Unhappy AdWords Advertiser’s Lawsuit Partially Survives Motion to Dismiss–Dreamstime v. Google

Dreamstime sells stock photos. It started running Google AdWords in 2004. In 2015, Google organic (?) referrals to Dreamstime “plummeted,” allegedly reducing its number of new customers by 30% in a year.  (The opinion isn’t crystal-clear that the traffic drop was only organic). In response, Dreamstime took many of the standard steps to rehabilitate its search reputation, plus it increased its AdWords spend by 50%. According to the complaint, “no one, including ‘guru’ search engine optimization companies, have identified any issues with Dreamstime’s site that would explain how Dreamstime came to be marginalized in Google’s search rankings.” Meanwhile, other search engines have been kinder to Dreamstime. For the search term “stock image,” Dreamstime claims it ranks 91st on Google (lower than some clearly marginal sites), 5th on Bing, 4th on Yahoo, and 3rd on Baidu. Dreamstime also alleges various Google chicanery about the AdWords ads. Dreamstime claims that Google deliberately hurt it while Google favored other competitors that were in partnership with Google. As a result, Dreamstime brought an antitrust suit against Google.

Sherman Act Monopoly Maintenance. Dreamstime doesn’t allege that it competes directly with Google for advertiser dollars or that Google leveraged its monopoly position. Instead, it apparently alleges that Google was illogically mean to a paying customer. The court says those allegations do not show any harm to competition; “by destroying Dreamstime, no rival and no competition has been excluded from the online search advertising market, and therefore, no anticompetitive conduct has been adequately alleged.”

Dreamstime also complained about Google’s data collection, and that goes nowhere: “Although the data collection likely gives Google an advantage in the online search advertising market over its rivals, a monopolist utilizing its competitive advantage does not equate to anticompetitive conduct.” The court continues:

A company providing a platform for businesses to sell advertisements must be expected to efficiently produce the best possible product to its customers. Thus, if in the online search advertising market, this means making stock photographs readily available to businesses seeking to advertise, a company will likely attempt to enter into agreements to make those stock photographs as available as possible. The use of data and the securing of these agreements here are efficient business transactions that do not “attempt[] to exclude rivals on some basis other than efficiency.”

The court dismisses the antitrust claim with prejudice. However, in an unusual twist, it says Dreamstime’s discovery requests for its surviving claims can also apply to this (dismissed) claim, and I believe the court says Dreamstime can ask for permission to resurrect the antitrust claim if it finds anything good in discovery.

Contract Breach. The court says Dreamstime properly alleged that Google overdelivered AdWords clicks in excess of requested limits and improperly deindexed its app in Google Play.

Implied Covenant of Good Faith and Fair Dealing. The court says these allegations sufficed:

Google pretended to work to resolve purported “policy issues” with Dreamstime’s ads while actually subverting and frustrating the ability of Dreamstime to realize the benefits of its contract. Google also is alleged to apply a double standard to Dreamstime’s low cost and high cost advertising campaigns and a double standard in Google’s treatment of Dreamstime compared to Dreamstime’s competitors.

The 17200 claim also survived.

Implications. Despite the favorable ruling on the Sherman Act claim, this is surely a frustrating ruling for Google. Dreamstime is almost certainly going to lose this case eventually. However, by greenlighting the case to the next stage and opening up discovery–including investigations for a dismissed claim–the judge ensured that the parties will spend a lot of time and money reaching the inevitable denouement. Even if the judge technically got the legal standard right for a motion to dismiss, this is one of those situations where Google surely wished the judge would demand more rigorous factual support in the complaint. I’m confident this judge will eviscerate Dreamstime’s case when it fails to deliver on its allegations with credible and admissible evidence, but it will take a lot of resources from both parties to prove that negative.

Case citation: Dreamstime.com, LLC v. Google, LLC, 2019 WL 341579 (N.D. Cal. Jan. 28, 2019). Initial complaint. Motion to dismiss.