On April 22, 2010, Judge Fogel of the United States District Court for the Northern District of California, ruled on Facebook’s motion to dismiss a suit brought by Advertisers who had entered into contracts with Facebook, the popular social networking site. In re Facebook PPC Advertising Litigation, C 09-3043 JF (HRL) (N.D. Cal. April 22, 2010). Judge Fogel granted Facebook’s motion to dismiss, in part, and denied their motion as to certain aspects of Advertiser’s claims, allowing those claims to go forward.
Facebook provides two options for advertising on its website: (1) cost per click (“CPC”) or (2) cost per thousand impressions (“CPM”). In this case, the Advertisers chose the CPC contract with the idea that they would only be charged when users clicked on their advertisements through the Facebook website. As part of the contract, the Advertisers agreed to a written disclaimer that indemnifies Facebook for any third-party click fraud.
Advertisers are alleging that they have been charged for “invalid clicks” and “fraudulent clicks” in violation of the contract. The complaint alleges that technical problems are responsible for the “invalid clicks,” such as unintentional clicks, incomplete clicks, improperly recorded clicks, etc. The Advertisers contended that “fraudulent clicks” are attributed to competitors clicking on ads to drive up costs. Advertisers sought relief under breach of contract, implied covenant of good faith and fair dealing, unjust enrichment, California’s Unfair Competition Law (“UCL”), and a declaration of the rights and obligations of the parties under the contract.
As to the breach of contract action, Facebook argued that the contract disclaimer expressly waives any liability for faulty or fraudulent “clicks.” The Advertisers alleged that the disclaimer only waived liability as to “click fraud,” but not as to “invalid clicks.” Judge Fogel agreed with the Advertisers and held that the contract language was reasonably susceptible to the Advertiser’s interpretation. Thus, Facebook’s motion to dismiss was granted as to breach of contract on the fraud issue, but denied as to breach of contract on the “invalid clicks” issue.
Moreover, Judge Fogel granted Facebook’s motion to dismiss the claim for implied covenant of good faith and fair dealing as to fraud, because the Advertiser’s argument relied on essentially the same arguments as the breach of contract and was deemed superfluous, as no additional claim was stated. However, he denied the motion as to the “invalid clicks.” For the similar reasons, Judge Fogel granted Facebook’s motion to dismiss the claim for unjust enrichment. Advertisers also alleged a claim under the UCL, one of California’s antitrust laws. Facebook contended that the Advertisers lacked standing to bring a claim under the antitrust law and that they failed to allege sufficient facts to demonstrate unlawful, unfair or fraudulent practices. The Judge agreed with Facebook, finding that the Advertisers lacked standing because they failed to establish that Facebook’s misrepresentation regarding “invalid clicks” was material and that it was the immediate cause of Advertiser’s injury. Lastly, the court declined to grant the Advertiser’s motion for declaratory relief.
The case will move forward as to the breach of contract and breach of good faith and fair dealing claims, only as to the “invalid clicks.” Stay tuned for more information on this case.