Why Advertisers Claim Meta Owes $7 Billion in Damages

Facebook and Instagram's Potential Reach metric inflates viewership figures by up to 400%, according to a lawsuit

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According to a class-action lawsuit brought by Facebook and Instagram advertisers, Meta’s metrics flub owes them potential damages exceeding $7 billion.

In a ruling, the 9th U.S. Circuit Court of Appeals in San Francisco is letting advertisers pursue legal action against Meta for monetary damages, accusing it of inflating the social platforms’ Potential Reach metric (the number of people in an ad set’s target audience) by up to 400%.

Advertisers claim the metric measured the number of social media accounts—which could include bots and other fake accounts—rather than individual users, leading to artificially high premiums for ad placements.

“The claim is that [plaintiffs] made advertising spend decisions based on inflated reach,” said Jason Kint, CEO of the nonprofit trade group Digital Content Next. “Meta has argued the metric was meaningless as the advertisers mostly pay based on performance metrics. The metric matters, or it wouldn’t be presented to the marketers.”

The case, brought in 2018 by former Meta advertisers DZ Reserve and Cain Maxwell, encompasses potentially millions of advertisers that have run paid ads on Instagram and Facebook since Aug. 15, 2014. Here’s what you need to know.

Advertisers halting spend

Ads account for the majority of Meta’s revenue, which was $134.9 billion in 2023, up 16% compared to 2022. Much of those ads were bought by small to medium-size businesses.

Per the court document, DZ Reserve, an ecommerce business, invested over $1 million across 740 Meta ad campaigns. Maxwell operated an online firearm mount store and allocated approximately $379 to 11 Meta ad campaigns. Following the filing of the complaint, DZ Reserve ceased its Meta operations; it remains unclear whether Maxwell’s business is still operational.

The case is “at least symbolically significant because advertisers feel these companies often bully them because they have so much reach and scale,” said eMarketer principal analyst Paul Verna.

A Meta spokesperson told ADWEEK that “these allegations are baseless, and we will defend ourselves vigorously.”

Duplicates, bots and fake accounts

In the fall of 2017, an industry analyst found that Facebook’s Potential Reach exceeded the U.S. census count, which led to a response from Meta’s senior executives acknowledging the inflation and attributing it to fake and duplicate accounts.

Meta CMO Alex Schultz purportedly directed Facebook’s sales team to avoid discussing fake and duplicate accounts with advertisers. Yet, internally, according to the lawsuit, Schultz acknowledged that Potential Reach figures had to be inflated by at least 10%.

However, the lawsuit states that advertisers creating a new ad were provided a Potential Reach number that was inflated by at least 33%.

Meta’s senior executives, including former COO Sheryl Sandberg, were aware of the inflation driven by duplicate and fake accounts, including bots, the documents state, and took actions to conceal this information.

“Advertisers don’t like spending money if they don’t know where it is going. Another way to put this: [Potential Reach] is vital to 100% of our ads revenue,” the Facebook executive said.

What’s next?

Returning to the district court in San Francisco, the case will either proceed to trial or potentially be resolved through a settlement involving financial compensation for the plaintiffs.

“We look forward to continuing to litigate this case on behalf of Meta’s advertising customers and to presenting the evidence to a jury that Meta knew about its inflated Potential Reach and refused to fix the issue due to revenue concerns,” said Geoffrey Graber, partner at Cohen Milstein and lead counsel representing the plaintiffs in this class action. 

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