When is “verified by [platform]” an actionable misrepresentation about authenticity?

Posted on December 8, 2020 by rtushnet

Choon’s Design, LLC v. Contextlogic Inc., 2020 WL 6891824, No.
19-cv-05300-HSG (N.D. Cal. Nov. 24, 2020)

Defendant Contextlogic runs Wish, which is allegedly a
“bargain hunting retail website and smartphone shopping application,” with 94
percent of its merchants based in China. Contextlogic allegedly imports, ships,
and warehouses many of the products in its marketplace and charges the
merchants a fifteen percent fee for each sale. It provides a “Verified by Wish”
badge on many of the products on its platform. Wish’s website explains that the
badge signifies that the products have been “inspected for the best quality,”
“inspected and [are] guaranteed to be the best quality,” and “have been
inspected and approved by our team, and are guaranteed to the best quality.” Moreover,
to receive the badge, the products must be from “Trusted Stores,” requiring “good
delivery performance and high product quality” including a “Counterfeit Rate
< 0.5%.” Wish allegedly touts a “zero-tolerance policy against intellectual
property infringement,” publicly prohibits the “sale of counterfeit branded
goods,” and states on its website that “[w]e do not allow product listings
which infringe on intellectual property.” However, Contextlogic allegedly only
reviews the counterfeit rate periodically, and grants the “Verified by Wish”
badge to counterfeit products.

Choon’s alleged violations of both §43(a)(1)(A) and (B), as
well as California’s UCL, because the “Verified by Wish” badge “misrepresents
the nature, characteristics, [and] qualities” of the third-party products on
its website. Choon’s did not allege direct or secondary trademark infringement,
but rather that the “Verified by Wish” badge is likely to cause confusion as to
the products’ authenticity and “how Plaintiff or a third-party vendor is
affiliated, connected, or associated with Wish.”

The statute doesn’t require the “use of a trademark” for an
actionable claim. However, it still has to be alleged that whatever the
defendant does “is likely to cause confusion or mistake, or to deceive, as to
sponsorship, affiliation, or the origin of the person or goods in question.”
And Choon’s didn’t adequately allege that part. It alleged only that the
“Verified by Wish” badge is likely to cause confusion (1) “as to the
affiliation, connection, or association of Plaintiff and the Class Members’
products with” other products or persons and, (2) “as to the origin,
sponsorship, or approval of Plaintiff and the Class Members, as to their
products, services, or commercial activities.” But §43(a)(1)(A) on its face
requires that the badge must cause confusion as to the defendant’s
affiliation, connection, or association with another, or as to the origin,
sponsorship, or approval of the defendant’s goods, services, or
commercial activities by another person.

There were no allegations to support the suggestion that the
badge erroneously affiliates Wish with Choon’s or its products, or allegations
that Wish was liable for the vendor’s conduct.

False advertising: Choon’s failed to adequately allege
falsity. Contextlogic allegedly touts the badge as a representation of product quality,
but Choon’s argued that it was a misrepresentation of authenticity.  Although its allegations could suggest that Contextlogic’s
verification was inadequate or perhaps even nonexistent, Choon’s didn’t allege
this with the specificity required by Rule 9(b), or explain why quality plausibly
means authenticity. This also got rid of the UCL claim.

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Georgia “data breach as unfair trade practice” claim fails

Posted on December 8, 2020 by rtushnet

Collins v. Athens Orthopedic Clinic, 849 S.E.2d 213, A18A0296
(Ga. Ct. App. 2020)

Former and current patients filed a putative class action
against the Athens Orthopedic Clinic for negligence, breach of implied
contract, unjust enrichment, attorney fees, injunctive relief under Georgia’s
Uniform Deceptive Trade Practices Act (UDTPA), and declaratory judgment
stemming from a data breach of their personal information. An anonymous hacker
stole the personally identifiable information, including social security
numbers, birthdates, addresses, and health insurance information, of
approximately 200,000 current and former Clinic patients. The hacker demanded
ransom, but the Clinic refused to pay, and the hacker sold the information on
the “dark web.”

The trial court dismissed all claims, but the Georgia
Supreme Court ultimately held that the allegations in the complaint
sufficiently stated a claim for negligence that was not merely speculative and
remanded to reconsider the remaining claims in light of that ruling. On remand,
the court of appeals affirmed the dismissal of the unjust enrichment, declaratory
relief, and UDTPA claims.

The Georgia UDTPA allows only prospective relief, but not
redress for past harm. Thus, standing requires likely future damage by an
unfair trade practice.  Here, “an
injunction would serve no purpose at this point because, as alleged, their
personal information was already sold and is available on the dark web. As
such, the plaintiffs have failed to allege a future harm caused by the unfair
practice, as required by the UDTPA, and the trial court properly dismissed this
claim.”

The Chief Judge would have reached the same result on the
UDTPA but for a different reason: there was no alleged deceptive trade
practice. Athens Orthopedic allegedly violated the Act by failing to inform the
plaintiffs that it did not have adequate computer systems and data security
practices, but there was no allegation that it knew of the inadequacy, so there
was no false advertising.

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mere direct competition doesn’t plausibly plead false advertising standing

Posted on December 8, 2020 by rtushnet

Allbirds, Inc. v. Giesswein Walkwaren AG, 2020 WL 6826487, No.
19-cv-05638-BLF (N.D. Cal. Jun. 4, 2020)

Allbirds sued Giesswein for trademark and related claims,
and Giesswein counterclaimed for false advertising under state and federal law;
the counterclaims are at issue here.

Giesswein sells footwear made from the wool of Merino sheep,
including footwear referred to as “‘runners’ or sneakers,” “wool runners,” and
“merino runners.” Allbirds also offers footwear products made of wool and
referred to as “wool runners.” Giesswein alleged that “[o]ne of Allbirds’
central advertising messages for its footwear products is that the products are
‘natural’ or made of ‘natural materials,’ ” but Allbirds products allegedly contain
synthetic polyamides and therefore the “natural” advertising is materially false
or misleading.

Allbirds argued that Giesswein lacked Article III standing
because it only plead generalized harm, e.g., “Giesswein has suffered and is
likely to continue to suffer significant monetary damages and discernible
competitive injury by the direct diversion of sales from Giesswein”; “Giesswein
has suffered, and continues to suffer, injury in fact and has lost money,
property, and/or goodwill”; and “Giesswein has and will continue to suffer damages,
including lost sales, revenue, market share, and asset value.” Giesswein alleged
that that parties were “direct competitors,” but that wasn’t conclusive of harm,
and there were no allegations that customers chose Allbirds products over
Giesswein products because of the alleged false or misleading advertising. The
court agreed.

A party may prove its injury (1) by using lost sales data,
that is “actual market experience and probable market behavior,” or (2) “by
creating a chain of inferences showing how defendant’s false advertising could
harm plaintiff’s business.” “Evidence of direct competition is strong proof
that plaintiffs have a stake in the outcome of the suit, so their injury isn’t
conjectural or hypothetical.” But here there were no lost sales data, and Giesswein
provided only one link in the chain of inferences: direct competition. Standing
alone, that wasn’t enough.

Giesswein didn’t allege facts indicating that “the material
of shoes is an important factor for consumers in deciding which shoes to buy
such that Allbirds captures a larger share of the ‘all-natural’ shoe market
because of its alleged false or misleading advertising.” Motion to dismiss
granted with leave to amend (though the court suggested that the California UCL
and FAL claims would require Giesswein to show that it relied on the
alleged misrepresentation to its detriment, which would be hard to do even if
it can plead Lanham Act standing).

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Power pack plausibly promises more than it delivers

Posted on December 8, 2020 by rtushnet

Geske v. PNY Technol., Inc., No. 19-cv-05170, 2020 WL
7042887 (N.D. Ill. Nov. 30, 2020)

A delightful example of Seventh Circuit style, clear but
respectful of the parties’ arguments.

Geske alleged that PNY’s portable power bank, whose package prominently
declared that it offered “5200 mAh” of available power for “3x CHARGES*,” didn’t
offer “5200 mAh” of power to her cell phone. She alleged that she had to
recharge the power bank more often than she thought and that the power bank was
never capable of delivering 5200 mAh of power at all because the power bank
itself consumes a significant portion of the power. As the court explained:
“[I]t takes power to send power. The power bank must use some of the power to
convert and distribute power from the internal battery to the connected device.
This process can use as much as 30 to 40 percent of the battery power of the
power bank.” Geske alleged that the amount of power is “the material factor in
making a purchasing decision, because the function of the power bank is to provide
power, and more is better.”

When she became disillusioned, “Geske didn’t return the
device to the store. Instead, she hired a laboratory to figure out if her
$12.99 power bank underperformed.” The lab tested two other PowerPack 5200s and
two PNY PowerPack 1800s, which delivered about a third less and 45% less mAh
than labeled, respectively.

Geske alleged claims under the Illinois Consumer Fraud and
Deceptive Business Practices Act and comparable statutes in other states, breach
of warranty, and unjust enrichment.

Geske had standing for damages: she alleged that she didn’t
get what she paid for, which is a concrete injury. PNY argued that she didn’t
allege that her power bank was defective, only that two others, tested
by the lab, were. But this was to ignore the allegations of the complaint,
which included allegations that she didn’t receive the charging power she
expected. So she relied on her own personal experience, “not merely an
extrapolation from testing data.” [From a scientific/predictive perspective,
it’s weird to value anecdotes over data, but here we are.]

Geske also had standing to sue on behalf of purchasers who
sustained a substantially similar injury, even if they didn’t buy the exact
same power bank, given that PNY’s different power banks allegedly operate in
the same manner and are allegedly marketed in the same way: by placing
“prominent representations” about the power banks’ mAh on the packaging and
using the mAh in the products’ names. The power banks allegedly “consume about
the same percentage of the total battery capacity (about a third of the power),
regardless of the starting point.”

However, Geske lacked standing to seek injunctive relief on
the usual “won’t get fooled again” rationale. Even if public policy concerns
point in the other direction, Article III doesn’t care about public policy, and
the FTC can fill any gap. Also, injunctive relief remains possible if
plaintiffs plead a cognizable, imminent future harm. Geske didn’t allege there
was any likelihood she’d be deceived in the future.

The ICFA claim was plausibly pled. While PNY argued that the
labeling of the PowerPack 5200 never made a representation about the amount of
power that the product could deliver to another device, but only about the
capacity of the battery (the picture of the bottom of the power bank said “Capacity:
5200mAh”), the court was unwilling to declare, as a matter of law, that Geske’s
interpretation was unreasonable.

PNY referred to Department of Energy regulations that
explain a battery’s capacity is usually given in mAh, but that was outside the
pleadings—and “it seems like a safe bet that not a lot of consumers have read
Department of Energy regulations about battery capacity.” PNY argued that
reasonable consumers understand that “it takes energy to transfer energy,” but
that wasn’t convincing on a motion to dismiss even if it was plausible. It
wasn’t the case that information on the package would prevent a reasonable
consumer from coming to another conclusion. “The existence of a competing
narrative, without more, is not enough to defeat a claim when plaintiff’s
theory of the case is plausible.”

PNY argued that the packaging clarifies that it offered “3x
CHARGES*.” The asterisk refers to the back of the packaging, which reveals that
the potential “3x CHARGES*” actually “varies by device.” Although any consumer
could understand this claim, a consumer “presumably would not understand the
relationship between the number of charges and the number of mAh,” and the
phrase didn’t fully explain the mAh reference. Indeed, the court pointed out,
there’s a disconnect between PNY’s argument here and its argument with respect
to the mAh number. “3x CHARGES*” plainly refers to what a consumer’s electronic
device will receive, while PNY argued that 5200 mAh refers to the power bank’s
capacity, not what the electronic device will receive.

While a previous (now reversed, but not when this opinion
was written) district court had allowed “100% Parmesan Cheese” to not be 100%
cheese, because the ingredient panel revealed otherwise and the product was
unrefrigerated,

[c]ommon sense probably comes into
play with unrefrigerated cheese more than the electrical capacity of charging
devices. Consumers have intuitions about room temperature dairy products.
They’re less likely to have a gut feeling about what it means for a charging
device to offer mAh. Unlike a package of cheese sitting out on a
room-temperature shelf in a grocery store, a power bank lacks “commonsense,
observable” facts that would allow a reasonable consumer to contextualize
representations that a power bank offers 5200 mAh.

In a footnote, the court pointed out that it was unclear
whether the power bank actually provided “3x CHARGES*.” “If the device actually
delivered three charges, but yet provided less than 5200 mAh, then it is
possible that Geske might not have a claim.” But at this stage, we don’t know.

The common law claims survived as well.

 

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failure to disclose influencer payment/review connections is misleading

Posted on December 7, 2020 by rtushnet

EIS, Inc. v. Wow Tech Int’l GMBH, 2020 WL 7027528, No.
19-1227-LPS (D. Del. Nov. 30, 2020)

The parties make vibrators. EIS sued defendants for
violations of the Lanham Act, Delaware common law on unfair competition, the
Delaware Deceptive Trade Practices Act, Delaware tortious interference laws, the
Colorado Consumer Protection Act, and patent-related claims.  

Defendants argued that the state and federal false advertising
claims were preempted by patent law. One of the defendants allegedly told one
of EIC’s customers that the customer was infringing its patent rights by
distributing and/or re-selling EIC’s product. “[T]o avoid preemption, bad faith
must be alleged and ultimately proven, even if bad faith is not otherwise an
element of the tort claim.” “In general, a threshold showing of incorrectness
or falsity, or disregard for either, is required in order to find bad faith in
the communication of information about the existence or pendency of patent
rights.” However, EIC sufficiently alleged bad faith: Taking the allegations of
the complaint as true, the defendant’s first US patent didn’t issue until after
it contacted the customer. “That Defendants made a representation about patent
rights when it knew no such patent rights existed in the United States is sufficient
(if proven) to establish bad faith under Federal Circuit law.” Even if it had
(as it argued) a German patent when it contacted the customer, and even if that
product infringed the German patent, a German patent is unenforceable in the US.

Lanham Act commercial advertising or promotion: The
statements forming the basis for the claim were (1) Instagram posts by the
owner of a sex toy boutique about EIS’s products and (2) negative Amazon
reviews of EIS’s products from an account displaying defendants’ We-Vibe logo. Defendants
argued that, even if (as the complaint alleged) they paid the owner to post
“false and misleading reviews,” that didn’t constitute commercial speech, and
likewise the reviews didn’t propose commercial transactions. Although some
courts have gotten this wrong, the court correctly held that the complaint sufficiently
pled commerciality. The shop owner was allegedly “an industry insider and
Instagram influencer” with nearly 70,000 subscribers, and her Instagram story
referred to the parties’ competing products with an economic motivation.
Likewise, as to the reviews specifically targeting EIS’s products, defendants,
as competitors, had an economic motivation for deterring customers from purchasing
competing products. It didn’t matter that there was no explicit reference in
the reviews to defendants or their products. Anyway, the complaint alleged that
“any potential purchaser of Plaintiff’s products who read the reviews could
have clicked on the username of the reviewer and found the link to Defendants’
website on the associated account page. Hence, even without an explicit
reference to Defendants, the review could lead the potential purchaser to
Defendants’ website, where the purchaser could purchase competing products.”

EIC also sufficiently alleged falsity. It alleged that the
Instagram influencer was being paid to share her story, but didn’t disclose her
financial relationships with defendants. “That she did not disclose her
financial relationship makes her story at least misleading, and establishes
falsity for purposes of a Lanham Act claim, even if [she] actually held the
beliefs she expressed.” Likewise, the complaint sufficiently alleged that the
reviews were posted by defendants, and not by (as they purported to be) bona fide
purchasers.

Similar reasoning also sustained the Delaware Deceptive
Trade Practices Act and common law unfair competition claim.

Tortious interference with business relations also survived
because plaintiffs didn’t need to identify a specific lost customer. The
complaint alleged that defendants knew of EIC’s ongoing business relationships
with its distributors and retailers; demanded that retailers stop selling its
products; and threatened to raise prices or cease sales if retailers did not
give in to that demand; EIC also alleged damages.

However, the Colorado CPA claim based on alleged
misrepresentations about patent rights was dismissed with leave to amend for
failure to satisfy Rule 9(b); the who/what/when of the misrepresentations weren’t
sufficiently identified.

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false designation of origin that fools Customs, not consumers, is not actionable

Posted on December 7, 2020 by rtushnet

Diamond Sawblades Manufacturers’ Coalition v. Diamond Tools
Tech., LLC, 2020 WL 7028029, No. 1:19-cv-04674-TWP-TAB (S.D. Ind. Nov. 30, 2020)

Plaintiffs sued defendants for RICO and Lanham Act
violations and for prohibited predatory pricing, tortious interference, and
civil conspiracy under state law.  

In May 2005, DSMC petitioned the Commerce Department and the
ITC “asserting that certain foreign manufacturers of diamond sawblades were
selling their products in the United States at dumped prices.” In 2009, Commerce
published an “Antidumping Order” on diamond sawblades and parts thereof from China,
having determined that imports from China were being “dumped” at prices below
fair value and that this actually threatened the U.S. industry for diamond
sawblades with material injury. Commerce thus halted imports. The order was
reissued five years later after a review.

Defendants allegedly circumvented the Antidumping Order,
opening “shell facilities in Thailand and Canada—countries that are not subject
to the Antidumping Order—through which to fraudulently ship Chinese goods to
the United States as ‘Thai’ or ‘Canadian’ goods” after relabeling, and at
times, minor labor on the sawblades. Commerce and DHS therefore “issued
anticircumvention decisions and findings of wrongful evasion of the Antidumping
Order.” Despite the Antidumping Order, domestic consumption of subject imports
was even higher than during the original period of investigation; many domestic
producers were simply forced to leave the industry. “Indeed, of the original
nine members of the domestic Diamond Sawblades Manufacturers’ Coalition, only
two remain.”

The RICO claims failed because they were RICO claims.

False designation of origin: the court indicated that this
had to be a false advertising claim because §43(a) requires confusion over
affiliation with/approval by another party. The claim failed because
the allegedly fraudulent relabeling of origin deceived Customs, not consumers. (I
don’t see why the precedents saying that deception doesn’t have to be of end
consumers to count shouldn’t extend here, given a strong but-for causation
argument that the end consumers could never have bought the products without
the deception.)  The court reasoned that the
complaint failed to allege “that any mislabeling regarding national origin
would likely dupe the consuming public into buying the products of Defendants
instead of those of its members.” This wasn’t a case of false US origin
labeling—false designation as products of Thailand or Canada wasn’t relevant to
consumers. The arguments that the materiality of literal falsity could be
presumed, and that Chinese products might be especially unattractive to US
consumers, failed, as did the argument that the “false labels enabled them to
sell the products at issue well below fair value—i.e., at much cheaper
prices—which plainly influences consumers’ purchasing decisions.” The complaint
simply didn’t allege how these labels would materially affect a consumer’s purchase,
even if the briefs argued for something special about Chinese origin labeling.

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allegedly false warranty letter not material, but could still be TM infringement

Posted on December 7, 2020 by rtushnet

Window World Int’l, LLC v. O’Toole, 2020 WL 7041814, No.
4:19-cv-2363-SEP (E.D. Mo. Nov. 30, 2020)

Plaintiff WW sells exterior home remodeling products, and
licenses independently owned/operated franchises to distribute them. Defendants
are franchisees/related people. They sued WW in North Carolina state court for,
inter alia, breach of contract and fraud, seeking reformation to enforce an
unlimited right to use WW’s marks. The North Carolina case was still pending,
but discovery had closed.

In April 2019, one defendant prepared and sent a letter using
WW trademarks in order to collect information from past customers of the
franchises and specifically those who purchased their products from “previous
ownership teams.” It requested that customers call to confirm “proper contact
and product information.” The letter also included a warning: “If you want to
retain the warranty on your products, you need to call us by April 12, 2019.”  

In fact, warranties for WW products would not expire if
customers failed to contact the defendants.

False advertising: WW came within the Lanham Act’s zone of
interests because defendants allegedly presented WW’s warranties as inferior to
their actual coverage. Customers allegedly believed the letter and called
defendants. Proximate cause: Causing customers to believe that they had been misled
about their product warranties “constitutes damage to the reputation of Window
World products.”

However, WW failed to plead materiality: that the deception,
even if it worked, was “likely to influence [a] purchasing decision.” The
letter itself didn’t provide any information about WW products or warranties,
and it was directed to past customers. Even if defendants “received telephone
calls from recipients of the Warranty Letter shortly after it was sent,” the
complaint didn’t plead— even upon information and belief—that any of those
calls suggested that the letter did, or would likely, affect future purchases. “The
bare allegation that the statement satisfies the legal standard for materiality
is insufficient.”

Trademark infringement claims, which don’t require
materiality, survived. The court rejected defendants’ argument that “whenever a
party is authorized to use a mark to sell that mark holder’s products, confusion
is impossible,” because “confusion can be created by a licensee.”  But confusion about what? The court basically
resurrected the false advertising claim, without materiality: “Sending a letter
using another entity’s protected marks urging customers to return communication
citing a false prospect of losing warranty coverage” was enough to plausibly
cause confusion about … something.

Dilution: Not plausible because WW alleged confusion, not
lack of confusion, and there can be no tarnishment because the parties’ windows
are the same products.

Ultimately, however, the court stayed the case so that the
North Carolina court could take a first whack at defendants’ rights to use the
WW marks.

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negligence claim v Amazon survives when 230 bars false advertising claim

Posted on December 7, 2020 by rtushnet

Brodie v. Green Spot Foods, LLC, 2020 WL 7027594, No. 20
Civ. 1178 (ER) (S.D.N.Y. Nov. 30, 2020)

Brodie sued Green Spot and Amazon for “injuries she
sustained after consuming a product known as Better than Pasta, which she
purchased on Amazon’s website.” Better than Pasta products are pasta
substitutes whose primary ingredient is a root plant called konjac. “When
consumed, konjac swells from its original size in the human digestive tract and
may become indigestible. It may also cause choking and stomach or intestinal
blockage.” Brodie pled that these dangers are “generally well-known” and have
led the FDA and similar regulatory bodies to ban certain foods containing
konjac or issue warnings about its risks. The packaging states that the food is
“made from organic Konnyaku flour, from the root of an ancient Japanese organic
plant called Konjac,” but doesn’t provide warnings about konjac’s alleged
risks.

Green Spot allegedly initially created all advertising for the
product, but Amazon also marketed and advertised the product on Amazon.com. Green
Spot participates in Fulfillment by Amazon, meaning that Amazon ships the
product to customers directly from its warehouses. Amazon designated Better
than Pasta as an “Amazon’s Choice” product on the website.

Green Spot and Amazon were allegedly made aware of the
dangers of Better than Pasta because they received numerous customer complaints
about the health issues caused by consuming the product. E.g., “I tried this
pasta for the first time last night, and today I’m having SEVERE intestinal
cramps. Buyer beware! I did a web search and discovered some Konjac root
products have been banned because they can actually cause an intestinal
blockage.” Brodie alleged that Green Spot “may have directed Amazon to remove
other negative complaints about the product,” and that it pays or incentivizes
individuals to leave “false positive reviews” with Amazon’s knowledge, which
Amazon allowed.

Negligence/breach of implied warranty by Amazon was
sufficiently alleged because the ingredient was listed and Brodie sufficiently alleged
that the ingredient’s dangers were generally known, and that the negative
reviews posted on the website made Amazon aware of konjac’s potential to cause
digestion issues and other injuries, and retailers have a duty to know that which
can be known by ordinary inspection.

“Amazon’s Choice,” however, wasn’t an express warranty because
it didn’t make a specific factual representation.

NY GBL §§349 & 350: The CDA protected Amazon from
liability for republishing content created by Green Spot. “There is
insufficient factual pleading supporting the plausible inference that Amazon
itself created or edited any of the Better than Pasta advertising content.” As
for the consumer review-based allegations, they were insufficient. “Although
Brodie alleges that it is common for third-party sellers to pay for false
positive reviews, this fact does not lead to a plausible inference that Amazon
itself knows about this practice or permits false reviews to be posted.”

 

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Comments on DMCA reform

Posted on December 2, 2020 by rtushnet

Senator Tillis has been soliciting suggestions for DMCA reform (including 512, 1201, and 1202). With Jessica Litman, Pam Samuelson, and Jennifer Urban, I submitted responses. The Organization for Transformative Works, on whose legal committee I serve, also submitted responses. 

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advertiser can amend complaint against Facebook for click fraud claims

Posted on November 12, 2020 by rtushnet

DotStrategy Co. v. Facebook Inc., No. C 20-00170 WHA, 2020
WL 6591366 (N.D. Cal. Nov. 11, 2020)

The court grants plaintiff’s motion for leave to amend its
complaint in this putative class action alleging that FB’s statements about advertising
on FB violated the UCL. “The main issue presented here is whether or not a
reasonable advertiser would understand Facebook’s representation that it would
not charge advertisers for ‘clicks that are determined to be invalid’ to mean
that Facebook would not charge — or refund — advertisers for clicks made by
fake accounts, if at all, which Facebook identifies and removes from its
platform for violating its authenticity policies.” Plaintiff pled sufficient
facts to support this theory.

FB’s agreement said:

When serving your ad, we use best
efforts to deliver the ads to the audience you specify or to achieve the
outcome you select, though we cannot guarantee in every instance that your ad
will reach its intended target or achieve the outcome you select[.]

We do not guarantee the reach or
performance that your ads will receive, such as the number of people who will
see your ads or the number of clicks your ads will get.

* * *

We cannot control how clicks are
generated on your ads. We have systems that attempt to detect and filter
certain click activity, but we are not responsible for click fraud,
technological issues, or other potentially invalid click activity that may
affect the cost of running ads.

However, from 2013 through the present, FB’s Business Help
Center page represented that advertisers would “not be charged for clicks that
are determined to be invalid”: “If we detect or are alerted to suspicious or
potentially invalid click activity, a manual review is performed to determine
the nature of the activity. You will not be charged for clicks that are determined
to be invalid.” Facebook defines “invalid clicks” as “[c]licks from people that
do not indicate a genuine interest in the ad or show signs of ad testing. This
includes repetitive or accidental clicks or visits from the Facebook corporate
network” and “[c]licks generated through prohibited means, such as fake
accounts, bots, scrapers, browser add-ons or other methods that don’t follow
Facebook’s Terms.” FB’s terms of service and authenticity policy requires users
to use their “real identities,” so fake accounts violate Facebook’s policies.

The proposed complaint had a bunch of other FB statements
that were allegedly false and misleading, such as:

• “On Facebook, you’ll only pay to reach the right people
who’ll love your business.”

• “Facebook is a community where everyone uses the name they
go by in everyday life. This makes it so that you always know who you’re
connecting with.”

Nonetheless, FB allegedly charged for invalid clicks, which
includes “[c]licks generated through prohibited means, such as fake accounts,
bots, scrapers, browser add-ons or other methods that don’t follow Facebook
Terms.” When Facebook determined those clicks were generated through prohibited
means, it failed to provide a refund to plaintiff and the class members. Plaintiff
alleged that it reasonably believed that, because Facebook requires “everyone
to provide their real names,” it would not be charged for advertising that
interacted with fake accounts.

Plaintiff alleged that between 2013 and 2018, Facebook
charged it for clicks that were made by thirteen different fake accounts. Facebook
allegedly has since deleted eight of these thirteen accounts from its platform
“likely for violations of its ‘authenticity policy.’ ”

FB argued that no reasonable consumer could have been misled
by its allegedly false and/or misleading statements, particularly, in light of
the contractual disclaimers in the self-serve ad terms. The key issue was whether,
given FB’s statements, a reasonable advertiser would have believed that once
Facebook determines and removes an account for violating its authenticity
policies (e.g., a fake account), FB would then perform an audit to refund
advertisers for any invalid clicks that that account may have made, and for
which FB had charged advertisers for.

That is a question of fact not suitable for resolution on a
motion to dismiss. Plaintiff plausibly alleged deceptiveness to a reasonable
consumer.

The allegedly contradictory TOS stating that Facebook is not
“responsible for click fraud” was ambiguous; a reasonable advertiser could
construe that to mean that FB itself is not perpetuating any click fraud [and,
I’d add, couldn’t itself be held liable for damages—but that doesn’t mean it’s
clearly promising to hang on to the money it collected from the advertiser for
fraudulent clicks]. And the Ninth Circuit “has recognized that a UCL fraud
claim can be based on misleading representations in a solicitation even when
the plaintiff later signed a contract with provisions contradicting the earlier
falsehoods.” “The question, then, is not whether [Facebook’s] contractual terms
corrected the false statements in its advertising, but whether dotStrategy’s
reliance on the false advertising was reasonable even in light of the
contractual disclaimers.” That was properly alleged.

FB argued that none of its statements mentioned refunds, so
they couldn’t be deceptive. “But a refund is implied” for interactions FB knew
involved invalid clicks. FB tried to distinguish fake accounts from invalid
clicks, arguing that it only promised to provide manual review for “suspicious
or potentially invalid click activity,” and no charges for “clicks that are
determined to be invalid,” not audits every time a fake account was removed.

But the proposed complaint specifically alleged that
Facebook charged it and other advertisers for invalid clicks, such as clicks by
fake accounts and/or bots. “Second, a reasonable advertiser might also
reasonably believe that once Facebook determines an account is fake, Facebook
would be ‘alerted to suspicious or potentially invalid click activity’ and thus
would conduct a ‘manual review’ to determine the nature of the activity.” After
all, falsity/misleadingness “is analyzed from the perspective of a reasonable
consumer, not from the perspective of an attorney splitting hairs.”

This interpretation would not, as FB claimed, make it liable
if its platform was 100% secure against fake accounts. Rather, the advertiser’s
argument was that, once FB does stumble on fake accounts, it should then perform
an audit to refund advertisers for any invalid clicks committed by such
accounts, given what it said to advertisers.

FB then argued that, just because an account was fake in
2018 when plaintiff performed its survey, it doesn’t also follow that that
account was also fake in 2017, for example, when it clicked or engaged with
plaintiff’s ads. That was a factual issue, and the plausibility of the claims
was bolstered by various news reports suggesting that fake accounts on FB “are
rather ubiquitous.”

However, a number of the challenged statements hadn’t been
sufficiently pled to be false or even non-puffery:

• “Connect with people. Ads help
you reach the right people.”

• “Facebook can help you reach all
the people who matter most to your business.”

• “Facebook ads are optimized to
help you get more people to visit your website or increase conversion.”

• “Your business is for your
customers. Built relationships with them, reach new people and drive sales
using Facebook.”

• “Drive people to your website
with one click from the most engaging place on Facebook.”

• “Find new customers. Boost sales.
Facebook can help you meet your business goals.”

• “Meet the people who will love
your business.”

A reasonable consumer “would understand that not all users
on Facebook would adhere to Facebook’s authenticity policy or would be
interested in its ads.” And even people who didn’t use “true and full names”
might have provided accurate information concerning their age, gender, and
location, among other things; “it cannot be said that such an account is
categorically unable to be interested in plaintiff’s ads.”

But these statements were plausibly false/misleading:

• “On Facebook, you’ll only pay to
reach the right people who’ll love your business.”

• “Facebook is a community where
everyone uses the name they go by in everyday life. This makes it so that you
always know who you’re connecting with.”

And the plaintiff plausibly pled economic injury: the cost
of invalid clicks.

 

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