Yahoo “Syndication Fraud” Lawsuits–Crafts by Veronica v. Yahoo and Draucker Development v. Yahoo

By Eric Goldman

Crafts by Veronica v. Yahoo, Inc., No. 2:06-cv-01985-JCL-MF (D. N.J. complaint filed May 1, 2006)

Draucker Development v. Yahoo, Inc., No. CV06-2737 (C.D. Cal. complaint filed May 4, 2006)

Two companion lawsuits against Yahoo for what the plaintiffs characterize as “syndication fraud.” These complaints allege that Yahoo made false promises about where it would put advertisers’ pay-per-click (PPC) ads. Specifically, Yahoo ran the plaintiffs’ ads via adware and on typosquatting pages when advertisers believed that their ads would not appear in such formats (and presumably paid a premium to avoid such placement).

However, despite the serious-sounding use of the term “fraud,” this is actually a fairly garden-variety breach of contract action, and a weak one at that.

The Complaint and Its Deficiencies

The complaint levels three principal charges against Yahoo: Yahoo promised that (1) advertisements would be “highly targeted,” (2) Yahoo would run ads on “popular” and “high-quality” sites, and (3) the ads would appear along with “relevant articles [and] product reviews.” Yahoo purported violated these promises by placing advertisers’ ads in adware and on typosquatted pages.

Let’s look more closely at these allegations.

Highly Targeted

The complaint repeatedly says that Yahoo promised that the ads would be highly targeted. But there’s a big problem: Yahoo didn’t say this, according to the plaintiffs’ own evidence. The complaint points to the following language from one of Yahoo’s marketing pages:

You already know how Yahoo!’s flagship product Sponsored Search delivers highly targeted customer leads to your business by allowing you to control placement within sponsored search results across the Web.

Notice the bolded language—Yahoo says it delivers highly targeted customer leads, not highly targeted ads. If Yahoo promised highly targeted ads, arguably it was promsing a certain type of placement–but it didn’t promise this. Thus, the difference between targeted ads and targeted leads could be fatal to the complaint—the plaintiffs never allege that they got poorly targeted customer leads, so the plaintiffs’ allegations don’t make a prima facie case of a breach.

This raises an interesting question—plaintiffs clearly know what Yahoo said, so why do the plaintiffs repeatedly mischaracterize Yahoo’s statement throughout the complaint? At best, this is sloppy work by the plaintiffs. At worst, the plaintiffs are blatantly and intentionally misleading the court. Either way, there’s a certain irony when plaintiffs in a misrepresentation case misrepresent the facts to the court, isn’t there? (Maybe Yahoo should bring an action against the plaintiffs for “complaint fraud”?).

My hypothesis is that the plaintiffs don’t want to litigate over lead quality because doing so would destroy the class. To determine lead quality, the court would have to look at each individual plaintiff’s situation to see what leads they got and how they converted, and thus there may not be enough commonality of interests to support a class action. To avoid this pitfall, perhaps the plaintiffs decided that the only way to keep a class action would be to misrepresent what Yahoo said. Other explanations could account for the misrepresentation, but I’m skeptical that it was mere sloppiness.

Let’s put aside the plaintiffs’ misdirection and assume that somewhere Yahoo has actually promised that the ads would be highly targeted. The words “highly targeted” are capable of multiple meanings. For example, the ads were targeted by keyword rather than by category or demographics, so arguably the ads were highly targeted regardless of where they were displayed.

However, the plaintiffs offer no basis to suggest why their interpretation is better than any other interpretation—they don’t cite to any evidence of the term’s meanings (such as private definitions created by the parties, or course of conduct, or industry convention). Instead, the plaintiffs only cite their subjective definition of the term. I’m not sure if this is enough to survive a motion to dismiss.

Popular and High-Quality Websites

Yahoo’s marketing page also says:

The Content Match distribution network consists of popular, high-quality sites such as Yahoo! and MSN.com, providing you with better leads that are more likely to convert to sales.

Below this statement, the page gives some more examples that the complaint cites, including sites like Microsoft, CNN and the Wall Street Journal. I’ll stipulate that these sites should fulfill anyone’s definition of popular and high-quality. However, intermixed with these examples, Yahoo gave more examples of what it meant by “popular” and “high-quality,” including sites that I’ve never heard of, such as Away Network and Go2Net. By selectively cutting and pasting only the most prominent sites, the complaint tries to overstate Yahoo’s promise. Instead, plaintiffs who read this page should have gotten the impression that Yahoo’s network included a range of sites, some well-branded and others relatively obscure.

Articles and Product Reviews

Yahoo also says that:

Content Match™ complements your Sponsored Search campaign by displaying your existing listings along with relevant articles, product reviews and more, thereby providing an additional source of targeted leads.

Yahoo uses this same language in other places, such as the very lengthy Yahoo! Search Marketing Advertiser Workbook (see the glossary on page 97—referenced as page 98 in the complaint and labeled as page 109 in the file).

Notice what Yahoo actually said: “and more.” The complaint repeatedly omits those two words because it prefers to focus on the other words. But what do the words “and more” mean? They seem to contemplate that Yahoo would put ads in other contexts, and this negates the claim of a breach.

What Did the Contract Say?

The complaint works hard to pull in language from various marketing collateral, but interestingly it does not mention (not even once!) the centerpiece document in any breach of contract action: the contract that Yahoo and the advertisers actually entered into. I’ve not seen Yahoo’s contract, but I’m assuming it has standard provisions such as a disclaimer of warranty and an entire agreement clause that may squash these extra-contract statements. Also, I wouldn’t be a bit surprised if it specifically disclaims promises about where the ads would go or the likelihood of conversion. Either way, plaintiffs will have an uphill battle getting traction from language outside of the contract when the language in the actual contract may shut down these arguments pretty squarely.

Did the Plaintiffs Monitor Their Campaigns?

Let’s assume that plaintiffs read Yahoo’s marketing collateral and didn’t read their contract. Did the plaintiffs monitor their campaigns? There was lots of opportunity for plaintiffs to realize what Yahoo was doing if they monitored their campaign, and their resulting choices would be very telling. When plaintiffs learned of the purported deception, did the plaintiffs terminate the campaign or complain to Yahoo? Or did they keep on buying new ads despite their new-found knowledge? Recall the irony when a click fraud plaintiff (Click Defense) claimed that Google engaged in click fraud while it kept on advertising via Google.

Two Other Observations

(1) The plaintiffs had a massive mound of material to mine for misstatements by Yahoo—Yahoo’s website, securities filings, press releases, press quotes, etc. While not required, typically plaintiffs put the most egregious, most shocking misstatements by the defendant right into the complaint. Yet, given the universe of Yahoo’s public statements, I think it’s telling that the plaintiffs could marshal up language that, I think, is pretty feeble overall. To make the prima facie case, the plaintiffs pulled a few minor statements from some secondary marketing collateral and then heavily manipulate those statements (such as leaving out the “and more,” omitting some of the obscure syndication partners that Yahoo expressly enumerated, repeatedly mischaracterizing the “highly targeted” reference) to try to establish some basis for arguing breach. If this is the worst language that Yahoo communicated, I think they did pretty well (a lot better than I could do when I was an in-house counsel at Epinions!).

(2) Under standard contract law, “puffery” isn’t actionable. For example, if a car salesperson says “this is a wonderful car” in the sales process, the buyer can’t sue later if the buyer thinks the car wasn’t wonderful. The language cited by the plaintiff looks a lot like puffery, especially statements like “popular” or “high quality.”

Conclusion

Let’s be clear what this complaint isn’t about—it’s not about protecting consumers. Consumers may hate adware or typosquatting but this lawsuit doesn’t protect consumers from either. Instead, this is a dispute between Yahoo and advertisers over how much advertisers should pay for the advertising they got. And on that front, there’s little evidence that advertisers didn’t get exactly what they bargained for. They wanted advertising; they got advertising. There’s not even an assertion that the advertising performed poorly. I’m struggling to see a real problem here.

As a result, I think these lawsuits are nothing more than a shakedown for cash. Even unmeritorious class action lawsuits are expensive to defend, so the plaintiffs’ lawyers can exploit those defense costs for their personal largesse. They can make this argument to defendants: settle with me for a fraction of your total expected defense costs, and we’re both better off (defendants save some defense costs, plaintiffs’ lawyers grab some personal loot).

In particular, I’ve been trying to figure out why the plaintiffs (and a largely overlapping group of plaintiffs’ lawyers) filed two separate but virtually identical lawsuits. However, it does make sense as part of a shakedown. By opening up two battlefronts, the plaintiffs increase Yahoo’s defense costs, which should increase the incentive to settle (and the dollar value of a settlement).

It may be cheaper for Yahoo to settle than fight, but I hope Yahoo doesn’t reward the extortionists. Extortion shouldn’t pay, and I hope the plaintiffs find this out the hard way.

UPDATE: Evan Schaeffer offers a different possible explanation for why the plaintiffs filed overlapping lawsuits:

it’s possible the plaintiffs’ lawyers filed similar lawsuits in different forums because they plan to ask the MDL panel to consolidate the cases. By being in control of the majority of the transferred cases, it increases the likelihood that the lawyers will be able to control the litigation once the cases are consolidated

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