Friday, May 14, 2010

Advertisers Can Pursue Suit Against Facebook for “Invalid Click” Charges

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

Advertisers that entered into “cost per click” arrangements for ads posted on Facebook stated claims that Facebook breached its agreement to charge only for “legitimate clicks” and violated the California Unfair Competition law, the federal district court in San Jose has ruled.

The advertisers’ class action complaint alleged that Facebook charged for “invalid clicks” and “fraudulent clicks” on ads posted on its social networking website.

Disclaimer—Click Fraud

The court agreed with Facebook’s argument that the advertisers failed to state a claim for breach of contract based on fraudulent clicks because the contract expressly waived liability for third-party click fraud.

The contract disclaimer provided that “Facebook shall have no responsibility or liability to me in connection with any third party click fraud or other improper action that may occur.” The term “click fraud” directly followed the disclaimer’s reference to “clicks or other actions affecting the cost of the advertising” that are generated by third parties for “fraudulent or improper purposes.”

Invalid Clicks

However, the advertisers stated a claim for breach of contract at least as to “invalid clicks” resulting from Facebook’s own conduct, the court held.

The advertisers alleged that “invalid clicks” can result from deficiencies in Facebook’s system as a result of “(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.”

“Invalid clicks” arguably need not be fraudulent, improper, or the result of the actions of third parties. The language of the contract was reasonably susceptible to this interpretation, the court determined.

Unfair Competition Law

The advertisers had standing to assert California Unfair Competition Law claims, according to the court. The allegation of a systematic breach of contract was sufficient for a claim under the statute predicated on unlawful business practices.

Although the advertisers failed to allege the element of reliance required to pursue a claim based on fraud, they succeeded in stating a claim that they reasonably could not have avoided the injury because of the ambiguities in the disclaimer, the court concluded.

The opinion in Facebook PPC Advertising Litigation will be reported at CCH Advertising Law Guide ¶63,836

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