• by Wendy Davis  @wendyndavis, January 4, 2010

A $1.2 million dispute between AOL and Unique Vacations about online marketing services has landed in federal court, with both sides alleging that the other broke the contract.

AOL quietly filed suit in August against Unique Vacations, representative of Sandals and Beaches resorts, alleging that the company recently stopped paying bills for Web marketing management services. Unique Vacations countersued for fraud, breach of contract and other claims.

Last month, U.S. District Court Judge Harvey Bartle III in Delaware ruled that Unique Vacations could proceed with its allegations that AOL broke its search marketing services agreement, but not on the fraud claims.

Unique Vacations tapped AOL for online ad services -- including search marketing management -- in 2006, according to the legal papers. Initially, the vacation company agreed to pay a search management fee of 12% of the total amount it paid for clicks. In 2008, Unique Vacations paid $3.7 million for search ads, including around $387,000 paid to AOL for search management services, according to the legal documents.

In late 2008 -- as the economy was reeling -- AOL agreed to slice its fee to 7% for six months, according to the court papers.

Nonetheless, AOL alleges that Unique Vacations stopped paying its invoices in the beginning of 2009.

The companies canceled their search marketing contracts last June, following which AOL filed suit against Unique Vacations to recover around $1,180,000 in unpaid invoices dating back to January of 2009. That figure included the pay-per-click charges as well as AOL's 7% fee.

Unique Vacations countersued for fraud, negligent misrepresentation, breach of contract and breach of good faith and fair dealing. The company alleged that it learned in August of 2008 that AOL "had never provided the search engine management services it had promised." Specifically, the resort company said in its court papers that Platform A did not remove "non-performing" keywords.

"An examination of the one-year history of the non-performing keywords showed that 90% of the keywords generated either no revenue at all or less than 10% of the amount spent by Unique Vacations," the company alleged.

"Despite the non-performance of these keywords, Platform A had continued to maintain these keywords and charge Unique Vacations for clicks on these keywords," Unique Vacations continued. "Remarkably, the audit did not reveal that even one non-performing keyword had ever been removed by Platform A, as should have been the case if Platform-A was properly managing and optimizing the keywords."

AOL asked the court to dismiss all of Unique Vacations' counterclaims. Bartle dismissed the fraud and misrepresentation charges, but said that Unique Vacations could proceed with its breach of contract and breach of good faith claims. He ruled that Unique Vacations' allegations are "sufficient to demonstrate that these claims are 'facially plausible.'"

An AOL spokesperson said Unique Vacations' counterclaim was without merit. "We're confident of our performance under the contract," the spokesperson said.