Siding against the ad network AdKnowledge, a federal judge has rejected the company's attempt to dismiss a lawsuit accusing it of duping consumers by helping to develop deceptive online ads.
The legal dispute, which centers on "poster clubs," began last year when California resident Suk Jae Chang filed a potential class-action lawsuit against AdKnowledge and two other businesses, affiliate marketing company Tatto (now owned by Ozura World) and Wozo (which allegedly was operated by Tatto).
Chang alleged that the two businesses worked together to create ads offering users a free poster for just a 99-cent shipping charge, but then enrolling them in paid "poster clubs" that sent people two posters every month for a $29.99 monthly fee. The companies allegedly obtained the financial information when Chang submitted it to pay the 99-cent mailing fee.
"It is clear that defendants’ monthly membership in a poster club is not designed to be operated as legitimate business that could actually appeal to consumers," Chang alleged in the complaint, which accused the companies of violating federal and state laws. "Few consumers, if any, would ever elect to buy a $29.99 monthly membership to receive only two posters per month, particularly when those posters are arbitrarily selected by someone else."
Users who accepted the offers for "free" posters also obtained virtual currency that could be used in games on social media sites. AdKnowledge allegedly enabled that offer through its Super Rewards program.
AdKnowledge argued for dismissal before trial on the theory that Chang didn't allege any facts showing that AdKnowledge knew about the poster offer.
U.S. District Court Judge Denise Casper disagreed. She ruled that dismissal would be premature, given that Chang alleged that AdKnowledge "partnered with" Tatto and Wozo. Casper added that questions about AdKnowledge's involvement required more evidence to resolve. News of the decision was first reported by Santa Clara University law professor Eric Goldman.
AdKnowledge also faces a potential class-action lawsuit in federal court in California. That case stems from allegations by Web user Rebecca Swift that social gaming company Zynga, along with AdKnowledge and another company, tricked users into purchasing unwanted merchandise by offering "free" trial subscriptions.
Swift alleges that she lost around $200 as a result of misleading ads that appeared in Zynga's "YoVille." She said that while playing "YoVille," she signed up for a "risk-free" trial of monthly shipments of a green tea supplement in order to earn YoCash -- virtual currency used in the game. U.S. Magistrate Judge Elizabeth Laporte in the Northern District of California last year granted Zynga's motion to send the case against it to arbitration.
But Laporte did not send the case against AdKnowledge to arbitration. AdKnowledge recently appealed that decision to the 9th Circuit Court of Appeals.