Federal Court Gives Back of the Hand to Facebook Disclaimer
This is the kind of decision that causes lawyers to write paragraphs like those hideous releases in settlement agreements that go on for pages and have more commas, semicolons and parentheses than a Costco-sized Barrel of Monkeys.
By this point, everybody who has an Internet browser already knows what click fraud is. Internet advertising often is priced by how many people "click" on an ad's link and travel to the advertiser's website. Competitors, hooligans, and other cyber-rapscallions have developed programs to generate numerous clicks on such ads, thereby driving up the cost of the ads. Many sites that host advertising have gone to extraordinary lengths to develop software to detect click fraud and thereby protect advertisers on their sites. There have been many class action lawsuits regarding "click fraud," including settlements.
Along comes a website that is sort of popular -- Facebook. It's not locked in the Stone Ages; it has heard of click fraud. And so it decides to eliminate the possibility of future "click fraud" class actions by its advertisers by including within it's terms and conditions 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.
Seems straightforward, right? And if some numskull were to actually sue Facebook for click fraud with this HUGE disclaimer in his contract, you would expect a court to immediately throw him out on his tuchus, right?
Not in California.
See In re Facebook PPC Advertising Litigation, Case Nos. 5:09-cv-03043-JF, 5:09-cv-03519-JF, 5:09-cv--03430-JF, Slip op. (N.D. Cal. Apr. 22, 2010).
Three plaintiffs who agreed to Facebook's terms and conditions and became advertisers on Facebook's website brought a class action against Facebook alleging that they had been charged for "invalid clicks" and "fraudulent clicks." The complaint attributed these clicks 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 describes '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.'" Slip op. at 3 (quoting complaint).
Not surprisingly, Facebook moved to dismiss the complaint for failure to state a claim, pointing to its GIGANTIC DISCLAIMER.
In analyzing the breach of contract count, the court analyzed whether the contract language was ambiguous and susceptible to the plaintiffs' interpretation. The court held that the agreement was unambiguous in disclaiming liability for third party click fraud. Slip op. at 6.
BUT . . . the court held the disclaimer:
may be ambiguous with respect to whether it covers only "click fraud and other improper actions" by "third parties". Plaintiffs claim that they have been charged for "invalid clicks" that are the result of Defendant's own conduct. . . . [The invalid clicks described in the complaint] arguably need not be fraudulent, improper, or the result of actions of third parties.
Slip op. at 6-7.
Thus, the court dismissed the breach of contract count to the extent it related to "click fraud" performed by third parties, but it refused to dismiss the breach of contract count to the extent it relied on Facebook's failure to prevent so-called "invalid clicks." The court dismissed the claim for breach of the implied covenant of good faith and fair dealing because the statements in the complaint did not go beyond a mere breach of contract, and thus the implied covenant may be "disregarded as superfluous." And it dismissed the unjust enrichment claim because there was an adequate remedy at law.
As for the Unfair Competition Law count, the court once again split the baby, allowing the claim to proceed for so-called "direct injury" claims against Facebook, but holding that the third party click fraud allegations failed to state a claim. California's UCL has three prongs: fraud, unlawfulness, and unfairness. The court held that plaintiffs could not allege reliance sufficiently to maintain the fraud prong of the UCL. But it determined that -- with respect to "direct injury" claims -- plaintiffs' allegation of systematic breach of contract met the unlawful conduct prong of the UCL. Moreover, it held that the "unfairness" prong was met, borrowing the FTC's standard for unfairness in 15 U.S.C. sec. 45(n). (This, of course, is inconsistent with other California precedent requiring a violation of a legislatively-announced policy in order for conduct to be "unfair.")
The bottom line is this: despite a disclaimer that very clearly absolved Facebook of responsibility for clicks driving up the cost of advertising, a finding of some "ambiguity" in the provision will allow the claim to proceed to costly class action discovery. The lesson to lawyers is that in drafting disclaimers, one must make it doubly and even triply clear that under no conceivable set of circumstances is the client to be responsible for what is disclaimed. The challenge -- particularly in light of opinions like this one -- is to do that with simple, crisp language, and resist the urge that such opinions create to add every conceivable synonym and scenario to the disclaimer. Ironically, doing the latter may increase the likelihood of a court finding ambiguity.
The court got it right here regarding the disclaimer. The disclaimer does an excellent job at doing what the drafter intended it to do--disclaim third party click fraud. However, it does nothing to address the issue of improper charges resulting from facebook's own actions. The disclaimer, in two separate places, uses the words "third party" before words like "fraud" and "other improper actions." The phrase "other improper actions" only expands the disclaimer's coverage to actions which don't qualify as fraud. But again, it does nothing to determine what parties are covered by the disclaimer.
If facebook wanted to disclaim its own actions it should have used words like "any party", or I don't know, FACEBOOK.