• by Wendy Davis  @wendyndavis, April 26, 2010

In a mixed ruling in a click fraud lawsuit, U.S. District Court Judge Jeremy Fogel in San Jose, Calif. has held that marketers can sue Facebook for allegedly charging them for "invalid" clicks, but not for "fraudulent" ones.

In the decision, issued Thursday, Fogel tentatively agreed with Facebook that a disclaimer in its ad contract protects it from liability for fraudulent clicks generated by third parties -- such as clicks generated by an advertiser's competitors. But Fogel also ruled that the disclaimer was ambiguous regarding Facebook's liability for its own errors in counting clicks.

The decision means that marketers can proceed to discovery on claims that Facebook overcharged them for clicks that never occurred. Fogel also allowed the advertisers to amend their complaint regarding allegations of fraudulent clicks, but it's not clear whether they will be able to overcome the language in Facebook's disclaimer.

The decision grew out of potential class-action lawsuits filed against Facebook last summer by sports site RootZoo and several other online marketers. The lawsuits, filed shortly after TechCrunch reported on an influx of complaints by marketers about perceived click fraud on Facebook, have been consolidated into one action.

RootZoo initially alleged there were significant discrepancies between the data provided by its own analytics programs and the numbers claimed by Facebook. For instance, the original RootZoo complaint alleged that its analytics showed that 300 clicks were generated by Facebook on June 2, 2008, but that Facebook charged the company for 804 clicks.

Facebook argued that the litigation should be dismissed because all cost-per-click advertisers were required to agree to the company's terms and conditions, which allegedly included the following language: "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."

But the marketers argued that the disclaimer was ambiguous and inconsistent with Facebook's advertising policies. For instance, they argued, Facebook's glossary states: "We have a variety of measures in place to ensure that we only report and charge advertisers for legitimate clicks, and not clicks that come from automated programs, or clicks that may be repetitive, abusive, or otherwise inauthentic."

While Fogel agreed with Facebook that its disclaimer for "fraud" by third parties was clear, he also accepted the marketers' arguments that clicks can be invalid without being fraudulent, such as when marketers are erroneously charged for clicks that never occurred due to technical problems.

Santa Clara University law professor Eric Goldman says the decision appeared to be good for Facebook overall. "The judge has made it clear that Facebook's advertising terms and conditions preempt a lot of the things that plaintiffs might care about," he said.

He added that Facebook likely attempted to protect itself with a disclaimer because it had seen how vulnerable Google and Yahoo were to click fraud claims. Several years ago, both companies settled class-action click fraud lawsuits.

"Over time, we've learned a bunch of things about how to manage click fraud exposure," Goldman said. "As a result, Facebook's in a much better position than the search engines were five years ago."