Monday, November 23, 2009

Nationwide Class Certified in “Click Fraud” Action under California Unfair Competition Law

This posting was written by William Zale, Editor of CCH Advertising Law Guide.

A nationwide class was certified by the federal district court in Los Angeles in an action against online advertising service provider Citysearch for breach of contract and fraudulent business practices in violation the California Unfair Competition Law.

The class consisted of all persons or entities in the United States who entered into form contracts for pay-per-click advertising through, paid money for this advertising service, and experienced click fraud by reason of double clicks or Citysearch’s failure to apply automatic filters to traffic from its syndication partners up through March 23, 2007.

Breach of Contract

If proven, the alleged breach of contract—namely, failing to filter and otherwise monitor for click fraud—would be objectively unreasonable conduct that could be established without resort to individualized proof, the court determined.

Unfair Competition Law

Citysearch's business practices were alleged to be fraudulent, in violation of the Unfair Competition Law, as likely to deceive its customers into believing that they will not be charged for “invalid” clicks.

Citysearch allegedly routinely charged its customers for clicks that it knew—or by the exercise of reasonable care, should have known—were not clicks that originated from potential customers who actively and legitimately chose the advertiser’s link.

Because the statutory fraud claim arose out of Citysearch’s common course of conduct towards all class members, and the “reasonable consumer” standard would be employed to adjudicate the claim, common questions predominated, the court held.

Class certification was denied as to a claim of unfairness under the statute because questions of individual expectations about Citysearch's business practices were relevant.

Nationwide Class

Application of California law to the breach of contract claims was appropriate because all versions of the contract in force during the class period contained a choice of law clause stating that California law governed, according to the court.

The California Unfair Competition Law could be applied to the nationwide class because Citysearch had not shown that any differences between California law and the law of other jurisdictions were material nor that other states had an interest in applying their laws in this case, the court concluded.

The November 9 opinion in Menagerie Productions v. Citysearch will be reported at CCH Advertising Law Guide ¶63,641.

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