Criteo, the France-based ad tech company, filed a lawsuit on Monday that alleges rival firm SteelHouse ran a “counterfeit click fraud scheme” that led to “substantial injury and damage” to its business and reputation.
US-based SteelHouse and Criteo directly compete in the online advertising space. Criteo is a huge public ad tech company that crossed $1 billion in revenue in 2015, while SteelHouse is a private firm that is far smaller than Criteo in terms of top website market share. SteelHouse has raised $63.55 million in funding, according to CrunchBase.
Both companies place ads by “retargeting” – dropping a cookie on a user’s browser when they have visited a website – usually an ecommerce website. When the web user visits other websites, the publisher can offer that ecommerce company the chance to purchase ad space targeting that user, which will hopefully result in that person returning to the ecommerce site and making a purchase.
Both Criteo and SteelHouse use a pay-per-click pricing model, which means they only generate revenue when users click on the ads they have served. The amount they can charge advertisers depends on their conversion rates (how many people who saw the ad clicked on it) and by measuring whether the ads served resulted in sales.
Criteo alleges in the suit that SteelHouse “counterfeited clicks to trick e-tailers into attributing sales to SteelHouse that should have been attributed to Criteo, other competitors and partners, or direct traffic.”
The suit also claims SteelHouse used the scheme to falsely advertise to customers that it “consistently outperformed” Criteo in head-to-head comparisons, which led to Criteo losing important business.
The suit says: “SteelHouse’s – or, more accurately, StealHouse’s – counterfeit click fraud has irreparably harmed and continues to irreparably harm both Criteo and the online advertising industry as a whole.”
Criteo is seeking “millions of dollars” in damages and legal fees. Criteo also wants injunctions to be placed on SteelHouse that will prohibit it from conducting in behavior it believes is in violation of laws related to false and misleading advertising, fraud, intentional interference with prospective economic advantage, libel, and unfair competition.
SteelHouse sent Business Insider this statement on Wednesday: “It is disappointing that Criteo has chosen to publicly accuse and attack SteelHouse, particularly on a topic for which Criteo repeatedly has found itself in the hot seat. Criteo’s response to SteelHouse’s market success is an attempt to bully a smaller company in the courtroom and make disparaging statements and allegations that are counterproductive to the industry and the advertising community.”
Criteo sent Business Insider this statement on Tuesday: “On Monday 13th June 2016, Criteo (CRTO) filed a publicly available complaint against SteelHouse in the Central District of California. In line with Criteo’s Corporate Communications Policy, we do not comment on ongoing legal investigations and as such will be making no further comment on this matter.”
How Criteo uncovered SteelHouse’s alleged “counterfeit click fraud” scheme
In late spring/early summer, Criteo said it lost its client TOMS after SteelHouse made the shoe retailer perform a head-to-head comparison between the two ad tech vendors’ products. The analysis showed SteelHouse as the victor, the suit says.
Criteo made TOMS perform the test again between November 2015 and January 2016 and SteelHouse won again, according to the suit.
- Gary Miller/Getty Images
So Criteo conducted a “detailed and costly data log analysis” to assess how it could improve its performance. It was then that the company found something amiss, the suit claims:
Criteo’s analysis revealed that during the head-to-head comparison a large number of clicks attributed to SteelHouse landed within seconds after clicks attributed to Criteo. These clicks appeared to be fraudulent because it is highly unlikely that an internet shopper could click on an advertisement, be taken to an e-tailer’s website, go to a different publisher’s website, see a different advertisement for the same e-tailer placed by a different marketing vendor, and click on the second advertisement within seconds of having clicked on the first advertisement.
Criteo continued to monitor the situation using web traffic analysis software Telerik® FiddlerTM. The suit says Criteo learned SteelHouse was using a code to counterfeit clicks (you can read the full, technical explanation in the full suit here: Download PDF) which made it look as though it was responsible for bringing shoppers to e-tailers websites. In essence, SteelHouse loads an invisible, short-lived web page underneath its clients’ web pages that falsely recognizes clicks for SteelHouse, Criteo alleges. The invisible page then quickly closes before anyone can see it, Criteo claims.
A lot of advertisers measure performance using a method called “last click attribution,” which gives credit to whichever company served the last ad a user clicked on before landing at a website. Criteo alleges in the suit that SteelHouse’s scheme worked by ensuring its “counterfeit” clicks occured after the valid clicks.
The suit claims SteelHouse informed Criteo the method had stopped when it hadn’t.
After monitoring the situation and losing another large client and ad spend to SteelHouse, in April, Criteo sent an email to SteelHouse stating its findings and saying that it “was open to hearing what [SteelHouse’s] CEO intends to do to immediately remedy this situation,” the suit says.
Later that month, Criteo’s chief revenue officer, Mollie Spilman, then met with SteelHouse’s chief marketing officer, Patrizio Spagnoletto, in Criteo’s New York office, according to the suit. Shortly after that meeting, SteelHouse’s chief monetization officer, Chris Innes, sent Criteo an email reading: “Thanks for sending the logs as well as the detailed breakout below. We are acting on the data below over the next couple of days to remove the behavior,” the suit says.
In May, SteelHouse said it was implementing “global” code changes that would fix the issue, but Criteo said it subsequently learned that SteelHouse was making “false statements to e-tailers in an attempt to minimize its misconduct.”
The suit claims SteelHouse emailed clients saying the issue was limited to “less than 4% of click-based conversions” – a claim Criteo protests – and that a “discrepancy minimizer tool” was the source of the issue, rather than, as Criteo claims, that it deliberately counterfeited clicks.
Later on that month, Criteo noticed SteelHouse “was still utilizing counterfeit clicks” but was using a different method that made the behavior more difficult to detect, the suit alleges.
On May 23, Criteo sent a cease and desist letter to SteelHouse, calling on the company to stop the scheme. But in June – despite SteelHouse’s claims it had stopped – the suit says Criteo discovered SteelHouse was still “counterfeiting clicks,” which caused it to file its legal complaint.
Criteo is seeking a jury trial.