Suit Distinguishes Facebook's Click-Fraud Liability

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Facebook's contract with pay-per-click marketers does not completely protect the social networking service from liability for problematic clicks by outside companies, despite a disclaimer stating that Facebook has no responsibility for click fraud, a federal judge has ruled.

But the judge also ruled that Facebook's disclaimer successfully precludes liability for clicks made by outside companies that are seeking to drive up their competitors' ad costs.

The mixed decision, issued this week by U.S. District Court Judge Jeremy Fogel in San Jose, Calif., draws a line between clicks that were "fraudulent" in the sense that the clicker had dubious intentions, and clicks that were improper for other reasons, such as when technical problems prevented users from reaching a landing page.

Fogel ruled that Facebook's disclaimer protects the company only from clicks made by third parties with an intent to defraud, and not clicks that don't go through for more benign reasons.

The ruling left both sides claiming they had scored points in the litigation, which cleared the way for the marketers to obtain evidence from Facebook through the pre-trial discovery process.

"Plaintiffs view it as a significant victory because the judge rejected Facebook's argument that a click fraud disclaimer immunized it against liability for any type of improper third party click," said Jonathan Shub, who represents the marketers. "We believe that the evidence will show that Facebook has immature systems resulting in improper billing of a wide range of clicks for which advertisers should not have been charged."

For its part, Facebook said it was "pleased a number of claims have been dismissed for good." The company added: "We believe the remaining, much narrower, claims are also without merit and will fight them vigorously."

The case dates to last summer, when sports site RootZoo and several other online marketers sued the social networking service, alleging discrepancies between their internal data and the number of clicks they were charged for by Facebook. RootZoo's original 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 asserted that its contract with marketers precluded liability for click fraud because it included the following language: "Facebook shall have no responsibility or liability to me in connection with any third-party click fraud or other improper actions that may occur."

But RootZoo and the other marketers successfully argued that "improper actions" means only clicks made with a harmful intent, and not clicks that are "non-fraudulent but otherwise invalid." Such an invalid click could occur when the same user inadvertently clicks on an ad twice in rapid succession, or clicks on an ad but doesn't actually reach the marketer's site.

Fogel's ruling this week revisited an earlier decision dismissing claims against Facebook stemming from improper clicks by third-party companies. After that decision, the marketers filed amended papers spelling out why they sought to hold Facebook liable for invalid third-party clicks.

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