The US Supreme Court is poised to hear a case that could spell danger for the internet’s most lucrative business: online advertising.

The case, Gonzalez v Google, will be argued on Tuesday and centres on whether internet companies are liable for the content their algorithms recommend to users. The technology industry said it is protected by a legal shield contained in communications law known as Section 230.

Much of the discussion surrounding the case has focused on the costs to online companies if the court determines they are legally responsible for the hundreds of millions of comments, videos and other content posted by users every day.

However, such a decision could also strike at the heart of the automated advertising upon which Meta Platforms’s Facebook and Alphabet’s Google rely for the bulk of their revenue.

In fact, the social media companies view the case as an existential threat.

“This case could adversely impact the entire advertising ecosystem,” said Marc Beckman, chief executive of DMA United, an advertising firm that regularly uses Google and Facebook’s tools to serve targeted ads to potential customers around the world.

Google is being sued by the family of Nohemi Gonzalez, a 23-year-old US citizen who was among at least 130 people killed in terrorist attacks in Paris in November 2015. The family argues that Google’s YouTube should be held responsible for automated recommendations of terrorist-linked videos.

Websites and advertisement networks automatically target ads based on information they have collected about users, including their location, browsing history, topics they follow closely and more. The ads are posted to websites by online tools without human intervention.

Google declined to comment on the case. But in its Supreme Court brief, it said it is concerned about the case’s impact on the economy, including advertisers.

Meta believes that Section 230 shields the company from liability for all content from third parties, including ads, and it is worried that the court could weaken those protections, a representative said.

A broad ruling by the Supreme Court could effectively snuff out the business of serving personalised ads on the internet and turn online advertisement practices back to the early 1990s, analysts believe.

It could also force the platforms to litigate a wave of lawsuits over the millions of advertisements they target at users, resulting in exponential legal costs for smaller advertisement networks and exchanges.

“If we’re not targeting ads, we’re going back to the old ’90s model of ‘see who bites’,” said Jess Miers, legal advocacy counsellor at tech-funded group Chamber of Progress, who previously worked for Google.

Together, Google and Facebook capture almost 50 per cent of all digital advertising revenue worldwide. The companies, which have been referred to as the “duopoly” of online advertising, collect reams of data about their users in order to serve them relevant ads — a business that earns both companies billions of dollars a year.

Globally, Google made $168 billion in advertisement revenue in 2022, while Meta made $112 billion, according to data analytics company Insider Intelligence. This year, Google’s US revenue alone is projected to reach $73.8 billion, while Meta’s is expected to reach $51 billion.

A ruling by the high court would only apply to the US, but it would be technically difficult for the companies to handle advertising differently in its largest market than other countries around the world.

The companies are already facing legal challenges over the ads they serve, particularly those that relate to sensitive issues like healthcare, politics, employment opportunities and more.

With few exceptions, Facebook and Google successfully win dismissals of most cases that would hold them responsible, thanks to Section 230.

That could change quickly if the Supreme Court decides to narrow Section 230. While the shield protects companies from lawsuits over content generated by users, Cathy Gellis, a California lawyer who has represented tech companies in online speech cases, said ads could be categorised as “user-generated content” if the Supreme Court’s ruling is wide-ranging.

The digital advertising industry is already coming under fire as governments around the world crack down, arguing that companies collect too much information about people without their consent and violate their privacy.

Privacy regulations in territories including the European Union limiting the amount of data companies are allowed to collect on users have already put a huge strain on the digital ads business, said Mr Beckman.

“We are already, as an agency, implementing new marketing initiatives to not just combat what we think will happen if 230 is limited, but also in the face of these new third party data privacy restrictions,” Mr Beckman said.

He said the era of “beautiful” and distinctive advertising may be on its way back as advertisers can no longer rely on the hyper-personalised and cheap advertisement networks they have taken for granted.

While targeted advertising allowed firms to reach their intended audiences with little effort, a pivot away from algorithmic recommendations could require advertisers to work harder to grab attention.

Ms Miers said it is likely that Google and Facebook will face the brunt of lawsuits the court weakens Section 230. But smaller advertisement agencies and advertisement networks will face trickle-down effects.

Online advertising is so key to Meta and Google’s business models, it’s likely they would try to fight it out in court, said Ms Gellis. They would try to handle the legal costs and see if they could win cases on the merits.

“Everybody’s going to try to muddle through as best they can,” she said.

To some critics of the tech companies, a winding down of targeting advertising on the internet could benefit some of the internet’s most vulnerable users.

Children’s advocacy group Common Sense Media and Facebook whistleblower Frances Haugen in a Supreme Court brief argued that Google’s video and advertisement recommendations can create a “feedback loop” that steers children and teenagers down rabbit holes that can revolve around eating disorders, self harm and extremism.

In their view, Google and Facebook should better control the ads that it serves to young audiences.

The case could be a “shock to a lot of businesses”, said Eric Goldman, a law professor at Santa Clara University School.

“So much of advertising is now being delivered in a dynamic way,” Prof Goldman said.

“If that dynamic assessment is an algorithmic recommendation that disqualifies the advertisement network for 230 protections, then the advertisement industry has to do something different.”

Updated: February 19, 2023, 3:30 AM