Ad intermediary lacks standing under Lexmark to challenge false ads

Congoo, LLC v. Revcontent LLC, 2017 WL 5076397, No. 16-401 (D.N.J.
Nov. 3, 2017)
A rare case discussing Lexmark’s
proximate cause requirement in some detail. Congoo operates an online ad
business as Adblade, an aggregator that serves as an intermediary between
advertisers and publisher websites that display native ads on their pages.  Revcontent competes with Adblade.  Advertisers pay aggregators a fee based on
the numbers of clicks on their ads. Publishers usually contract with the
aggregator who “pays the higher rate, higher guaranteed minimums, or greatest
revenue.” An aggregator may pay a publisher a fee calculated by multiplying a
negotiated display rate, CPM/cost per 1000 impressions of an of an ad, by the
number of times the aggregator’s advertising unit is displayed on the publisher’s
website. In the alternative, an aggregator may pay a publisher a percentage of
the revenue the aggregator received from advertisers for the display of the ads
on the publisher’s website.
Adblade alleged that it avoids business with advertisers using
false and deceptive ads, such as negative option membership charges or
undisclosed automatic enrollment in expensive membership programs.  This is an issue in direct response
advertising, “a subset of native advertising that seeks consumer action, e.g.,
an online purchase.” When a user clicks on a direct response ad, she navigates
to a “landing page” that endorses the good or service, followed by an “order
page” where she can buy. 
In 2015, Adblade allegedly discovered that Revcontent was
promising Adblade publishers deals with better economic terms through its “use[
] [of] false and misleading ads that obtain higher CPMs”; Revcontent allegedly also
assisted with the creation of such ads. 
Revcontent’s algorithm allegedly “automatically” displays “false and
misleading” advertisements on publishers’ websites because they “have the
highest CPM and revenue to be generated.” Adbeat, a well-known industry data
source, allegedly confirmed that the most popular advertisements in
Revcontent’s network were “false and misleading.” Its report stated that
Revcontent’s top mobile ads included those for diet pills, muscle pills, and
skin cream; Adblade provided hundreds of copies of such ads, and alleged that false
and misleading ads appeared on five top Revcontent publishers that previously
did business with Adblade. (Id. at ¶ 20.)
Lexmark requires
plaintiffs’ interests to “fall within the zone of interests protected by the
law invoked”:  “an injury to a commercial
interest in reputation or sales.” In addition, a plaintiff must demonstrate
that its alleged harm was proximately caused by the false advertising, though
“the intervening step of consumer deception” does not necessarily break the
chain of proximate causation. Economic or reputational injury “flowing directly
from the deception wrought by the defendant’s advertising … occurs when
deception of consumers causes them to withhold trade from the plaintiff.” By
contrast, “[t]hat showing is generally not made when the deception produced
injuries to a fellow commercial actor that in turn affect the plaintiff.”
For purposes of their motion for summary judgment, Revblade
didn’t contest that Congoo’s interests fell with in the zone of interests
protected by §43(a)(1)(A), or that there was a causal connection between
deceptive native ads and Congoo’s loss of publisher clients.  However, the court agreed that the
purportedly false advertising didn’t have a sufficiently close causal link to
Congoo’s alleged harm.
In Lexmark, the
connection between the actual competitors in the market and Static Control was
very close: because Static Control seemed to be the only relevant supplier,
every harm to the competitors was also inflicted on Static Control.  Here, however, there was a disconnect
“between the injury to the direct victim”—here, competitors of falsely
advertised goods—and Congoo’s own injuries as an indirect victim, “unlike the
injuries to companies supporting those competitors in the marketplace.” The
loss of publisher clients wasn’t “surely attributable” to injury to a
competitor, but could have “resulted from any number of [other] reasons.”
Congoo’s expert stated that false and misleading
advertisements deceive consumers into clicking on the advertisements and/or
making purchases, thereby “enabl[ing] the unscrupulous advertiser to make high
cost-per-click bids to an advertising aggregator, such as Revcontent, who in
turn offers higher rates to a publisher to obtain its business. … In addition,
native ads that are deceptive and misleading likely have higher click-through
rates that also translates into a greater revenue to the publishers.” But this
was a too-long chain of causation from higher sales/higher revenues to
Revcontent’s ability to pass on more money to publishers.
Congoo’s state common law unfair competition claim also
failed because standing wasn’t broader than under Lexmark. To the extent, however, that any allegations of fraudulent
representations didn’t relate to consumer products but instead to statements to
publishers, such claims survived.

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