After the breach of the implied covenant of good faith and fair dealing failed in July, Dreamstime is appealing the dismissal of the antitrust cause of action as well as those based in contract and California's unfair competition laws. The briefing on the appeal will start in late 2020, but will not be concluded until early 2021, and the oral argument before the Ninth Circuit will likely be later in 2021. The ruling will then be expected in late 2021 or 2022.
The following is a summary of events in Dreamstime’s United States litigation against Google and an update on its recently filed appeal to the United States Court of Appeals for the Ninth Circuit.
Dreamstime Recently Appealed the Court’s Earlier Dismissal of Its Antitrust Claims
On March 28, 2018, Dreamstime.com, LLC (“Dreamstime”), a leading supplier of digital stock images, filed a lawsuit against Google, LLC (“Google”) in the Northern District of California for antitrust violations under Section 2 of the Sherman Act, fraudulent business practices prohibited by California’s Unfair Competition statute, and various breaches of contractual duties. Among many other things, Dreamstime alleged that Google used its monopoly power in online search advertising to favor its own Google Images product (which republishes content from other websites like Dreamstime without paying for it) and its favored partners to the exclusion of websites like Dreamstime that lawfully license and resell stock images. For years, Dreamstime ranked in the top three to five most prominently displayed online stock photography agencies in Google’s organic search results. In or around October 2015, however, Dreamstime’s ranking on Google’s search engine plummeted from at or near the top of results to several pages deep for key industry searches —well below Google’s partners Shutterstock and Getty Images, well below other smaller competitors, and even well below much less relevant or useful search results. Dreamstime further alleged that a number of stock photography agencies were similarly affected. Meanwhile, of course, Google Images continued to maintain its prominent position in search results.
Dreamstime’s drop in search ranking coincided not only with a recent partnership Google entered into with Shutterstock but also with significant design changes to Google Images that resulted in widespread theft of Dreamstime’s content and discouraged users from navigating beyond Google Images to view and purchase Dreamstime’s stock images. This, Dreamstime contended, unlawfully enhanced Google’s monopoly by diverting traffic away from Dreamstime and other stock photography agencies and instead holding that traffic captive within Google Images (where users could access Dreamstime’s licensed content without ever leaving Google). In turn, these acts increased Dreamstime’s reliance upon expensive search advertising as its only means of obtaining visibility for key industry queries. The court dismissed Dreamstime’s antitrust claim a year and a half ago, in January 2019. However, in general, U.S. litigants must await a final judgment on the entire matter before appealing this type of interim ruling. As noted below, the remainder of Dreamstime’s claims have recently been reduced to judgment. Accordingly, on July 30, 2020, Dreamstime appealed the court’s dismissal of its antitrust claims to the Ninth Circuit Court of Appeals. On appeal, Dreamstime will argue (among other things) that the district court improperly applied U.S. antitrust laws in ruling that Google’s alleged conduct was not anticompetitive and that Dreamstime had not suffered an injury that United States antitrust laws were intended to prevent. Dreamstime contends, among other things, that Google’s favoritism of its own Google Images product, Google’s diversion of traffic away from Dreamstime’s website (which provides high-quality image search and acquisition services, but unlike Google Images licenses its content), and Google’s practice of presenting Dreamstime’s content without license or appropriate attribution within Google Images are illegal acts of a monopolist and should be remedied by United States antitrust laws.
Dreamstime Has Appealed The Recent Dismissal of Its Remaining Claims
After the court’s dismissal of its antitrust claims, Dreamstime’s remaining claims – for breach of contract, breach of the implied covenant of good faith and fair dealing and unfair business practices under California law – proceeded to extensive fact and expert discovery over the remainder of 2019 and first part of 2020. In discovery, Dreamstime uncovered additional evidence of what it contended were multiple instances of fraud and breaches of contractual duties by Google related to Dreamstime’s drop in organic search ranking and various other Google Ads services. At the conclusion of discovery, Google moved for summary judgment on Dreamstime’s remaining claims. In opposition, Dreamstime submitted evidence of multiple misrepresentations and half-truths it contended Google made to it with respect to organic search and Google Ads. With respect to organic search, Dreamstime contended that Google provided various specific reasons to Dreamstime to explain its drop in ranking in the course of their relationship but fraudulently concealed critical facts related to Dreamstime’s organic search performance to hide its conduct and induce Dreamstime to keep spending exorbitantly on Google Ads. In particular, Dreamstime learned in discovery that Google made a change to its search algorithm in late 2015, just before Dreamstime began to suffer a significant loss in organic search traffic. In Google’s own testing related to this algorithmic change, Google flagged Dreamstime’s product page (which shares a common template with all of its image product pages) as a loss as a result of the change. Dreamstime submitted expert testimony, along with evidence obtained from Google’s records and the depositions of Google’s search employees evidencing that this change or another similar algorithmic change was the most likely cause of Dreamstime’s drop in ranking. Dreamstime’s expert concluded that this was the case in part because the product page Google flagged as a loss in its testing of the algorithmic change was one of millions of similar product pages on Dreamstime’s website that would likely have been affected in the same manner. It was undisputed that Google had not disclosed this algorithmic change (or various other facts related to Dreamstime’s organic search performance) when providing answers to Dreamstime regarding the reasons for its diminished organic search performance. Google disputed the significance of this evidence (and some of its own documents and testimony, which contradicted many of Google’s claims according to Dreamstime’s expert). Google also contended that, in any event, it could not be liable for fraud because no one at Google “believed” the algorithmic change was the cause of Dreamstime’s loss of organic search traffic. In support of its Google Ads related claims, Dreamstime also submitted hundreds of pages of sworn testimony and documentation identifying a number of specific misrepresentations made by Google Ads representatives to Dreamstime about the functionality of various Google Ads products and services which caused it to overspend by millions of dollars on Google Ads.
On July 3, 2020, the district court granted Google’s motion for summary judgment. In doing so, the district court relied extensively on Google’s statements that it did not “believe” its algorithmic changes were the cause for Dreamstime’s drop in search ranking and other boilerplate disclaimers in Google’s advertising contracts with Dreamstime that the court found precluded Dreamstime’s claims related to Google Ads. Dreamstime has also appealed that ruling to the Ninth Circuit on July 30, 2020, as the court’s ruling seemingly contradicted many comments it made at the hearing on the motion. For example, with respect to organic search, the court stated at the hearing: “So somebody on the organic side knew [the details of the algorithmic change], and why isn’t that information attributable to Google in an omnibus way as opposed to – you know, what you’re doing is compartmentalizing everybody at Google so that you’re saying ‘Since everybody – everybody only knew their little business. We’re innocent. We’re innocent because nobody has all the guilty knowledge.’” On appeal, Dreamstime intends to argue (among other things) that the court’s observations and reasoning at the hearing about Google’s knowledge of undisclosed facts related to Dreamstime’s organic performance were sufficient bases to deny Google’s motion, and that the court erred in accepting Google’s evidence at face value. Dreamstime likewise contends that the court improperly ignored the evidence and expert testimony Dreamstime submitted to prove that Google’s algorithmic changes were the most likely cause of Dreamstime’s diminished organic search performance and that Google had to be aware of this fact when it concealed it from Dreamstime. Dreamstime will further argue that Google’s boilerplate disclaimers in its standard online advertising contracts do not absolve it from liability for specific misrepresentations of fact that Google voluntarily made to Dreamstime about how its ads products worked in order to induce Dreamstime to overspend on Google Ads. In other words, Dreamstime contends that Google’s contractual disclaimers cannot shield it from fraudulent statements made by its representatives in the context of selling its advertising services.
The Ninth Circuit has set a briefing schedule to begin at the end of this year and to be completed in early 2021, followed by oral argument later in 2021. Dreamstime looks forward to a full re-examination of its claims by the Ninth Circuit and to holding Google accountable for its abuse of monopoly power and other conduct related to Dreamstime’s organic search performance and Google Ads. Serban Enache, CEO of Dreamstime, told CEPIC: “Dreamstime was heartened by the U.S. Congress’ tough questioning about Google’s practice of stealing other publishers’ content at the recent hearing as part of its antitrust investigation of Google, and we are hopeful that the U.S. courts will ultimately right this wrong. Dreamstime continues to explore its options, legal and otherwise, to fight back against Google’s cannibalization of Dreamstime’s core business.”