Google’s AdWords Contract Upheld Again, But Advertiser Lawsuit Against Google Continues–CLRB Hanson v. Google

By Eric Goldman

CLRB Hanson Industries LLC v. Google Inc., 5:05-cv-03649-JW (N.D. Cal. Aug. 21, 2007)

This lawsuit is one of several advertiser lawsuits against search engines from 2005 (see my initial post when the lawsuit was filed). Many of those lawsuits involved click fraud allegations and have subsequently settled. In this particular lawsuit, advertisers claim that Google did not honor some budget limits set by advertisers.

At its core, this is a breach of contract lawsuit, but the plaintiffs contended that they were not bound by Google’s AdWords contract. The court rejects those arguments, holding that Google properly formed the AdWords agreement when it used the following process:

In this case, before being permitted to register for AdWords, Plaintiffs were provided with a scrollable box of “Terms and Conditions.”10 The first sentence of the “Terms and Conditions” was: “Introduction. This Agreement between you and Google, Inc. (“Google”) consists of these AdWords Select Standard Terms and Conditions (“Terms and Conditions”), the AdWords Select Program (the “Program”) Frequently Asked Questions, which may be revised periodically, and the terms of any advertising campaign you submit or modify.” The sentence, “By creating my AdWords Select account, I agree to the above Terms and Conditions,” appeared directly below the scrollable box; immediately below that sentence was a button, “Sign me up for AdWords Select.”

This is at least the third case where Google’s AdWords contract has been upheld. The other two that come to mind are the Person and Feldman cases.

Although Google’s contract governs the dispute, the court didn’t dismiss the breach of contract claims. Instead, it identified two classes of advertisers who might still have viable claims:

1) advertisers who ran campaigns for less than 1 month or ended a campaign with a partial month (i.e., less than 30 days). These advertisers may have been charged more than expected because Google treated an advertiser’s “Daily Budget” limit as an input to compute a monthly cap. So if an advertiser set a $10 daily cap in a 30 day month, the advertiser would not be charged more than $300 in the month, but in a period of less than 30 days, Google may have “overdelivered” on some days to run up a bill that exceeded [# days x daily cap].

2) advertisers who “paused” their campaigns prior to Sept. 2006, Google’s language may have implied that these advertisers would not be charged for the time the campaign was paused, but Google’ system treated the pause as an underdelivery that was eligible to be “caught up” by overdeliveries later in the month.

While surely Google isn’t thrilled about this ruling, it does appear to severely limit the amount of money at risk in this lawsuit. The only money at risk–even for big advertisers who have run multi-million dollar campaigns–is for the last month of an advertiser’s relationship or for those months where an advertiser used the pause feature. Because the court’s ruling had the clear effect of substantially suppressing the maximum possible damages, the parties should now have enough data to work out a settlement.

The judge also left open plaintiff’s false advertising claim based on what advertisers would think the words “daily budget” mean.

Finally, the court addressed Google’s contract provision saying that “Customer waives all claims related to charges unless claimed within 60 days after the charge…” These types of provisions are pretty common in contracts as a way of trying to encourage customers to speak up fast if they have a problem with their bills, but I don’t know that lawyers actually expect them to be legally binding. Here, the court quickly rejects the clause as an unreasonable reduction of the statute of limitations (taking the normal 4 year SOL for contracts to 2 months). Personally, I don’t include this provision in my contracts because I think they are too aggressive, and this ruling gives me no reason to change my thinking.

Despite the fact that Google couldn’t dismiss this case completely, this ruling is still mostly good news for Google. First and foremost, yet another court upheld its AdWords contract. Second, this opinion should prompt a settlement that will not materially affect Google’s quarterly financials–like the click fraud settlements, I expect any settlement of this lawsuit to bring significant joy to plaintiffs’ lawyers and no appreciable financial benefit to advertisers.

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