Pulaski & Middleman, LLC v. Google, Inc.

• Decision Date: 21 September 2015
• Docket Number: No. 12–16752.,12–16752.
• Citation: 802 F.3d 979
• Parties: PULASKI & MIDDLEMAN, LLC; JIT Packaging, Inc.; RK West, Inc.; Richard Oesterling, Plaintiffs–Appellants, v. GOOGLE, INC., a Delaware corporation, Defendant–Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

802 F.3d 979

PULASKI & MIDDLEMAN, LLC; JIT Packaging, Inc.; RK West, Inc.; Richard Oesterling, Plaintiffs–Appellants

v.GOOGLE, INC., a Delaware corporation, Defendant–Appellee.

No. 12–16752.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Dec. 9, 2014.

Filed Sept. 21, 2015.

Miranda P. Kolbe (argued), Robert C. Schubert, and Willem F. Jonckheer, Schubert Jonckheer & Kolbe LLP, San Francisco, CA, for Plaintiffs–Appellants.

Michael G. Rhodes (argued), Whitty Somvichian, and Kyle C. Wong, Cooley LLP, San Francisco, CA; Heather Meservy, Cooley LLP, San Diego, CA, for Defendant–Appellee.

Appeal from the United States District Court for the Northern District of California, Edward J. Davila, District Judge, Presiding. D.C. No. 5:08–cv–03369–EJD.

Before: A. WALLACE TASHIMA and RICHARD A. PAEZ, Circuit Judges and Gordon J. Quist,^* Senior District Judge.

OPINION

PAEZ, Circuit Judge:

Between 2004 and 2008, many online internet advertisers used Google, Inc.'s (“Google”) AdWords program, an auction-based program through which advertisers would bid for Google to place their advertisements on websites. Pulaski & Middleman, LLC and several other named plaintiffs (“Pulaski”)¹ brought this putative class action under California's Unfair Competition and Fair Advertising Laws, alleging that Google misled them as to the types of websites on which their advertisements could appear. The putative class initially sought injunctive and restitutionary relief. After Google changed certain features of the AdWords program, Pulaski, upon filing a Third Amended Consolidated Class Action Complaint, abandoned the claim for injunctive relief. The only relief the putative class now seeks is the equitable remedy of restitution.

Pulaski appeals the district court's denial of class certification. The district court held that on the claim for restitution, common questions did not predominate over questions affecting individual class members. In denying certification, the court reasoned that it was not bound by our decision in Yokoyama v. Midland National Life Insurance Co., 594 F.3d 1087, 1094 (9th Cir.2010). It then explained that determining which class members are entitled to restitution and what amount each class member should receive would require individual inquiries that “permeate the class claims.”

Pulaski argues that the district court erred in failing to follow Yokoyama. As explained below, we agree. We therefore reverse the denial of class certification and remand for further proceedings.

I. Background

A.

This case concerns Google's AdWords program, an auction-based program through which Google served as an intermediary between website hosts and advertisers. Through AdWords, internet advertisers provided advertisements to Google and its third party website-owner partners. To participate, advertisers entered Google-defined variables into the AdWords interface on Google's website, including the maximum price per ad they would be willing to pay and their overall budget. They also selected which Google-defined categories of websites they wanted to display the ad. Afterwards, using an auction-based algorithm, AdWords determined the online placement and price of the ad. Thus, during the class period, advertisers did not know in advance exactly where their ads would appear.

Advertisers paid a particular price to Google each time an Internet user “clicked” on their displayed ad. The price of a particular click depended on several factors: the maximum bids of other AdWords customers for clicks based on the same search term, a “quality score” of the advertisement, and a “Smart Pricing” discount applied to the website where the ad had been placed. Google created and instituted Smart Pricing, an internally-calculated price adjustment, to adjust the advertiser's bids to the same levels that a “rational advertiser” would bid if the rational advertiser had sufficient data about the performance of ads on each website. Smart Pricing is a ratio calculated by dividing the conversion rate² for the lower-quality website by the conversion rate for the same ad on google.com.

There are several categories of websites in play. During the class period, an advertiser using AdWords could request that its ads appear on Search Feed sites, Content Network sites, or both. Search Feed sites display AdWords ads along with search results after a user searches for information using a particular search term. After entering a particular term, a user would be presented with both ordinary search results and ads related to the search term. Content Network websites, on the other hand, are full content sites, like nytimes.com, that publish information independent of search results. Ads would appear on these sites if the ad's keywords matched those of the website.

There are other categories of sites that did not appear in the AdWords registration process: parked domains and error pages. Parked domain pages are undeveloped domains whose pages appear when users type generic terms into a web browser. These are pages of ads without content. Error pages appear when a person inputs an unregistered web address, or something other than a web address, into a web browser's address bar. Typing this information into an address bar used to result in error messages, but during the class period inputting this information resulted in error pages that offered ads. Even though only Search Feed and Content Network websites were listed in the AdWords registration process, AdWords ads appeared on both parked domains and error pages.

B.

Pulaski alleges that Google misled advertisers, violating California's Unfair Competition Law (“UCL”), Cal Bus. & Prof.Code § 17200 et seq.,³ and California's Fair Advertising Law (“FAL”), § 17500 et seq., by failing to disclose the placement of AdWords ads on parked domains and error pages. The putative class consists of “[a]ll persons or entities located within the United States who, from July 11, 2004 through March 31, 2008 ... had an AdWords account with Google and were charged for clicks on advertisements appearing on parked domain and/or error page websites,” with exclusions.⁴ Pulaski, on behalf of the putative class, seeks restitution of moneys Google wrongfully obtained from the putative class.

Pulaski moved for class certification pursuant to Rule 23 of the Federal Rules of Civil Procedure (“Rule 23 ”) for a Rule 23(b)(3) class. Pulaski proposed three different methods for calculating restitution, all of which were based on a “but for” or “out-of-pocket loss” calculation: the difference between what advertisers actually paid and what they would have paid had Google informed them that their ads were being placed on parked domains and error pages. The first approach is based on Google's Smart Pricing formula as described above. The amount of restitution owed a class member would be the difference between the amount the advertiser actually paid and the amount paid reduced by the Smart Pricing discount ratio. The second method is the Content Pricing approach,⁵ which factors in the lower bidding that would have occurred had advertisers been allowed to bid separately on parked domains and error pages. Search Feed clicks were priced higher than Content Network clicks, which in turn were considered more desirable than parked domains and error pages. Accordingly, where the same ad appeared both in the Search Feed and on Content Network websites, those Content Network ad prices could serve as a conservative but-for price for Search Feed clicks on parked domains and error pages. The third method is the Full Refund approach, in which advertisers would receive full refunds for clicks on ads placed on parked domains and error pages. Because some methods may work better than others for certain subsets of class members, Pulaski presented these methods as possibly complementary.

In ruling on the class certification motion, the district court initially found that the proposed class satisfied all of the criteria under Rule 23(a) : numerosity, commonality, typicality, and adequate representation. The court next turned to the predominance inquiry under Rule 23(b)(3). On that issue, it found that, even assuming the plaintiff class could prevail on liability, common questions did not predominate on the issues of entitlement to restitution and amount of restitution due each class member.

First, the court expressed concern that individual questions may arise in ascertaining entitlement to restitution. It observed that “the question of which advertisers among the hundreds of thousands of proposed class members are even entitled to restitution would require individual inquiries.” In particular, the court was concerned with how to “systematic[ally] ... identify and exclude from Plaintiffs' proposed class the many advertisers who have no legal claim to restitution because they derived direct economic benefits from ads placed on parked domains and error pages.”

Second, the court identified individual questions that would arise in determining the amount of restitution owed to the class and individual class members. The court explained that our decision in Yokoyama, which held that damages calculations alone cannot defeat class certification, did not control the outcome of this issue because Yokoyama cited to decisions that mentioned a “workable method for calculating monetary recovery.” Here, the court held that the plaintiffs had not proposed a method that was workable. The court explained that different costs for each advertiser, each ad, and each click, overlaid with an auction process, make it “more difficult to calculate what AdWords customers would have paid ‘but for’ the alleged misstatements or omissions.” It concluded that Pulaski's proposed methods were insufficient to account for all of the intricacies involved, including benefits received from parked domain and error pages.

Concluding that individual questions predominated on the issue of restitution, the court denied Pulaski's ...