SAN FRANCISCO (Legal Newsline) - Most people would probably pay money not to be subjected to ads featuring quacking ducks and apron-clad insurance agents. But a California appeals court has decided Facebook must face a class action over claims it discriminates against users by allowing insurance companies to select their audience based on age and gender.
Rejecting Facebook’s argument its advertising tools were neutral and helpful to consumers, California’s First Appellate District Court, Division Three reversed a lower court decision dismissing the case. Facebook requires users to reveal their gender and age and urges advertisers to target their ads based on those characteristics, the court ruled, making it potentially liable for violating California's Unruh Civil Rights Act prohibiting discrimination in public accommodations.
The decision, if upheld, could pose a crippling threat to Facebook’s advertising business in California, which relies on precise targeting to deliver ads to users based upon their individual characteristics. Facebook derives 98% percent of its revenue from advertising, according to the appeals court.
The case has drawn wide attention in the tech world and the plaintiff is supported by the American Civil Liberties Union and the lawyers Committee for Civil Rights Under Law. Facebook settled a similar complaint by the state of Washington in 2018.
Lawyers including William Most, Aqua Terra Aeris Law Firm, Outten & Golden seized upon a 2019 article by researchers at Northeastern University and the University of California to file a class action accusing Facebook of using algorithms to discriminated against users. Plaintiff Samantha Liapes, a 48-year-old woman, claims she was interested in learning about insurance products, “but she could not view several life insurance ads posted on Facebook due to her age and gender.” She listed ads by Ladder, Health IQ Special Rate Insurance and National Family Assurance as ones she didn’t see.
A trial court dismissed the case, ruling Liapes couldn’t prove discrimination because Facebook’s audience-selection tools were neutral and designed to increase the likelihood consumers would see appropriate content. The court also found her claims barred by Section 230, which exempts most social media platforms for liability over third-party content.
The appeals court reversed in a Sept. 21 decision. It described how Facebook allows advertisers to target audiences according to thousands of variables but requires them to select age, gender and location. The default is all genders and age 18 to 65, but in its “Facebook Blueprint,” a guide for advertisers, Facebook strongly encourages them to narrow the range and gender to make their ads more effective. If “the majority of your current customers are women, it might be a good idea to set your audience to reach women and exclude men,” Facebook says in the guide.
Facebook also has a “Lookalike Audiences” tool that allows advertisers to describe the type of customers they want to reach, including age and gender.
“While businesses can make economic distinctions in serving customers, those distinctions must be based on characteristics that `could conceivably be met by any customer’ — not personal characteristics,” the court ruled. Discounts based on gender violate the Unruh Act, for example, although California courts have allowed certain discounts for the elderly on grounds of public policy.
“Facebook does not argue its allegedly discriminatory ad platform is justified by any public policy,” the court said.
The alleged injury is not conjectural or hypothetical, the court went on. Liapes didn’t receive an ad sent only to males ages 30 to 49 and another sent only to people 25 to 45, the court said, denying her the opportunity to shop for those insurance policies.
The court rejected Facebook’s argument that Liapes may have received ads that were more valuable to her, saying they were based on information outside the pleadings. “Facebook should rest assured it will be able to develop the record and its arguments further — just not at this stage of the litigation,” the court said.