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SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
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NUBAI VENTURES INC., : Plaintiff designates New York
: County as the place of trial
Plaintiff, :
: SUMMONS
- v. - :
: Index No.
OUTBRAIN, INC., :
: The basis of venue is
Defendant. : Defendant’s residence
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To the above-named Defendant:
YOU ARE HEREBY SUMMONED to answer the complaint in this action and to serve
a copy of your answer, or, if the complaint is not served with this summons, to serve a Notice of
Appearance, on the Plaintiff’s attorneys within twenty (20) days after service of this summons,
exclusive of the day of service (or within 30 days after the service is complete if this summons is
not personally delivered to you within the State of New York); and in case of your failure to
appear or answer, judgment will be taken against you by default for the relief demanded in the
complaint.
Dated: New York, New York PARKER POHL LLP
March 11, 2024
By: __________________________
David M. Pohl
M. Todd Parker
99 Park Avenue, Suite 1510
New York, New York 10016
(212) 202-8886
david.pohl@parkerpohl.com
Attorneys for Plaintiff
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SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
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NUBAI VENTURES INC., :
:
Plaintiff, : COMPLAINT
:
- v. - : Index No.:
:
OUTBRAIN, INC., : JURY TRIAL DEMANDED
:
Defendant. :
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Plaintiff Nubai Ventures Inc. (“Nubai”), by and through its attorneys, Parker Pohl LLP, as
and for its Complaint against Defendant Outbrain Inc. (“Outbrain”), respectfully alleges as follows:
NATURE OF THE CASE
1. This action will prove that Outbrain has a deliberate practice of grossly
misrepresenting its online network capabilities to those of its customers it views as second-class.
Indeed, while Outbrain claims to provide a high-quality service, the company in truth delivers on
that promise only to preferred, blue-chip customers. Meanwhile, its many small-business customers,
with lesser technological capabilities, are quietly allocated a dramatically inferior service that, far
from providing a benefit, actually harms their businesses. Making matters worse, most small
businesses do not realize the bait-and-switch until it is too late.
2. The reason Outbrain does this is simple: to be profitable, it must cut corners. Without
cutting corners, Outbrain’s costs will exceed its revenues (which has happened in several earnings
cycles). So Outbrain knowingly implements certain low-quality (and unsafe) components within
parts its network, or “sections,” as Outbrain calls them. Then, fully aware of the high risks they pose
to customers, Outbrain pawns off those high-risk sections to its unsuspecting, smaller customers
who, unlike the larger blue-chip customers, lack the tools to detect the danger.
3. Nubai Ventures brings this suit to put an end to Outbrain’s wrongful practices.
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4. Nubai is an online digital content platform focused on advancing social justice and
equality for Black Americans. Jamarlin Martin founded Nubai because mainstream media – in
covering important topics involving economics, business, and politics – often ignores the needs and
interests of the Black community. Mr. Martin sought to change that. He believed, for example, that
when the federal reserve issues an interest rate decision, Black Americans should be able to read
about how it affects the Black community specifically. Or when a federal jobs report comes out,
Black Americans should understand what it means for Black employment.
5. Simply put, Mr. Martin believed Black Americans were underserved, and he sought
to fill that need by producing quality online content of interest to them.
6. To do so, Nubai needed a network that would enable it to distribute its content to as
many people as possible. So it hired Outbrain.
7. According to its website, Outbrain enables companies to “connect with one-third of
the world’s consumers engaging with content on the open web” by placing those companies’
content on high-traffic websites of certain publishers, e.g., Foxnews.com or CNN.com. In other
words, companies hire Outbrain to generate quality traffic, i.e., actual human beings, to the
companies’ content and/or their websites.
8. In express reliance on Outbrain’s many representations as to its network capabilities,
Nubai signed a contract with Outbrain in around November 2018. Pursuant to that contract, Nubai
paid Outbrain over $1 million.
9. But on January 12, 2023, Nubai was informed by its strategic advertising partner that
it had discovered, using its fraud security software, that Nubai’s website had a high amount of fake
“bot” traffic. “Bots” are software-based internet crawlers that masquerade as legitimate, human
users, and are often referred to as “Sophisticate Invalid Traffic,” or “SIVT.” Bot fraud is a
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pernicious scourge across the advertising industry and, upon learning that a website is infested with
SIVT, the site’s advertisers pull their ad campaigns from that site.
10. Upon learning that its site was flagged for bot fraud, Nubai hired a leading bot
security firm called Escalated.io to investigate. Escalated.io discovered that Nubai’s site was
infested with SIVT, and that the bots were coming from Outbrain’s network. In fact, Outbrain had
distributed over 92,000 fraudulent bots to Nubai’s site over a 45-day period.
11. The impact of this bot fraud was devastating. Having only recently become
profitable, Nubai’s revenues plummeted by 80% as a result of the SIVT and loss in ad revenues.
12. Upon raising the issue with Outbrain, Mr. Martin was shocked to learn that Outbrain
had purposefully placed his content on sites that Outbrain knew posed a high risk for bot fraud. To
Nubai’s further shock, Outbrain’s representative revealed the existence of a “whitelist” of publisher
websites, i.e., sites with high-quality traffic. As Outbrain nonchalantly told Mr. Martin, if Nubai did
not want bot fraud, it should have paid more money and targeted the “whitelist” websites.
13. At no time previous time had Outbrain informed Nubai of this two-tiered system, or
the existence of “sections” or a “whitelist.” Mr. Martin complained to Outbrain:
It shouldn’t be “select Fox News or CNN or you get high SIVT.” If
that’s the case, there should be disclaimer like on cigarette packages.
How would a publisher know before buying product “beware, buy at
your own risk, high SIVT” without a disclaimer?
14. At no time did Outbrain ever inform Nubai that any “sections” it might purchase
would present a high-risk of SIVT infestation.
15. This lawsuit will demonstrate that Outbrain has systematically misrepresented the
quality of its traffic to customers and engaged in practices that undermine the integrity of the digital
advertising industry. Despite positioning itself as a network of premium publishers, Outbrain is a
major – if not primary – facilitator of fraudulent “bot” traffic, as independent auditors have found.
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See, e.g., MonetizeMore, “The High Cost of Fake Traffic: $143 Billion Gone” (stating “Outbrain
leads the way in driving the most invalid traffic to publisher websites in this report.”).
16. Indeed, Outbrain has knowingly misrepresented the capabilities of its network to
huge swaths of its customer base, including Nubai. In the alternative, Outbrain’s representations
were made recklessly insofar as they were made with the pretense of knowledge that they were true
when, in reality, Outbrain had no such knowledge.
17. Plaintiff is entitled to over $3 million in compensatory damages. Moreover, given the
broad societal impact of Outbrain’s dishonest and unfair practices, this Court should allow the jury
to issue a substantial punitive damages award to (i) send a message that wrongful practices like
those here, including the willful embrace of fraud, will have consequences, and (ii) bring
accountability and transparency to the digital advertising industry. Plaintiff will seek punitive
damages in an amount commensurate with Outbrain’s outsized influence on the ad fraud industry
overall, which experts estimate wastes $120 billion annually, per estimates from the Association of
National Advertisers.
PARTIES, JURISDICTION, AND VENUE
18. Plaintiff is a Delaware corporation with a place of business at 427 North Tatnall
Street, #93229, Wilmington, Delaware 19801.
19. Defendant is a Delaware corporation with a place of business at 111 West 19th Street,
3rd Floor, New York, New York 10011.
20. This Court has jurisdiction, and New York County is the appropriate venue, because
Defendant’s principal place of business is in New York County, Defendant’s wrongful conduct
occurred in substantial part in New York County and, upon information and belief, the parties’
contractual agreement contains a forum-selection clause selecting the state and federal courts
located in the County of New York.
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FACTS
Jamarlin Martin Founds Nubai Ventures Inc.
21. Jamarlin Martin founded Nubai Ventures Inc. in 2017 after successfully building his
prior venture into a multiple-brand digital media and entertainment platform. (He sold many of
those brands to Urban One (Nasdaq: UONE), the largest African-American-owned content
distributor in the United States.) Martin sought to build Nubai into a digital content platform
focused on issues of freedom, justice, and equality for Black Americans.
22. Mr. Martin has been recognized as a digital media pioneer. Jet Magazine called him
a “digital powerhouse.” Ebony Magazine listed him as one of the 100 most influential African
Americans. His work has been recognized by Inc. Magazine, Advertising Age, and Fortune’s
“David and Goliath” column. He received an Entrepreneur of the Year Award from EY, formerly
Ernst & Young.
23. Nubai’s goal is to produce quality content of interest to the Black community, and to
achieve the distribution and availability of that content to as many people as possible. Nubai’s
content is hosted at https://moguldom.com.
Outbrain’s Service and Basic Profit Model
24. According to its website, Outbrain enables companies to “connect with one-third of
the world’s consumers engaging with content on the open web” by placing content created by those
companies on high-traffic websites, e.g., Foxnews.com or CNN.com. In other words, companies
hire Outbrain to generate quality traffic to the companies’ content on their websites.
25. To do this, Outbrain cultivates and maintains a network of websites on which it
promises to place its customers’ content. That network is referred to herein as the “Outbrain
Network.” The websites on the Outbrain Network include well-established, third-party publishers
(e.g., Foxnews.com or CNN.com) that originate traffic due to the highly popular content they
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provide. Outbrain pays those third parties considerable fees to “rent” the digital real estate on their
high-trafficked websites, where Outbrain then places links to its customers’ content.
26. Outbrain derives revenues in one of at least two main ways. The vast majority of
customers pay Outbrain on a “cost-per-click” or “CPC” basis, meaning that the customer pays
Outbrain a set amount, e.g., $0.06, every time a person browsing a website within the Outbrain
Network clicks on that customer’s content and is thus redirected to the customer’s website. Some
users pay on a “cost-per impressions” or “CPM” basis, meaning that the customer pays Outbrain a
set amount each time a certain number of people view a page on the Outbrain Network that contains
a link to that customer’s content (without actually clicking on that customer’s content).
27. The Outbrain Network contains thousands of websites globally. While it includes
some premium sites like Foxnews.com, CNN.com, New York Post, and other large reputable
publishers, most publishers are smaller websites that generate less traffic, and the fees that Outbrain
pays to “rent” space on those websites are substantially lower than Outbrain’s costs for “renting”
space on the premium sites. (Many of these smaller websites that Outbrain accepts into its Network
have private and/or masked identities associated with their domain name registrations.)
28. In determining which customers get their content placed on which site within the
Outbrain Network, Outbrain utilizes algorithms. According to Outbrain, “more than 50 algorithms
go to work in tandem to recommend each piece of content to the most interested readers across our
network.” www.outbrain.com/help/advertisers/how-do-outbrain-algorithms-work/.
29. Contrary to its public statement, however, Outbrain does not simply seek to match
customer content with the “most interested readers.” Outbrain’s algorithms consider, not only the
popularity of the content within particular segments of the market, but they also factor in the
amount that the customer elected to pay Outbrain upon signing up for the service. Indeed,
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Outbrain’s customers choose how much they wish to pay. Smaller customers (like Plaintiff) may
only be able to pay $0.03 per click, while large companies might pay $0.50 per click.
30. Outbrain’s algorithms consider these factors on a sliding scale. While having popular
content may help a customer get its content on a premium site like Foxnews.com, such placement is
less likely if the customer elected to pay Outbrain only $0.03 per click; Outbrain may choose to
place a less popular piece of content on that same site if that customer elected to pay Outbrain more.
31. While Outbrain’s algorithms may be complex, its business model is simple: generate
customer revenues that exceed the costs paid to “rent” the space on the publisher websites. In fact,
those costs – known within the advertising industry as “traffic acquisition costs,” or “TAC” – are
Outbrain’s greatest expense by far. The difference between what Outbrain’s customers pay for
traffic and what it costs Outbrain to acquire that traffic is the core driver of Outbrain’s net profit.
Nubai Retains Outbrain to Direct Quality Traffic to Nubai’s Content
32. Nubai retained Outbrain on November 26, 2018.
33. To induce Nubai to retain Outbrain, on or just before that date, Defendant made
several written representations to Plaintiff concerning Defendant’s services, including the
following:
Outbrain is the world’s leading discovery platform dedicated exclusively
to predicting moments and drawing data-driven connections between
interests and actions. With Outbrain Amplify, customers will discovery
your brand’s message and enable you to target the most engaged
audiences. Setting up a campaign on our platform will allow your
content to appear as recommendations on the web’s largest premium
publisher sites.
Using a complex set of algorithms and Outbrain’s Interest Graph©, our
system pairs your content with readers who will find it engaging and
relevant. Outbrain algorithms only serve what readers want to read,
making us the highest quality discovery engine out there. Not only will
we find your best performing content, but you’ll also be in good
company. Our readers trust us because we have proven to be the most
reputable in the industry.
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Whether you’re a Fortune 500 company or a small business, Outbrain
Amplify is great for any company with captivating content that can be
shared with a large, highly engaged audience. Clients use Outbrain for a
variety of goals such as driving high-quality traffic to their site, building
their audience exposure and increasing new sales leads and conversions.
If you want to look beyond your search and social networks to reach
new audiences across the web, then Amplify is for you.
(emphasis added)
34. The parties entered a contract on November 26, 2018, when Nubai signed up for an
“Outbrain Amplify” account. Outbrain sent Nubai an email stating: “You are now the proud owner
of an Outbrain account! Show up on top sites and get more sales. . . . Get good results with precise
targeting.” Outbrain claimed its network would enable Nubai to “Target [its] audience by location,
platform, and interest to reach engaged audiences at scale” and concluded: “Remember, people are
looking for interesting content all the time. Let’s make sure they find yours.” (emphasis added)
35. In agreeing to enter a relationship with Nubai on November 26, 2018, Outbrain
provided Nubai with “Terms and Conditions” governing the contractual relationship. Nubai agreed
to those terms. Thus, the terms therein, along with others implied by the parties’ course of dealing
and reasonable commercial standards, formed the parties’ contractual agreement (the “Agreement”).
36. Whether or not expressly stated in the Terms and Conditions, the core terms of the
Agreement are simple: Outbrain agreed to place Nubai’s content on publisher sites within the
Outbrain Network and thereby make Nubai’s content available to potentially interested readers; in
exchange, Nubai agreed to pay Outbrain fees within a range dynamically set between $0.03 and
$0.08 per click, depending on various factors.
37. Of course, a critical component of Outbrain’s contractual commitment to Nubai was
that the traffic directed to Nubai’s content, i.e., the “readers,” would be actual human beings.
38. The parties did not agree – nor would any commercially reasonable actor – that
Nubai would compensate Outbrain for directing high levels of fake “bot” traffic to Nubai’s content.
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39. To the extent that Outbrain’s contractual promise to position Plaintiff to obtain
actual human readers was not an express term of the parties’ Agreement, such a commitment was
obviously an implied term. Indeed, Defendant’s duty of good faith and fair dealing – a duty implied
in every contract by law – encompassed a duty to take reasonable steps to ensure that (i) Outbrain
had sufficient protections in place to detect and prevent an influx of invalid, “bot” traffic within its
network, and (ii) traffic directed to Plaintiff’s content would consist of valid, human readers in
accordance with generally accepted standards within the advertising industry. 1
40. Over 2018 and in the years thereafter, Nubai paid Outbrain over $1 million pursuant
to the Agreement. After tireless effort and commitment from Mr. Martin, Nubai’s revenue soared
from $116,000 in 2020 to $1.3 million in 2022, which was Nubai’s first profitable year. (Like many
content-based websites, Nubai generates its revenues from advertisers who pay Nubai to feature
their ads alongside Nubai’s content.)
Nubai Discovers an Alarming Level of Invalid, Bot Traffic on its Site, and Learns that it
Came from the Outbrain Network
41. “Bots” are non-human, software-based internet crawlers that masquerade as
legitimate, human users. They are referred to as a form of “Sophisticate Invalid Traffic,” or “SIVT.”
The “bot fraud” in this action concerns a scheme in which “bot masters” remotely control bots and
cause them to load webpages, simulate fake mouse movements, scroll through pages, and click on
links while defeating fraud detection. The purpose is to create the false impression of high,
legitimate user traffic at a particular site and make it appear as though legitimate readers are seeing
and/or clicking on the advertiser content on the particular site. Website operators experiencing bot
fraud may believe (and thus represent to their advertisers) that their websites are enjoying
substantial traffic from human users when, in reality, the website is infested with SIVT.
1
It is generally understood within the advertising industry that fake “bot” traffic cannot be
eliminated entirely. The industry generally tolerates up to around 3% bot levels. The levels
of SIVT from Outbrain – the fraud at issue in this case – reached as high as 70%.
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42. Large web-based companies utilize sophisticated ad fraud detection and prevention
processes to identify and filter out bots, spiders, or other crawlers masquerading as legitimate users.
43. While the immediate victim of SIVT fraud is the advertiser paying the website
publisher to host the advertiser’s ads, bot fraud also has a devastating effect on the legitimate
website operators like Plaintiff who rely on long-term partnership with advertisers. Indeed, upon
learning that a particular website is experiencing high levels of bot fraud, advertisers predictably
pull their ad campaigns, thus resulting in marked reduction in revenues for the website operator.
44. That is precisely what happened to Nubai Ventures.
45. In January 2023, Nubai’s strategic advertising partner (that places Fortune 500 ad
campaigns on Nubai’s website, including partnerships with Amazon, Target, and AT&T) informed
Nubai that the partner, using its DoubleVerify fraud security software, had discovered Nubai’s
website had high levels of “bot fraud.”
46. Facing the troubling likelihood that Nubai’s advertisers would pull their campaigns
from Nubai’s website (which they did), Mr. Martin immediately retained a leading bot security firm
called Escalated.io to investigate the extent of any SIVT infestation, confirm it, and diagnose the
nature and scope of the problem. Escalated.io discovered that Nubai’s site was infested with SIVT,
and that the bots were coming from Outbrain’s network. In fact, the Outbrain Network had
distributed over 92,000 fraudulent bots to Nubai’s hosting site (www.moguldom.com) over a 45-
day period. 2
47. Nubai learned not only that its website was experiencing high levels of bot fraud, but
also that the bots were coming from the Outbrain Network. The traffic from Outbrain contained
2
Indeed, two third-party bot fraud security firms – Escalated.io and DoubleVerify – readily
detected the extreme levels of SIVT bot fraud coming from the Outbrain Network, yet
Defendant will tell this Court that it had no basis to know of the fraudulent activity.
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extreme levels of SIVT bot fraud. Some traffic sources from Outbrain were consistently exhibiting
over 70% SIVT, amounts that dwarfed the generally accepted threshold in the industry of 3%.
48. It thus became clear that Outbrain had placed Nubai’s content, not on “clean”
websites with legitimate human readers, but on sites infested with bots. As a result, the quality
traffic that Outbrain had promised Nubai – and that Nubai had therefore promised its advertisers –
was nowhere to be found.
49. Upon learning that Nubai’s website was flagged for fraud, Nubai’s strategic
advertising partner pulled ad campaigns from Fortune 50 companies such as Amazon, Target, and
AT&T, costing Plaintiff hundreds of thousands of dollars in revenues a month. In fact, as a result of
the Outbrain fraud, Nubai’s advertising revenues plummeted by over 78% in 2023.
50. The SIVT infestation from the Outbrain Network had other devastating effects on
Nubai’s business. For example, before discovering the fraud, Nubai was in negotiations with a
major strategic investor and advertiser. Both initiatives fell apart as a result of the SIVT issue.
51. Nubai will continue to suffer the consequences of this bot fraud, as the devastating
reputational damage of being associated with fraudulent bot activity will continue to deter
advertisers from placing their ads on Nubai’s website.
Outbrain’s Actual Knowledge of SIVT Infestation on its Network
52. Outbrain has at all relevant times, including when it induced Nubai into entering the
Agreement, been aware of the systemic, SIVT problem and fraudulent bot traffic on the Outbrain
Network, upon information and belief. However, Outbrain has a profit-driven incentive to turn a
blind eye, and that is precisely what Outbrain has done.
53. Indeed, upon learning of the SIVT infestation coming from the Outbrain Network,
Mr. Martin immediately notified Outbrain. He informed Outbrain in writing that: “Our advertising
partners are backing away from us due to the Outbrain SIVT.”
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54. To Martin’s surprise, Outbrain for the first timed revealed the existence of a two-
tiered system that allocates “premium” traffic to preferred customers, while allocating other high-
risk, high-SIVT traffic to other unsuspecting customers like Nubai, as communications over January
– February 2023 reveal. In fact, Outbrain calls those high-risk sites “underperforming sources” or
“less-performing” sites.
55. By email on January 29, 2023, Outbrain stated to Mr. Martin that “underperforming
sources” were “causing your high SIVT rate.” Outbrain stated that, unbeknownst to Mr. Martin
(because Outbrain never told him), Nubai had “bought some less-performing” sections of the
Outbrain Network. Outbrain explained that, while “Fox News Politics is one of our top-performing
sections,” Nubai was not allocated that high-quality traffic. Rather, Nubai was allocated high-risk
traffic from “an underperforming section.”
56. To Mr. Martin’s surprise, he was informed that, since Nubai had apparently elected
to pay Outbrain too little per click, Outbrain had internally made the determination to send Nubai
high-risk traffic. As Outbrain told Mr. Martin by email on February 28, 2023: “You set too strict
Bid Cap for mobile ($0.03). This limits your campaigns from scaling and buying the top-performing
section/widgets and forces you to buy traffic from underperforming sections.”
57. As these communications make clear, Outbrain has at all relevant times been aware
of high-levels of SIVT bot activity in certain “sections” of the Outbrain Network –
“underperforming section[s],” as Outbrain calls them.
58. At no time prior to entering a contractual agreement with Nubai, and at no time prior
to Nubai’s discovery of extensive SIVT coming from the Outbrain Network, did Outbrain inform
Nubai that: (i) Outbrain was aware of the presence of “underperforming,” SIVT-riddled websites on
the Outbrain Network; (ii) Outbrain utilized a two-tiered structure that allocated high-quality traffic
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to some customers and low-quality, high-SIVT traffic to others; or (iii) Outbrain would allocate
substantial amounts of fake bot traffic to Nubai’s website.
59. Notably, by email on April 20, 2023, Outbrain acknowledged the fraudulent bot
traffic and offered Nubai a compensatory credit, writing: “Following the SIVT issue and according
to the investigation based on the information we got from you, we decided to offer you a
compensation of $1,441 in Bonus Clicks.”
60. Further demonstrating Outbrain’s actual knowledge of high-risk traffic within the
Outbrain Network, by email on March 1, 2023, Outbrain revealed the existence of a “whitelist” of
publishers, i.e., the websites within the Outbrain Network that are largely free of SIVT.
61. However, Outbrain informed Nubai that, because it did not pay for the “whitelist”
publishers, Nubai was allocated only the non-whitelist, bot-infested websites.
62. By email later on March 1, 2023, Mr. Martin objected:
It shouldn’t be “select Fox News or CNN or you get high SIVT.” If
that’s the case, there should be disclaimer like on cigarette packages.
How would a publisher know before buying product “beware, buy at
your own risk, high SIVT” without a disclaimer?
63. Of course, at no time prior to or in connection with Nubai’s decision to enter the
Agreement with Outbrain, and at no time during which Nubai was paying Outbrain over $1 million,
did Outbrain provide Nubai with any information placing Nubai on notice that the traffic it was
purchasing from Outbrain might contain substantial levels of fake, SIVT-ridden traffic.
64. That Outbrain’s traffic might contain high levels of fake, SIVT-ridden traffic would
plainly have been material to Nubai at the time it was considering whether to enter the Agreement
with Outbrain and pay it over $1 million. No commercially reasonable business would pay for a
service that it knew or had reason to know was riddled with bots that would drive away its primary
source of revenue.
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65. In response to Mr. Martin’s March 1, 2023 email, Outbrain’s representative
nonchalantly told Mr. Martin that Nubai should have purchased traffic from the “whitelist,” since it
“allows you to buy traffic only from top-performing publishers” and “avoid traffic from
underperforming publishers.”
66. Suffice to say, Mr. Martin was deeply troubled by the cavalier, obtuse nature of
Outbrain’s response to the dire SIVT situation that threatened to ruin his business.
67. At no time prior to entering a contractual agreement with Nubai, and at no time prior
to Nubai’s discovery of extensive SIVT coming from the Outbrain Network, did Outbrain reveal to
Nubai the existence of the “whitelist” of high-quality publishers whose websites were largely free
of high-risk, SIVT traffic.
68. The fact that Outbrain possessed this whitelist, and the fact that Outbrain included
other low-risk, high-SIVT sites in the Outbrain Network would plainly have been material to Nubai
at the time it was considering whether to enter the Agreement with Outbrain and pay it substantial
amounts of money.
69. At all relevant times, Outbrain had actual knowledge that certain of its publisher sites
posed unacceptable levels of bot fraud. Rather than cease doing business with those publishers (or
even notify Outbrain’s customers of the risks associated with those websites), Outbrain secretly
allocated that high-risk traffic to a segment of its customer base, including Nubai.
70. At no time prior to entering a contractual agreement with Nubai, and at no time prior
to Nubai’s discovery of extensive SIVT coming from the Outbrain Network, did Outbrain reveal to
Nubai or did Nubai have any reason to know, that certain of its publisher sites posed unacceptable
levels of bot fraud.
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71. The fact that certain of its publisher sites posed unacceptable levels of bot fraud
would plainly have been material to Nubai at the time it was considering whether to enter the
Agreement with Outbrain and pay it substantial amounts of money.
72. Outbrain’s failure to disclose that it directs low-quality, SIVT-riddled traffic to
certain of its customers’ websites is particularly damaging to small business owners who, unlike
many large companies, lack the in-house analytical tools that can detect bot fraud. Of course,
Outbrain is well aware that small businesses like Nubai lack that capability, which is precisely why
Outbrain chooses to allocate the high-risk traffic to small businesses like Nubai, upon information
and belief.
73. Making matter worse, by the time small businesses like Nubai even become aware of
SIVT-infestation on their sites, sophisticated advertisers (with fraud detection tools) have typically
already known of it for some time. This means that small businesses are often blacklisted without
even knowing it, and without having any opportunity to address the problem before losing
advertisers.
74. In fact, at this moment, many small businesses are infested with bot traffic from
Outbrain and have been blacklisted by advertisers, yet they are entirely unaware of this devastating
reality, upon information and belief.
75. As a result of the bot fraud infestation on the Outbrain network, Plaintiff has suffered
devastating harm and millions of dollars in damages, including the following: (i) lost profits, as
advertisers pulled their ad campaigns from Nubai’s website; (ii) lost business from recurring return
users, insofar as the authentic human visitors of a website often return after initially being directed
to a site, whereas fake bots do not; (iii) lost business opportunities, as Nubai lost a significant equity
investor as well as an opportunity to improve existing contract terms with a strategic partner; (iv)
reputational damage, as news of Nubai’s infestation with Outbrain’s SIVT fraud caused Plaintiff to
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lose at least one strategic partnership and being associated with fraud will lead to further lost
business opportunities for years to come; and (v) out-of-pocket costs Nubai has incurred in
assessing and addressing the harm caused by Outbrain, including by hiring cybersecurity experts,
implementing security upgrades, and assisting affected customers and partners.
Outbrain’s Knowing Dependence on Fraudulent Websites
76. During a Q3 2023 earnings call, Outbrain’s co-CEO, David Kostman, discussed
Outbrain’s inclusion of “made for advertising” (“MFA”) websites within the Outbrain network. See
Outbrain Q3 2023 Earnings Call Transcript (“Earnings Call Transcript”). MFA websites are those
set up for the sole purpose of maximizing ad profits, at the expense of quality content and user
experience. The term is associated with invalid, low-quality traffic, and includes a blend of paid
traffic, clickbait content and, of course, bot fraud and SIVT.
77. Not surprisingly, the advertising industry is widely against MFA websites. As
Forbes.com has written, MFA websites are “a problem in the advertising industry,” “a common
scourge across the programmatic landscape,” and advertisers must “devise a plan on how to avoid
them.” Forbes.com, “The Rise of ‘Made For Advertising’ Sites: How Responsible Brands Can Take
Action”; see also Pixelate.com, “Global Benchmark Report for Made For Advertising (MFA)
Websites” (providing statistics demonstrating materially higher risk of fraud associated with MFA
websites).
78. Despite the industry’s unanimous view that MFA sites are “a common scourge” (id.),
Outbrain claims that MFA websites “generate real value for advertisers.” Earnings Call Transcript.
79. The reason Outbrain must peddle that fiction is that the Outbrain Network features a
number of MFA websites.
80. In fact, Outbrain relies on MFA websites as a necessary component of its revenue
model, upon information and belief.
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81. Outbrain’s greatest costs are the “traffic acquisition costs,” or “TAC,” that it pays to
its “premium” publishers, e.g., CNN, Fox News, etc., to “rent” space on their websites and thus
include those sites on the Outbrain Network. This massive TAC is a large reason why Outbrain has
struggled to achieve profitability. For example, in Q2 2022, Outbrain experienced a “net loss of
$10.3 million.” See Q2 2022 Results. Obviously, massive TAC places enormous pressure on
Outbrain to maximize revenues from any and all sources – hence the company’s embrace of MFA
websites. Indeed, given that MFA websites represent a relatively de minimis TAC yet produce
ample (albeit largely fake) traffic, Outbrain views MFA sites as particularly cost-effective, upon
information and belief.
82. Outbrain has determined that, if the company is to have any chance to achieve
profitability given its high TAC incurred on premium sites, it must embrace low-quality, high-
fraud-risk MFA websites, upon information and belief. 3
83. At all relevant times, Outbrain has had actual knowledge that MFA websites largely
generate high-risk traffic that includes commercially unreasonable levels of SIVT that are
unacceptable within the advertising industry.
84. Yet, despite its actual knowledge that MFA websites present a high-risk for fraud on
Outbrain’s customers and their advertisers, Outbrain has made the deliberate choice to include MFA
websites in the Outbrain Network.
3
Recognized digital advertising expert Tom Triscari has observed, with respect to Outbrain’s
major competitor, Taboola (which has a materially similar business model, upon information
and belief), that: “With 8% of net revenue going to variable costs, they need to subsidize it
by selling low-priced clicks to MFA publishers looking to buy traffic. In fact, without this
revenue stream Taboola’s financial model would completely fall apart and would likely
never generate free cash flows. If we are right, it’s really smart of management to subsidize
[Costs of Goods Sold] with MFA click revenue because it makes the whole model work. On
the other hand, if MFA clicks go away, Taboola’s business model breaks in a severe way.”
(https://triscari.substack.com/p/62-taboola-ad-revenues-and-mfa-subsidy)
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FILED: NEW YORK COUNTY CLERK 03/11/2024 08:30 AM INDEX NO. 152157/2024 NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 03/11/2024 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK -----------------------------------------------------------------------x NUBAI VENTURES INC., : Plaintiff designates New York : County as the place of trial Plaintiff, : : SUMMONS - v. - : : Index No. OUTBRAIN, INC., : : The basis of venue is Defendant. : Defendant’s residence -----------------------------------------------------------------------x To the above-named Defendant: YOU ARE HEREBY SUMMONED to answer the complaint in this action and to serve a copy of your answer, or, if the complaint is not served with this summons, to serve a Notice of Appearance, on the Plaintiff’s attorneys within twenty (20) days after service of this summons, exclusive of the day of service (or within 30 days after the service is complete if this summons is not personally delivered to you within the State of New York); and in case of your failure to appear or answer, judgment will be taken against you by default for the relief demanded in the complaint. Dated: New York, New York PARKER POHL LLP March 11, 2024 By: __________________________ David M. Pohl M. Todd Parker 99 Park Avenue, Suite 1510 New York, New York 10016 (212) 202-8886 david.pohl@parkerpohl.com Attorneys for Plaintiff 1 of 30 FILED: NEW YORK COUNTY CLERK 03/11/2024 08:30 AM INDEX NO. 152157/2024 NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 03/11/2024 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK -----------------------------------------------------------------------x NUBAI VENTURES INC., : : Plaintiff, : COMPLAINT : - v. - : Index No.: : OUTBRAIN, INC., : JURY TRIAL DEMANDED : Defendant. : -----------------------------------------------------------------------x Plaintiff Nubai Ventures Inc. (“Nubai”), by and through its attorneys, Parker Pohl LLP, as and for its Complaint against Defendant Outbrain Inc. (“Outbrain”), respectfully alleges as follows: NATURE OF THE CASE 1. This action will prove that Outbrain has a deliberate practice of grossly misrepresenting its online network capabilities to those of its customers it views as second-class. Indeed, while Outbrain claims to provide a high-quality service, the company in truth delivers on that promise only to preferred, blue-chip customers. Meanwhile, its many small-business customers, with lesser technological capabilities, are quietly allocated a dramatically inferior service that, far from providing a benefit, actually harms their businesses. Making matters worse, most small businesses do not realize the bait-and-switch until it is too late. 2. The reason Outbrain does this is simple: to be profitable, it must cut corners. Without cutting corners, Outbrain’s costs will exceed its revenues (which has happened in several earnings cycles). So Outbrain knowingly implements certain low-quality (and unsafe) components within parts its network, or “sections,” as Outbrain calls them. Then, fully aware of the high risks they pose to customers, Outbrain pawns off those high-risk sections to its unsuspecting, smaller customers who, unlike the larger blue-chip customers, lack the tools to detect the danger. 3. Nubai Ventures brings this suit to put an end to Outbrain’s wrongful practices. 2 of 30 FILED: NEW YORK COUNTY CLERK 03/11/2024 08:30 AM INDEX NO. 152157/2024 NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 03/11/2024 4. Nubai is an online digital content platform focused on advancing social justice and equality for Black Americans. Jamarlin Martin founded Nubai because mainstream media – in covering important topics involving economics, business, and politics – often ignores the needs and interests of the Black community. Mr. Martin sought to change that. He believed, for example, that when the federal reserve issues an interest rate decision, Black Americans should be able to read about how it affects the Black community specifically. Or when a federal jobs report comes out, Black Americans should understand what it means for Black employment. 5. Simply put, Mr. Martin believed Black Americans were underserved, and he sought to fill that need by producing quality online content of interest to them. 6. To do so, Nubai needed a network that would enable it to distribute its content to as many people as possible. So it hired Outbrain. 7. According to its website, Outbrain enables companies to “connect with one-third of the world’s consumers engaging with content on the open web” by placing those companies’ content on high-traffic websites of certain publishers, e.g., Foxnews.com or CNN.com. In other words, companies hire Outbrain to generate quality traffic, i.e., actual human beings, to the companies’ content and/or their websites. 8. In express reliance on Outbrain’s many representations as to its network capabilities, Nubai signed a contract with Outbrain in around November 2018. Pursuant to that contract, Nubai paid Outbrain over $1 million. 9. But on January 12, 2023, Nubai was informed by its strategic advertising partner that it had discovered, using its fraud security software, that Nubai’s website had a high amount of fake “bot” traffic. “Bots” are software-based internet crawlers that masquerade as legitimate, human users, and are often referred to as “Sophisticate Invalid Traffic,” or “SIVT.” Bot fraud is a 2 3 of 30 FILED: NEW YORK COUNTY CLERK 03/11/2024 08:30 AM INDEX NO. 152157/2024 NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 03/11/2024 pernicious scourge across the advertising industry and, upon learning that a website is infested with SIVT, the site’s advertisers pull their ad campaigns from that site. 10. Upon learning that its site was flagged for bot fraud, Nubai hired a leading bot security firm called Escalated.io to investigate. Escalated.io discovered that Nubai’s site was infested with SIVT, and that the bots were coming from Outbrain’s network. In fact, Outbrain had distributed over 92,000 fraudulent bots to Nubai’s site over a 45-day period. 11. The impact of this bot fraud was devastating. Having only recently become profitable, Nubai’s revenues plummeted by 80% as a result of the SIVT and loss in ad revenues. 12. Upon raising the issue with Outbrain, Mr. Martin was shocked to learn that Outbrain had purposefully placed his content on sites that Outbrain knew posed a high risk for bot fraud. To Nubai’s further shock, Outbrain’s representative revealed the existence of a “whitelist” of publisher websites, i.e., sites with high-quality traffic. As Outbrain nonchalantly told Mr. Martin, if Nubai did not want bot fraud, it should have paid more money and targeted the “whitelist” websites. 13. At no time previous time had Outbrain informed Nubai of this two-tiered system, or the existence of “sections” or a “whitelist.” Mr. Martin complained to Outbrain: It shouldn’t be “select Fox News or CNN or you get high SIVT.” If that’s the case, there should be disclaimer like on cigarette packages. How would a publisher know before buying product “beware, buy at your own risk, high SIVT” without a disclaimer? 14. At no time did Outbrain ever inform Nubai that any “sections” it might purchase would present a high-risk of SIVT infestation. 15. This lawsuit will demonstrate that Outbrain has systematically misrepresented the quality of its traffic to customers and engaged in practices that undermine the integrity of the digital advertising industry. Despite positioning itself as a network of premium publishers, Outbrain is a major – if not primary – facilitator of fraudulent “bot” traffic, as independent auditors have found. 3 4 of 30 FILED: NEW YORK COUNTY CLERK 03/11/2024 08:30 AM INDEX NO. 152157/2024 NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 03/11/2024 See, e.g., MonetizeMore, “The High Cost of Fake Traffic: $143 Billion Gone” (stating “Outbrain leads the way in driving the most invalid traffic to publisher websites in this report.”). 16. Indeed, Outbrain has knowingly misrepresented the capabilities of its network to huge swaths of its customer base, including Nubai. In the alternative, Outbrain’s representations were made recklessly insofar as they were made with the pretense of knowledge that they were true when, in reality, Outbrain had no such knowledge. 17. Plaintiff is entitled to over $3 million in compensatory damages. Moreover, given the broad societal impact of Outbrain’s dishonest and unfair practices, this Court should allow the jury to issue a substantial punitive damages award to (i) send a message that wrongful practices like those here, including the willful embrace of fraud, will have consequences, and (ii) bring accountability and transparency to the digital advertising industry. Plaintiff will seek punitive damages in an amount commensurate with Outbrain’s outsized influence on the ad fraud industry overall, which experts estimate wastes $120 billion annually, per estimates from the Association of National Advertisers. PARTIES, JURISDICTION, AND VENUE 18. Plaintiff is a Delaware corporation with a place of business at 427 North Tatnall Street, #93229, Wilmington, Delaware 19801. 19. Defendant is a Delaware corporation with a place of business at 111 West 19th Street, 3rd Floor, New York, New York 10011. 20. This Court has jurisdiction, and New York County is the appropriate venue, because Defendant’s principal place of business is in New York County, Defendant’s wrongful conduct occurred in substantial part in New York County and, upon information and belief, the parties’ contractual agreement contains a forum-selection clause selecting the state and federal courts located in the County of New York. 4 5 of 30 FILED: NEW YORK COUNTY CLERK 03/11/2024 08:30 AM INDEX NO. 152157/2024 NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 03/11/2024 FACTS Jamarlin Martin Founds Nubai Ventures Inc. 21. Jamarlin Martin founded Nubai Ventures Inc. in 2017 after successfully building his prior venture into a multiple-brand digital media and entertainment platform. (He sold many of those brands to Urban One (Nasdaq: UONE), the largest African-American-owned content distributor in the United States.) Martin sought to build Nubai into a digital content platform focused on issues of freedom, justice, and equality for Black Americans. 22. Mr. Martin has been recognized as a digital media pioneer. Jet Magazine called him a “digital powerhouse.” Ebony Magazine listed him as one of the 100 most influential African Americans. His work has been recognized by Inc. Magazine, Advertising Age, and Fortune’s “David and Goliath” column. He received an Entrepreneur of the Year Award from EY, formerly Ernst & Young. 23. Nubai’s goal is to produce quality content of interest to the Black community, and to achieve the distribution and availability of that content to as many people as possible. Nubai’s content is hosted at https://moguldom.com. Outbrain’s Service and Basic Profit Model 24. According to its website, Outbrain enables companies to “connect with one-third of the world’s consumers engaging with content on the open web” by placing content created by those companies on high-traffic websites, e.g., Foxnews.com or CNN.com. In other words, companies hire Outbrain to generate quality traffic to the companies’ content on their websites. 25. To do this, Outbrain cultivates and maintains a network of websites on which it promises to place its customers’ content. That network is referred to herein as the “Outbrain Network.” The websites on the Outbrain Network include well-established, third-party publishers (e.g., Foxnews.com or CNN.com) that originate traffic due to the highly popular content they 5 6 of 30 FILED: NEW YORK COUNTY CLERK 03/11/2024 08:30 AM INDEX NO. 152157/2024 NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 03/11/2024 provide. Outbrain pays those third parties considerable fees to “rent” the digital real estate on their high-trafficked websites, where Outbrain then places links to its customers’ content. 26. Outbrain derives revenues in one of at least two main ways. The vast majority of customers pay Outbrain on a “cost-per-click” or “CPC” basis, meaning that the customer pays Outbrain a set amount, e.g., $0.06, every time a person browsing a website within the Outbrain Network clicks on that customer’s content and is thus redirected to the customer’s website. Some users pay on a “cost-per impressions” or “CPM” basis, meaning that the customer pays Outbrain a set amount each time a certain number of people view a page on the Outbrain Network that contains a link to that customer’s content (without actually clicking on that customer’s content). 27. The Outbrain Network contains thousands of websites globally. While it includes some premium sites like Foxnews.com, CNN.com, New York Post, and other large reputable publishers, most publishers are smaller websites that generate less traffic, and the fees that Outbrain pays to “rent” space on those websites are substantially lower than Outbrain’s costs for “renting” space on the premium sites. (Many of these smaller websites that Outbrain accepts into its Network have private and/or masked identities associated with their domain name registrations.) 28. In determining which customers get their content placed on which site within the Outbrain Network, Outbrain utilizes algorithms. According to Outbrain, “more than 50 algorithms go to work in tandem to recommend each piece of content to the most interested readers across our network.” www.outbrain.com/help/advertisers/how-do-outbrain-algorithms-work/. 29. Contrary to its public statement, however, Outbrain does not simply seek to match customer content with the “most interested readers.” Outbrain’s algorithms consider, not only the popularity of the content within particular segments of the market, but they also factor in the amount that the customer elected to pay Outbrain upon signing up for the service. Indeed, 6 7 of 30 FILED: NEW YORK COUNTY CLERK 03/11/2024 08:30 AM INDEX NO. 152157/2024 NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 03/11/2024 Outbrain’s customers choose how much they wish to pay. Smaller customers (like Plaintiff) may only be able to pay $0.03 per click, while large companies might pay $0.50 per click. 30. Outbrain’s algorithms consider these factors on a sliding scale. While having popular content may help a customer get its content on a premium site like Foxnews.com, such placement is less likely if the customer elected to pay Outbrain only $0.03 per click; Outbrain may choose to place a less popular piece of content on that same site if that customer elected to pay Outbrain more. 31. While Outbrain’s algorithms may be complex, its business model is simple: generate customer revenues that exceed the costs paid to “rent” the space on the publisher websites. In fact, those costs – known within the advertising industry as “traffic acquisition costs,” or “TAC” – are Outbrain’s greatest expense by far. The difference between what Outbrain’s customers pay for traffic and what it costs Outbrain to acquire that traffic is the core driver of Outbrain’s net profit. Nubai Retains Outbrain to Direct Quality Traffic to Nubai’s Content 32. Nubai retained Outbrain on November 26, 2018. 33. To induce Nubai to retain Outbrain, on or just before that date, Defendant made several written representations to Plaintiff concerning Defendant’s services, including the following: Outbrain is the world’s leading discovery platform dedicated exclusively to predicting moments and drawing data-driven connections between interests and actions. With Outbrain Amplify, customers will discovery your brand’s message and enable you to target the most engaged audiences. Setting up a campaign on our platform will allow your content to appear as recommendations on the web’s largest premium publisher sites. Using a complex set of algorithms and Outbrain’s Interest Graph©, our system pairs your content with readers who will find it engaging and relevant. Outbrain algorithms only serve what readers want to read, making us the highest quality discovery engine out there. Not only will we find your best performing content, but you’ll also be in good company. Our readers trust us because we have proven to be the most reputable in the industry. 7 8 of 30 FILED: NEW YORK COUNTY CLERK 03/11/2024 08:30 AM INDEX NO. 152157/2024 NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 03/11/2024 Whether you’re a Fortune 500 company or a small business, Outbrain Amplify is great for any company with captivating content that can be shared with a large, highly engaged audience. Clients use Outbrain for a variety of goals such as driving high-quality traffic to their site, building their audience exposure and increasing new sales leads and conversions. If you want to look beyond your search and social networks to reach new audiences across the web, then Amplify is for you. (emphasis added) 34. The parties entered a contract on November 26, 2018, when Nubai signed up for an “Outbrain Amplify” account. Outbrain sent Nubai an email stating: “You are now the proud owner of an Outbrain account! Show up on top sites and get more sales. . . . Get good results with precise targeting.” Outbrain claimed its network would enable Nubai to “Target [its] audience by location, platform, and interest to reach engaged audiences at scale” and concluded: “Remember, people are looking for interesting content all the time. Let’s make sure they find yours.” (emphasis added) 35. In agreeing to enter a relationship with Nubai on November 26, 2018, Outbrain provided Nubai with “Terms and Conditions” governing the contractual relationship. Nubai agreed to those terms. Thus, the terms therein, along with others implied by the parties’ course of dealing and reasonable commercial standards, formed the parties’ contractual agreement (the “Agreement”). 36. Whether or not expressly stated in the Terms and Conditions, the core terms of the Agreement are simple: Outbrain agreed to place Nubai’s content on publisher sites within the Outbrain Network and thereby make Nubai’s content available to potentially interested readers; in exchange, Nubai agreed to pay Outbrain fees within a range dynamically set between $0.03 and $0.08 per click, depending on various factors. 37. Of course, a critical component of Outbrain’s contractual commitment to Nubai was that the traffic directed to Nubai’s content, i.e., the “readers,” would be actual human beings. 38. The parties did not agree – nor would any commercially reasonable actor – that Nubai would compensate Outbrain for directing high levels of fake “bot” traffic to Nubai’s content. 8 9 of 30 FILED: NEW YORK COUNTY CLERK 03/11/2024 08:30 AM INDEX NO. 152157/2024 NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 03/11/2024 39. To the extent that Outbrain’s contractual promise to position Plaintiff to obtain actual human readers was not an express term of the parties’ Agreement, such a commitment was obviously an implied term. Indeed, Defendant’s duty of good faith and fair dealing – a duty implied in every contract by law – encompassed a duty to take reasonable steps to ensure that (i) Outbrain had sufficient protections in place to detect and prevent an influx of invalid, “bot” traffic within its network, and (ii) traffic directed to Plaintiff’s content would consist of valid, human readers in accordance with generally accepted standards within the advertising industry. 1 40. Over 2018 and in the years thereafter, Nubai paid Outbrain over $1 million pursuant to the Agreement. After tireless effort and commitment from Mr. Martin, Nubai’s revenue soared from $116,000 in 2020 to $1.3 million in 2022, which was Nubai’s first profitable year. (Like many content-based websites, Nubai generates its revenues from advertisers who pay Nubai to feature their ads alongside Nubai’s content.) Nubai Discovers an Alarming Level of Invalid, Bot Traffic on its Site, and Learns that it Came from the Outbrain Network 41. “Bots” are non-human, software-based internet crawlers that masquerade as legitimate, human users. They are referred to as a form of “Sophisticate Invalid Traffic,” or “SIVT.” The “bot fraud” in this action concerns a scheme in which “bot masters” remotely control bots and cause them to load webpages, simulate fake mouse movements, scroll through pages, and click on links while defeating fraud detection. The purpose is to create the false impression of high, legitimate user traffic at a particular site and make it appear as though legitimate readers are seeing and/or clicking on the advertiser content on the particular site. Website operators experiencing bot fraud may believe (and thus represent to their advertisers) that their websites are enjoying substantial traffic from human users when, in reality, the website is infested with SIVT. 1 It is generally understood within the advertising industry that fake “bot” traffic cannot be eliminated entirely. The industry generally tolerates up to around 3% bot levels. The levels of SIVT from Outbrain – the fraud at issue in this case – reached as high as 70%. 9 10 of 30 FILED: NEW YORK COUNTY CLERK 03/11/2024 08:30 AM INDEX NO. 152157/2024 NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 03/11/2024 42. Large web-based companies utilize sophisticated ad fraud detection and prevention processes to identify and filter out bots, spiders, or other crawlers masquerading as legitimate users. 43. While the immediate victim of SIVT fraud is the advertiser paying the website publisher to host the advertiser’s ads, bot fraud also has a devastating effect on the legitimate website operators like Plaintiff who rely on long-term partnership with advertisers. Indeed, upon learning that a particular website is experiencing high levels of bot fraud, advertisers predictably pull their ad campaigns, thus resulting in marked reduction in revenues for the website operator. 44. That is precisely what happened to Nubai Ventures. 45. In January 2023, Nubai’s strategic advertising partner (that places Fortune 500 ad campaigns on Nubai’s website, including partnerships with Amazon, Target, and AT&T) informed Nubai that the partner, using its DoubleVerify fraud security software, had discovered Nubai’s website had high levels of “bot fraud.” 46. Facing the troubling likelihood that Nubai’s advertisers would pull their campaigns from Nubai’s website (which they did), Mr. Martin immediately retained a leading bot security firm called Escalated.io to investigate the extent of any SIVT infestation, confirm it, and diagnose the nature and scope of the problem. Escalated.io discovered that Nubai’s site was infested with SIVT, and that the bots were coming from Outbrain’s network. In fact, the Outbrain Network had distributed over 92,000 fraudulent bots to Nubai’s hosting site (www.moguldom.com) over a 45- day period. 2 47. Nubai learned not only that its website was experiencing high levels of bot fraud, but also that the bots were coming from the Outbrain Network. The traffic from Outbrain contained 2 Indeed, two third-party bot fraud security firms – Escalated.io and DoubleVerify – readily detected the extreme levels of SIVT bot fraud coming from the Outbrain Network, yet Defendant will tell this Court that it had no basis to know of the fraudulent activity. 10 11 of 30 FILED: NEW YORK COUNTY CLERK 03/11/2024 08:30 AM INDEX NO. 152157/2024 NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 03/11/2024 extreme levels of SIVT bot fraud. Some traffic sources from Outbrain were consistently exhibiting over 70% SIVT, amounts that dwarfed the generally accepted threshold in the industry of 3%. 48. It thus became clear that Outbrain had placed Nubai’s content, not on “clean” websites with legitimate human readers, but on sites infested with bots. As a result, the quality traffic that Outbrain had promised Nubai – and that Nubai had therefore promised its advertisers – was nowhere to be found. 49. Upon learning that Nubai’s website was flagged for fraud, Nubai’s strategic advertising partner pulled ad campaigns from Fortune 50 companies such as Amazon, Target, and AT&T, costing Plaintiff hundreds of thousands of dollars in revenues a month. In fact, as a result of the Outbrain fraud, Nubai’s advertising revenues plummeted by over 78% in 2023. 50. The SIVT infestation from the Outbrain Network had other devastating effects on Nubai’s business. For example, before discovering the fraud, Nubai was in negotiations with a major strategic investor and advertiser. Both initiatives fell apart as a result of the SIVT issue. 51. Nubai will continue to suffer the consequences of this bot fraud, as the devastating reputational damage of being associated with fraudulent bot activity will continue to deter advertisers from placing their ads on Nubai’s website. Outbrain’s Actual Knowledge of SIVT Infestation on its Network 52. Outbrain has at all relevant times, including when it induced Nubai into entering the Agreement, been aware of the systemic, SIVT problem and fraudulent bot traffic on the Outbrain Network, upon information and belief. However, Outbrain has a profit-driven incentive to turn a blind eye, and that is precisely what Outbrain has done. 53. Indeed, upon learning of the SIVT infestation coming from the Outbrain Network, Mr. Martin immediately notified Outbrain. He informed Outbrain in writing that: “Our advertising partners are backing away from us due to the Outbrain SIVT.” 11 12 of 30 FILED: NEW YORK COUNTY CLERK 03/11/2024 08:30 AM INDEX NO. 152157/2024 NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 03/11/2024 54. To Martin’s surprise, Outbrain for the first timed revealed the existence of a two- tiered system that allocates “premium” traffic to preferred customers, while allocating other high- risk, high-SIVT traffic to other unsuspecting customers like Nubai, as communications over January – February 2023 reveal. In fact, Outbrain calls those high-risk sites “underperforming sources” or “less-performing” sites. 55. By email on January 29, 2023, Outbrain stated to Mr. Martin that “underperforming sources” were “causing your high SIVT rate.” Outbrain stated that, unbeknownst to Mr. Martin (because Outbrain never told him), Nubai had “bought some less-performing” sections of the Outbrain Network. Outbrain explained that, while “Fox News Politics is one of our top-performing sections,” Nubai was not allocated that high-quality traffic. Rather, Nubai was allocated high-risk traffic from “an underperforming section.” 56. To Mr. Martin’s surprise, he was informed that, since Nubai had apparently elected to pay Outbrain too little per click, Outbrain had internally made the determination to send Nubai high-risk traffic. As Outbrain told Mr. Martin by email on February 28, 2023: “You set too strict Bid Cap for mobile ($0.03). This limits your campaigns from scaling and buying the top-performing section/widgets and forces you to buy traffic from underperforming sections.” 57. As these communications make clear, Outbrain has at all relevant times been aware of high-levels of SIVT bot activity in certain “sections” of the Outbrain Network – “underperforming section[s],” as Outbrain calls them. 58. At no time prior to entering a contractual agreement with Nubai, and at no time prior to Nubai’s discovery of extensive SIVT coming from the Outbrain Network, did Outbrain inform Nubai that: (i) Outbrain was aware of the presence of “underperforming,” SIVT-riddled websites on the Outbrain Network; (ii) Outbrain utilized a two-tiered structure that allocated high-quality traffic 12 13 of 30 FILED: NEW YORK COUNTY CLERK 03/11/2024 08:30 AM INDEX NO. 152157/2024 NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 03/11/2024 to some customers and low-quality, high-SIVT traffic to others; or (iii) Outbrain would allocate substantial amounts of fake bot traffic to Nubai’s website. 59. Notably, by email on April 20, 2023, Outbrain acknowledged the fraudulent bot traffic and offered Nubai a compensatory credit, writing: “Following the SIVT issue and according to the investigation based on the information we got from you, we decided to offer you a compensation of $1,441 in Bonus Clicks.” 60. Further demonstrating Outbrain’s actual knowledge of high-risk traffic within the Outbrain Network, by email on March 1, 2023, Outbrain revealed the existence of a “whitelist” of publishers, i.e., the websites within the Outbrain Network that are largely free of SIVT. 61. However, Outbrain informed Nubai that, because it did not pay for the “whitelist” publishers, Nubai was allocated only the non-whitelist, bot-infested websites. 62. By email later on March 1, 2023, Mr. Martin objected: It shouldn’t be “select Fox News or CNN or you get high SIVT.” If that’s the case, there should be disclaimer like on cigarette packages. How would a publisher know before buying product “beware, buy at your own risk, high SIVT” without a disclaimer? 63. Of course, at no time prior to or in connection with Nubai’s decision to enter the Agreement with Outbrain, and at no time during which Nubai was paying Outbrain over $1 million, did Outbrain provide Nubai with any information placing Nubai on notice that the traffic it was purchasing from Outbrain might contain substantial levels of fake, SIVT-ridden traffic. 64. That Outbrain’s traffic might contain high levels of fake, SIVT-ridden traffic would plainly have been material to Nubai at the time it was considering whether to enter the Agreement with Outbrain and pay it over $1 million. No commercially reasonable business would pay for a service that it knew or had reason to know was riddled with bots that would drive away its primary source of revenue. 13 14 of 30 FILED: NEW YORK COUNTY CLERK 03/11/2024 08:30 AM INDEX NO. 152157/2024 NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 03/11/2024 65. In response to Mr. Martin’s March 1, 2023 email, Outbrain’s representative nonchalantly told Mr. Martin that Nubai should have purchased traffic from the “whitelist,” since it “allows you to buy traffic only from top-performing publishers” and “avoid traffic from underperforming publishers.” 66. Suffice to say, Mr. Martin was deeply troubled by the cavalier, obtuse nature of Outbrain’s response to the dire SIVT situation that threatened to ruin his business. 67. At no time prior to entering a contractual agreement with Nubai, and at no time prior to Nubai’s discovery of extensive SIVT coming from the Outbrain Network, did Outbrain reveal to Nubai the existence of the “whitelist” of high-quality publishers whose websites were largely free of high-risk, SIVT traffic. 68. The fact that Outbrain possessed this whitelist, and the fact that Outbrain included other low-risk, high-SIVT sites in the Outbrain Network would plainly have been material to Nubai at the time it was considering whether to enter the Agreement with Outbrain and pay it substantial amounts of money. 69. At all relevant times, Outbrain had actual knowledge that certain of its publisher sites posed unacceptable levels of bot fraud. Rather than cease doing business with those publishers (or even notify Outbrain’s customers of the risks associated with those websites), Outbrain secretly allocated that high-risk traffic to a segment of its customer base, including Nubai. 70. At no time prior to entering a contractual agreement with Nubai, and at no time prior to Nubai’s discovery of extensive SIVT coming from the Outbrain Network, did Outbrain reveal to Nubai or did Nubai have any reason to know, that certain of its publisher sites posed unacceptable levels of bot fraud. 14 15 of 30 FILED: NEW YORK COUNTY CLERK 03/11/2024 08:30 AM INDEX NO. 152157/2024 NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 03/11/2024 71. The fact that certain of its publisher sites posed unacceptable levels of bot fraud would plainly have been material to Nubai at the time it was considering whether to enter the Agreement with Outbrain and pay it substantial amounts of money. 72. Outbrain’s failure to disclose that it directs low-quality, SIVT-riddled traffic to certain of its customers’ websites is particularly damaging to small business owners who, unlike many large companies, lack the in-house analytical tools that can detect bot fraud. Of course, Outbrain is well aware that small businesses like Nubai lack that capability, which is precisely why Outbrain chooses to allocate the high-risk traffic to small businesses like Nubai, upon information and belief. 73. Making matter worse, by the time small businesses like Nubai even become aware of SIVT-infestation on their sites, sophisticated advertisers (with fraud detection tools) have typically already known of it for some time. This means that small businesses are often blacklisted without even knowing it, and without having any opportunity to address the problem before losing advertisers. 74. In fact, at this moment, many small businesses are infested with bot traffic from Outbrain and have been blacklisted by advertisers, yet they are entirely unaware of this devastating reality, upon information and belief. 75. As a result of the bot fraud infestation on the Outbrain network, Plaintiff has suffered devastating harm and millions of dollars in damages, including the following: (i) lost profits, as advertisers pulled their ad campaigns from Nubai’s website; (ii) lost business from recurring return users, insofar as the authentic human visitors of a website often return after initially being directed to a site, whereas fake bots do not; (iii) lost business opportunities, as Nubai lost a significant equity investor as well as an opportunity to improve existing contract terms with a strategic partner; (iv) reputational damage, as news of Nubai’s infestation with Outbrain’s SIVT fraud caused Plaintiff to 15 16 of 30 FILED: NEW YORK COUNTY CLERK 03/11/2024 08:30 AM INDEX NO. 152157/2024 NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 03/11/2024 lose at least one strategic partnership and being associated with fraud will lead to further lost business opportunities for years to come; and (v) out-of-pocket costs Nubai has incurred in assessing and addressing the harm caused by Outbrain, including by hiring cybersecurity experts, implementing security upgrades, and assisting affected customers and partners. Outbrain’s Knowing Dependence on Fraudulent Websites 76. During a Q3 2023 earnings call, Outbrain’s co-CEO, David Kostman, discussed Outbrain’s inclusion of “made for advertising” (“MFA”) websites within the Outbrain network. See Outbrain Q3 2023 Earnings Call Transcript (“Earnings Call Transcript”). MFA websites are those set up for the sole purpose of maximizing ad profits, at the expense of quality content and user experience. The term is associated with invalid, low-quality traffic, and includes a blend of paid traffic, clickbait content and, of course, bot fraud and SIVT. 77. Not surprisingly, the advertising industry is widely against MFA websites. As Forbes.com has written, MFA websites are “a problem in the advertising industry,” “a common scourge across the programmatic landscape,” and advertisers must “devise a plan on how to avoid them.” Forbes.com, “The Rise of ‘Made For Advertising’ Sites: How Responsible Brands Can Take Action”; see also Pixelate.com, “Global Benchmark Report for Made For Advertising (MFA) Websites” (providing statistics demonstrating materially higher risk of fraud associated with MFA websites). 78. Despite the industry’s unanimous view that MFA sites are “a common scourge” (id.), Outbrain claims that MFA websites “generate real value for advertisers.” Earnings Call Transcript. 79. The reason Outbrain must peddle that fiction is that the Outbrain Network features a number of MFA websites. 80. In fact, Outbrain relies on MFA websites as a necessary component of its revenue model, upon information and belief. 16 17 of 30 FILED: NEW YORK COUNTY CLERK 03/11/2024 08:30 AM INDEX NO. 152157/2024 NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 03/11/2024 81. Outbrain’s greatest costs are the “traffic acquisition costs,” or “TAC,” that it pays to its “premium” publishers, e.g., CNN, Fox News, etc., to “rent” space on their websites and thus include those sites on the Outbrain Network. This massive TAC is a large reason why Outbrain has struggled to achieve profitability. For example, in Q2 2022, Outbrain experienced a “net loss of $10.3 million.” See Q2 2022 Results. Obviously, massive TAC places enormous pressure on Outbrain to maximize revenues from any and all sources – hence the company’s embrace of MFA websites. Indeed, given that MFA websites represent a relatively de minimis TAC yet produce ample (albeit largely fake) traffic, Outbrain views MFA sites as particularly cost-effective, upon information and belief. 82. Outbrain has determined that, if the company is to have any chance to achieve profitability given its high TAC incurred on premium sites, it must embrace low-quality, high- fraud-risk MFA websites, upon information and belief. 3 83. At all relevant times, Outbrain has had actual knowledge that MFA websites largely generate high-risk traffic that includes commercially unreasonable levels of SIVT that are unacceptable within the advertising industry. 84. Yet, despite its actual knowledge that MFA websites present a high-risk for fraud on Outbrain’s customers and their advertisers, Outbrain has made the deliberate choice to include MFA websites in the Outbrain Network. 3 Recognized digital advertising expert Tom Triscari has observed, with respect to Outbrain’s major competitor, Taboola (which has a materially similar business model, upon information and belief), that: “With 8% of net revenue going to variable costs, they need to subsidize it by selling low-priced clicks to MFA publishers looking to buy traffic. In fact, without this revenue stream Taboola’s financial model would completely fall apart and would likely never generate free cash flows. If we are right, it’s really smart of management to subsidize [Costs of Goods Sold] with MFA click revenue because it makes the whole model work. On the other hand, if MFA clicks go away, Taboola’s business model breaks in a severe way.” (https://triscari.substack.com/p/62-taboola-ad-revenues-and-mfa-subsidy) 17 18 of 30 FILED: NEW YORK COUNTY CLERK 03/11/2024 08:30 AM INDEX NO. 152157/2024 NYSCEF DOC. NO. 1