No, they can not run their services as they see fit. Without the law Google as a corporation would not exist. The law on which their existence and the validity of their contracts depends is based on certain legal and social standards and assumptions. One such assumption is that as long as you do not violate the terms of a service agreement, the other side will continue to provide the service.

If Google is incapable or unwilling to present credible evidence in case of alleged contract violations, they are in breach of fundamental social assumptions that will reassert theselves one way or another.

Google certainly knows that. Their calculation is that automated first response is a way to make their service scale, because a high percentage of what they think is click fraud will be click fraud and most of the fraudsters will not fight their decision.

That's fine, but it doesn't mean that people who have not committed click fraud shouldn't fight Google's decision. If Google isn't completely stupid, they will improve their appeals process to filter out justified complaints or regulators will strike them down, and rightly so.