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In re Facebook PPC Advertising Litigation

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Citation Edit

In re Facebook PPC Advertising Litigation, 2010 WL 1746143 (N.D. Cal. Apr. 22, 2010) (full-text).

Factual Background Edit

Plaintiffs RootZoo, Inc., Mathew Smith, and Steven Price participated in defendant Facebook’s advertising program whereby ads for plaintiffs were placed on the popular social networking site and plaintiffs were charged per click by users. As a condition for participating in this program, plaintiffs each signed advertising contracts and agreed to defendant’s Terms and Conditions. Plaintiffs brought suit alleging that they were charged for “fraudulent” and “invalid” clicks resulting in a breach of contract and unfair business practices.

Trial Court Proceedings Edit

Facebook’s web page contains statements alleging that measures are in place to prevent fraudulent and illegitimate clicks on its advertisements and plaintiffs allege that defendant made additional public statements to support that assertion. Their complaint alleges that that regardless of defendant’s guarantees, they were charged for invalid clicks attributed to “(a) technical problems; (b) system implementation errors; (c) various types of unintentional clicks; (d) incomplete clicks that fail to open the advertiser’s web page; and (e) improperly recorded or unreadable clicks originating in some cases from an invalid proxy server or unknown browser types.” The complaint defines “click fraud” as the “result of a competitor clicking on an advertiser’s ad in order to drive up the cost of an ad or deplete the competitor’s budget for placing ads.”

The contract signed by the plaintiffs contains the following disclaimer:

I [PLAINTIFF] 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.

Based on this disclaimer, defendant argued that the plaintiffs had failed to state a claim for breach of contract because the contract expressly waives defendant’s liability for third-party click fraud. Plaintiffs responded by alleging that the contract is ambiguous. Plaintiff’s argument focused on the works “risk” and “click fraud” in the disclaimer; the Disclaimer is included in a section of the contract in which Defendant also disclaimed warranties for non-infringement, merchantability, and fitness for any purpose.

The court reasoned that it was possible that the term “risk” could refer to some danger other than being charted for fraudulent clicks, such as infringement, lack of merchantability, or lack of fitness, and the term “click fraud” is not defined explicitly anywhere in the contract. However, the court was unable to come up with a reasonable interpretation of the terms and the clause that would have rendered the Defendant liable for third-party click fraud, even under the definition provide by plaintiffs. The clause could, however, be open to interpretation with respect to click fraud as a result of defendant’s own actions, which is alleged by plaintiffs’ complaint. The court held that plaintiffs had successfully stated a claim for breach of contract at least to invalid clicks as a result of Defendant’s actions.

With respect to plaintiffs’ unfair competition claim, to have standing it is required that they suffered injury-in-fact and lost money or property as a result of the unfair competition. Defendant argued that plaintiffs lacked standing because any losses they suffered were a result of third-party fraudulent clicks, however plaintiffs alleged that they were injured by Defendant’s direct conduct in the form of charges for invalid and fraudulent clicks. While plaintiffs’ argument may have more accurately described the claim being brought, plaintiff’s failed to establish that any statements or representations made by defendant were relied upon leading to injury, only that statements regarding click fraud were made in the form of the contract. As a result, plaintiffs’ claim for unfair competition was dismissed.

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