Facebook Accused of Rigging Ad Auctions, Overcharging Businesses

Case Overview: A fitness company is suing Meta's Facebook, alleging the social media giant quietly manipulated its ad auction system for years, overcharging businesses and generating billions in extra revenue.

Consumers Affected: Businesses that purchased advertisements on Facebook during the period when the alleged "blended price" system was in effect.  

A fitness company is taking Meta’s Facebook to court, claiming the social media giant quietly manipulated its ad auction system for years—overcharging businesses and raking in billions in the process.

In a federal lawsuit filed this month, Iron Tribe Fitness accuses Facebook of misleading advertisers by pretending to use a "second-price" auction system, where the highest bidder wins but pays the amount of the second-highest bid. Instead, the platform allegedly ran a “blended price” system that inflated ad costs by charging advertisers an average of the top two bids.

The result? Facebook pocketed an estimated $4 billion in excess ad revenue over four years, the suit says.

Facebook Allegedly Used "Blended Price" System to Inflate Ad Costs

Iron Tribe Fitness, a South Carolina-based gym chain, says it was one of countless small businesses misled by Facebook’s opaque pricing model. Like many advertisers, Iron Tribe relied on Facebook’s documentation and help center explanations, which repeatedly emphasized that users would only be charged for the impressions or clicks they received, at a price set by a fair auction.

Those public-facing documents made it seem like advertisers could safely submit their highest bids, confident they wouldn't actually have to pay that full amount. Instead, the suit alleges, Facebook’s internal pricing algorithm secretly blended those bids into the final price, undermining that very safety net.

The discrepancy was baked into Facebook’s system as early as 2013, according to internal documents and engineer presentations cited in the complaint. Facebook’s own Director of Auction and Delivery Science estimated the pricing tweak was worth "$1B a year" in extra revenue, according to the lawsuit.

Internal Documents Reportedly Show Awareness of Pricing Anomaly

In theory, Facebook’s ad platform runs on a system called a Vickrey-Clarke-Groves (VCG) auction, a kind of second-price auction designed to maximize efficiency while protecting advertisers from overpaying. 

This model encourages advertisers to submit their true maximum bid because even if they win, they’d only be charged slightly more than the next-highest bid.

But the lawsuit says that starting in 2013, Facebook engineers quietly tweaked the code to blend the winning bid with the second-highest bid, increasing the final price without alerting advertisers. 

Facebook then reportedly concealed the change for years, even after internal teams identified pricing anomalies as early as 2016.

According to the complaint, only in late 2017 did engineers trace the issue to a single line of code—yet the fix was applied slowly and selectively, reaching just 2% of advertisers at first. The rest, like Iron Tribe, kept paying inflated prices.

Meta Faces Continued Legal Challenges Over Data and Business Practices

This isn’t Meta’s first legal run-in over its practices. The company has faced several lawsuits and regulatory investigations over the transparency of its system, including a $90 million settlement in 2019 over tracking users through the like button. It is also facing a high-stakes case over AI training and copyright issues.

In the current lawsuit, Iron Tribe Fitness wants to represent consumers that bought Facebook advertisements during the period when the 2013 coding change caused Facebook to overcharge advertising customers. 

Case Details

• Lawsuit: Iron Tribe Fitness v. Meta Platforms, Inc.
• Case Number: 3:25-cv-03281 
• Court: U.S. District Court for the Northern District of California

Plaintiffs' Attorneys

• Jonathan D. Uslaner (Bernstein Litowitz Berger & Grossmann LLP)

Do you advertise on Facebook? What are your thoughts on these allegations? Share your experience below.