CALIFORNIA CLASS ACTION LAW

Judge Jeremy Fogel of the Northern District of California granted in part a defendant’s 12(b)(6)motion to dismiss in In re Facebook Advertising Litigation, 2010 WL 3341062 (N.D. Cal. Aug. 25, 2010).  Plaintiffs RootZoo, Inc. (“RootZoo”), Steven Price (“Price”), and Matthew Smith (“Smith”) (collectively, “Plaintiffs”) filed a putative class action arising out of individual contracts between Plaintiffs and Facebook (“Defendant”). Id. *1. RootZoo, Price, and Smith individually entered into “click-through” contracts with Defendant for advertising on its website. Id.

RootZoo and Smith both agreed to Defendant’s Advertising Terms and Conditions (the “AT & Cs”). Id. *2. The AT & Cs state that “I understand that Facebook will determine, in its sole discretion, how to measure the number of impressions, inquiries, conversions, clicks, or other actions taken by third parties in connection with my advertisements, and all charges will be based on such measurements.” Id. The AT & Cs also contain the following disclaimer:

I UNDERSTAND THAT THIRD PARTIES MAY GENERATE IMPRESSIONS, CLICKS OR OTHER ACTIONS AFFECTING THE COST OF THE ADVERTISING FOR FRAUDULENT OR IMPROPER PURPOSES, AND I ACCEPT THE RISK OF ANY SUCH IMPRESSIONS, CLICKS, OR OTHER ACTIONS. FACEBOOK SHALL HAVE NO RESPONSIBILITY OR LIABILITY TO ME IN CONNECTION WITH ANY THIRD PARTY CLICK FRAUD OR OTHER IMPROPER ACTIONS THAT MAY OCCUR.

Id.

Price’s contract did not contain the AT & Cs; instead, Price appears to have assented to a later agreement called a Statement of Rights and Responsibilities (the “SR & Rs”). Id. The SR & Rs provide that “You will pay for your Orders in accordance with our Payment Terms. The amount you owe will be calculated based on our tracking mechanisms.” Id. The SR & Rs also include a disclaimer: “We [Defendant] cannot control how people interact with your ads, and are not responsible for click fraud or other improper actions that affect the cost of running ads.” Id.

Plaintiffs allege that, notwithstanding these terms, Defendant made representations that it would charge only for certain types of clicks. Defendant’s website includes a “Help Center,” which offers definitions of several terms and represents that “[Defendant] ha[s] a variety of measures in place to ensure that [it] only report[s] and charge[s] advertisers for legitimate clicks, and not clicks that come from automated programs, or clicks that may be repetitive, abusive, or otherwise inauthentic.” Id.

Despite these representations, Plaintiffs allege that they have been charged for:

(a) failed attempts by Facebook users to reach an advertisement because of a glitch in Facebook’s website that are improperly counted by Facebook as a billable click; (b) Facebook’s counting of clicks as billable clicks when in fact there was no click at all from a Facebook user; (c) clicks by Facebook users that fail to open the advertiser’s web page but still result in Facebook regarding the click as a billable click; (d) improperly recorded, or unreadable, clicks by Facebook users caused by an invalid proxy server or unknown browser type (indicating that the visitor may be a computer “bot” and not a human); (e) unintentional, multiple clicks from a Facebook user in rapid succession …; and (f) … clicks that were made in a deliberate effort to drive up the cost of an ad or deplete an advertiser’s budget (this type of invalid click is referred to in the industry as “click fraud.”).

Id. **2-3.  Plaintiffs sought relief under California’s Unfair Competition Law (“UCL”), Cal. Bus. Prof.Code § 17200 et seq.; remedies for breach of contract and the implied covenant of good faith and fair dealing; and a judicial declaration of the rights and obligations of the parties under the subject contracts. Id. *3.

Facebook contends that Plaintiffs cannot demonstrate that it has breached the contract because the disclaimers shield it from liability for invalid third-party clicks.

The court found that the disclaimers are ambiguous, and concluded that for the “instant motion, Plaintiffs have alleged adequately that Defendant may have charged for third-party clicks that are neither fraudulent nor improper yet still invalid.”  Id. *6.

With respect to non-fraudulent third-party clicks, the court considered statements in Facebook’s Help Center, finding that they were “relevant to the proper interpretation of the terms of the contract.” Id. *7.  Plaintiffs alleged that the statements in the Help Center existed at or around the time of contracting and that they reviewed the policies that did exist at that time. Id. Plaintiffs also argue that the statements actually are part of the contracts, pointing to the statement in the AT & Cs that “[t]hese terms and conditions, the Advertising Guidelines and other applicable Facebook policies, and the terms of any applicable advertising order submitted through the site constitute the entire and exclusive agreement between the parties with respect to any advertising order I place ….” The court found that these allegations were adequate to survive a motion pursuant to Rule 12(b)(6):

The Court finds and concludes that the term “improper” is fairly susceptible to either of the two interpretations offered by the parties. In light of the statements in the Help Center, there is a plausible argument that some or all non-fraudulent but otherwise invalid third-party clicks are not “improper” within the meaning of the disclaimers

Id. **7-8.

The court dismissed plaintiff’s claim that they have been charged inappropriately for “clicks that were made in a deliberate effort to drive up the cost of an ad or deplete an advertiser’s budget (this type of invalid click is referred to in the industry as ‘click fraud.’).” Id. *8.  The court concluded that “even applying the more lenient pleading standard of Rule 8, it is difficult to see how Plaintiffs’ allegation of ‘click fraud’ can survive disclaimers that state unambiguously that Defendant will not be liable for ‘click fraud.'” Id. Accordingly, the court dismissed this portion of Plaintiff’s claim.

Judge

Hon. Jeremy Fogel.

By CHARLES H. JUNG