Publication

A California federal district court denied class certification for more than 100,000 advertisers seeking to sue Facebook for alleged overcharges related to "cost-per-click" online advertising on the world's largest online social network, finding that the advertisers could not establish sufficient similarity among their claims.

Plaintiffs Steven Price ("Price") and Fox Text Prep ("Fox") (collectively "Plaintiffs") filed a putative class action in the Northern District of California before Judge Phyllis Hamilton on behalf of themselves and more than 100,000 advertisers who paid money to Facebook for "cost-per-click" ("CPC") advertising during the period of May 2009 to the present.  The action is captioned In re Facebook, Inc., PPC Advertising Litigation.¹ Plaintiffs' allege that they (along with the class) entered into CPC contracts with Facebook wherein they agreed to pay a fee to Facebook each time a Facebook user clicked on their advertisement.  In addition, Plaintiffs allege that Facebook represented through its "Glossary of Terms" on its website that it would only charge the advertisers for "legitimate clicks," which it defined as clicks that do not come from automated programs or clicks that may be repetitive, abusive, or otherwise inauthentic. 

In their Complaint, Plaintiffs' allege that Facebook failed to comply with the terms of their contract and instead charged them for clicks that did not meet the definition of "legitimate clicks," including automated and unintentional clicks. 

The Court first analyzed the four prerequisites of a maintaining a class action under Federal Rules of Civil Procedure, rule 23(a) (i.e. numerosity, commonality, typicality, and adequacy of representation).  The Court held that neither Price nor Fox had established that they were adequate class representatives as they had failed to show that they suffered any concrete injury from specific "invalid" clicks or even that they disputed their CPC charges within the period needed to avoid waiver under their contract.  Accordingly, each Plaintiff may be required to litigate individualized defenses that are potentially dispositive of their claims. 

In addition, the Court held that the interests of both Price and Fox are different than those of the other diverse putative class members, which include both large, sophisticated corporations as well as individuals and small businesses.  Furthermore, although both Price and Fox's contact with Facebook was conducted through Facebook's "Self-Service" contract on line, the broad proposed class of more than 100,000 "persons or entities" who "paid money to Facebook" for CPC advertising could contain advertisers that had "Direct Advertisers" contracts with Facebook.  Accordingly, these other advertisers would use different channels to manage their relationship with Facebook. 

Therefore, the Court held that a class could not be certified under rule 23(b)(3) because common questions did not predominate with regard to Plaintiffs' alleged "systematic breach of contract."  The Court also found that class certification was inappropriate because individualized questions predominated – specifically as to the method of distinguishing between "valid" and "invalid" clicks and distinguishing "valid/invalid" clicks from "fraudulent" clicks – which were not at issue.  The Court was persuaded that there was "no way" to conduct the highly specialized and individualized analysis required to distinguish between these different clicks on a class wide basis.  Similarly, the Court held that there was no way to assess damages on a class wide basis as there was no way to avoid "false positives" in any potential model of recovery in which damages could be awarded for "valid." 

This decision is yet another example of the lower courts following the recent U.S. Supreme Court class action certification decision in Wal-Mart v. Dukes, ² which this judge cited in her ruling.  In the post-Dukes world of class action litigation, the bar for class certification appears to be set even higher in business and contractual disputes.

Please click here for opinion.

This decision is not final as the decision may be modified by further proceedings in the district court, on appeal or by review granted by the United States Supreme Court.

This and other case bulletins, as well as other publications of Gordon & Rees LLP, may be found at www.gordonrees.com.