What is Ad Fraud?
Ad fraud refers to the act of generating false engagements such as views, clicks, conversions, or interactions with any online resource solely to earn income, either directly or indirectly. These activities are motivated purely by financial gain and are completely unrelated to the genuine content of the advertisement.
This is when someone clicks on an ad with the intention of defrauding the advertiser. For example, a human fraud farm might be used to generate fake clicks on an ad, or a bot might be used to automate the process of clicking on ads.
This is when someone views an ad with the intention of defrauding the advertiser. For example, a bot might be used to automate the process of viewing ads, or a fake website might be used to generate fake impressions.
This is when malware is used to deliver ads. This can be used to steal personal information, install other malware, or redirect users to malicious websites.
This is when someone creates a fake website that looks like a legitimate website and uses a domain very close to the genuine domain of the legitimate site with the intention of deceiving visitors. This can be used to generate fake clicks or impressions, or to redirect users to a malicious website.
Consequences of Ad Fraud
Financial Losses for Advertisers
This is the most direct and immediate impact of ad fraud. On average, 25% of all paid traffic is fraudulent.
Skewed Marketing Data
Ad fraud can lead to inaccurate data about the performance of ad campaigns. This can make it harder for advertisers to make informed decisions about their marketing strategies.
Damage to Brand Reputation
If an ad appears on a fraudulent or inappropriate website, it can harm the reputation of the brand. Consumers may associate the brand with the content of the fraudulent site, which can lead to a loss of trust in the brand.
Increased Costs for Consumers
The costs of ad fraud are often passed on to consumers in the form of higher prices for products and services. To cover the losses from fraud, companies may increase their prices, which can hurt consumers.
Harming Legitimate Publishers
Ad fraud can also harm legitimate publishers. Advertisers reduce their overall ad spend, which can reduce the revenues of legitimate publishers. Furthermore, fraudulent sites can create a ton of inventory, driving down the overall prices that publishers can charge for ads.
Supporting Criminal Activity
The profits from ad fraud can go to support other types of criminal activity. Organized crime groups have been known to engage in ad fraud to generate revenue, and the proceeds can be used to fund other illegal activities.
Laws Against Ad Fraud
The legal environment regarding ad fraud is still in its infancy and is trying to catch up with the swiftly advancing fraud methods. Laws against ad fraud are established to safeguard consumers and protect businesses from fraudulent traffic, click fraud, and other deceptive practices. Understanding these laws can help safeguard your business.
The Federal Trade Commission Act (FTC Act)
This U.S. law prohibits "unfair or deceptive acts or practices in or affecting commerce." This broad mandate includes false advertising and other forms of fraud.
The Computer Fraud and Abuse Act (CFAA)
While not specifically designed for ad fraud, provides a legal foundation for prosecution. It prohibits unauthorized access to computers, which encompasses the actions of bots designed to perform click fraud, impression fraud, or domain spoofing.
The Lanham Act
This law prohibits false or misleading advertising. Ad fraud can be prosecuted under the Lanham Act if it involves false or misleading claims about an advertiser's products or services including trademarks.
The CAN-SPAM Act
This law prohibits sending unsolicited commercial email. Ad fraud can be prosecuted under the CAN-SPAM Act if it involves sending unsolicited commercial email to generate fake clicks or impressions.
The Telemarketing Sales Rule
This law regulates telemarketing calls and requires telemarketers to identify themselves and obtain the consent of the person they are calling before making a sales pitch.
The California Business and Professions Code prohibits false or misleading advertising.
The New York General Business Law prohibits deceptive trade practices.
The Texas Penal Code prohibits computer crimes
The General Data Protection Regulation (GDPR) may be used against ad fraudsters, particularly in instances where personal data is used to create more convincing fake ad traffic.
The UK has laws such as the Fraud Act 2006, which covers fraudulent activities including those related to advertising and the misrepresentation of products or services. The Competition and Markets Authority (CMA) also works to enforce fair advertising practices and combat misleading advertising.
Canada has laws such as the Competition Act, which prohibits false or misleading advertising. The Personal Information Protection and Electronic Documents Act (PIPEDA) regulates the collection, use, and disclosure of personal information and can be relevant in cases involving ad fraud.
In Australia, the Competition and Consumer Act 2010 includes provisions to address misleading and deceptive conduct, which can encompass fraudulent advertising practices. The Privacy Act 1988 governs the collection and use of personal information and applies to advertising activities involving data privacy.
It's important to note that the legal landscape surrounding ad fraud is constantly evolving, and specific laws and regulations may vary from country to country.
Organizations to Prevent Ad Fraud
In addition to those Laws, there are a few organizations that are working to fight ad fraud. These organizations are working to develop standards and best practices to help prevent ad fraud.
The Trustworthy Accountability Group (TAG) is a coalition of advertisers, publishers, and technology companies that have developed a set of standards for fighting ad fraud.
The Interactive Advertising Bureau (IAB) is a trade association that has developed several standards for digital advertising, including standards for fighting ad fraud.
The Media Rating Council (MRC) is a nonprofit organization that evaluates the accuracy of ad measurement and verification services.
The Coalition Against Ad Fraud (CAAF) is an alliance of stakeholders working to combat and reduce ad fraud in the digital advertising industry through research, standards, and education.
The Challenge of Proving Ad Fraud
Many ad fraud schemes use advanced technology and methods, such as bots, malware, and spoofing, which can be challenging to detect. As detection methods evolve, so do the techniques used by fraudsters. This continuous change can make gathering and presenting clear, timely evidence a challenge.
Scale and Complexity
The digital advertising ecosystem is vast and complex, with millions of transactions taking place in real time. It's difficult to monitor every single one of these transactions for signs of fraud.
Lack of Transparency
There is a considerable lack of transparency in the digital advertising supply chain. Ads pass through multiple intermediary layers before they reach their destination, and each step provides opportunities for fraudsters to obscure their actions.
Global Scale and Jurisdictional Issues
The digital nature of ad fraud means it can be conducted from anywhere in the world. Legal systems differ greatly across countries, and international legal enforcement can be problematic.
There are no universally agreed-upon definitions of what constitutes ad fraud, and laws vary by jurisdiction, making legal proceedings complex.
It's often hard to distinguish between fraudulent and legitimate visitors. This complexity increases the risk of false positives, where legitimate actions are mistakenly flagged as fraudulent.
Ad fraud often involves botnets and proxy servers that obscure the true source of the fraudulent activity. This makes attributing the fraud to a specific actor difficult.
Learn from History
Past ad fraud lawsuits provide valuable lessons.
In January 2023, the Justice Department filed a lawsuit against Google, accusing it of monopolizing digital advertising technologies. The suit claims that Google acquired competitors to control essential ad tools, forced publishers to adopt its tools by restricting exclusive advertiser access, distorted auction competition by limiting real-time bidding to its platform, and manipulated auction procedures to block rivals and stifle emerging technologies.
In 2020, the Justice Department launched an antitrust case against Google, accusing it of monopolizing search and search advertising. This is distinct from the 2023 lawsuit related to digital advertising technologies. The trial for the search-related case is set for September 2023.
In 2023, the FTC issued orders to Social Media and Video Streaming Platforms Regarding Efforts to Address Surge in Advertising for Fraudulent Products and Scams.
In 2021, the Department of Justice (DOJ) indicted Aleksandr Zhukov, a Russian national, for running a botnet that defrauded advertisers out of millions of dollars. Zhukov was sentenced to 10 years in prison.
In 2018, Uber sued Fetch, an ad network, for allegedly engaging in ad fraud. Uber alleged that Fetch was using bots to generate fake clicks and impressions on its ads, which was costing Uber millions of dollars in lost revenue. The case was settled in 2020, with Fetch agreeing to pay Uber $100 million.
In 2018, The FTC shut down an operation by "Pointbreak Media", where the company falsely claimed to represent Google, telling businesses they risked removal from Google's search results if they didn't pay for their services.
In 2018, Investor Village, a small business, sued Facebook for allegedly inflating the metrics of its ad campaign. Investor Village alleged that Facebook was counting fake clicks and impressions on its ads, which was misleading Investors about the reach of its ad campaign. The case was settled in 2019, with Facebook agreeing to pay Investor Village $1.25 million.
These cases emphasize the importance of being proactive and vigilant to prevent ad fraud.
Disclaimer: Our content is for informational purposes only and does not constitute legal advice. We are not attorneys, and our insights are based on our current understanding. For legal concerns, consult with a professional attorney. No attorney-client relationship is formed through this site.