunding the purchase price to the buyer.

Basically, the court’s ruling means that Amazon can now be held liable for products that it sells, under the same liability standards that retailers like Walmart, Krogers and Best Buy have always been held to: “strict liability,” where the seller of a defective good or service is responsible for damages it causes to buyers, whether or not the seller was negligent. If the seller sold it and it caused harm, then the seller is strictly responsible.

In the case, Amazon had argued it was a new kind of company, a neutral platform that was a mere service provider helping make a market, and was thus immune from the liability normally imposed on a retailer, manufacturer or reseller.

The Appeals Court said no. It noted that Amazon’s online platform connects buyers and sellers. Its systems set pricing. It handles all payments. It controls the supply chain. It monitors product quality and manages bad quality product out of its marketplace.

Thus, Amazon can’t pretend not to be liable for the product delivered to the buyer. If the laptop battery that caught fire and caused the consumer to spend two weeks in the hospital was defective, giving money back is not enough. Amazon could be held strictly liable for the injuries suffered, just as any retailer would be.

As someone who follows the ad industry closely, I couldn’t help but find parallels between Amazon’s issues and how so many digital ad platforms operate today. When issues of fraud and bots are raised, the platforms cry that they are just “neutral marketplaces” or “service providers” and cannot take responsibility for bad stuff that happens on their platforms.

Fraud in the digital ad business is big, growing and is super harmful to buyers and authentic publishers. Not only do fraudulent impressions waste advertisers’ money, but advertisers suffer lost opportunity and profits for ads that didn’t run, even if they are eventually refunded money for the fraudulent units.

Worse yet, authentic publishers lose money and suffer debilitating price deflation. Fraudulent impressions are basically free to their sellers, so putting them on programmatic ad platforms drives down prices of real impressions and prevents publishers from paying their journalists what they’re worth.

And it’s not just authentic media that is hurt, but authentic providers of data, too. (How do you know if the 500% premium paid to reach an “auto-intender” is real, or was actually based on a fake pixel?)

When fraud is discovered in the programmatic ad world, the platforms typically just require sellers to provide credits or money back to the buyers, and then it’s back to business as usual. Let’s stop that.

"Business as usual" would change a lot if programmatic ad platforms were held strictly liable for the injuries advertisers and authentic publishers suffered from the fraud. Those platforms would find ways to clean up their supply chains fast. The 40% fraud rates we read about in areas like digital video and CTV would go way down.

What do you think? Time to see if courts and old-fashioned product liability laws might be able to clean up our industry?