dotStrategy Co. v. Facebook Inc

Background

dotStrategy Co., a marketing company operated by its sole member Bill Doshier, brought a proposed class action against Facebook Inc. under all three parts of California’s Unfair Competition Law, California Business and Professions Code section 17200 and following. The proposed complaint alleged that Facebook made false or misleading statements about its advertising services.

DotStrategy alleged that Facebook charged advertisers based on clicks or impressions. Facebook’s Business Help Center stated: “You will not be charged for clicks that are determined to be invalid.” Facebook defined invalid clicks to include clicks generated through prohibited means such as fake accounts, bots, scrapers, browser add-ons, or other methods that violated Facebook’s terms. DotStrategy alleged that Facebook charged for clicks from fake accounts and did not refund amounts paid after Facebook removed some of those accounts.

DotStrategy alleged that its managing member read Facebook’s statements before advertising on the platform from 2013 through 2018. It also alleged that a survey of 70 accounts that had clicked its ads identified 13 accounts as fake, and that Facebook later deleted eight of those accounts. DotStrategy claimed it paid for advertising it would not have purchased had it known about Facebook’s alleged conduct.

A prior order dismissed dotStrategy’s first amended complaint because it did not adequately plead reliance on Facebook’s representation about invalid clicks. DotStrategy then sought permission under Rule 15(a) of the Federal Rules of Civil Procedure to file a second amended complaint. Facebook opposed the motion, arguing that no reasonable consumer could have been misled in light of the advertising terms and that dotStrategy had not adequately alleged economic injury.

Analysis

The court explained that the relevant issue at this stage was whether amendment would be futile—that is, whether the proposed complaint could state a legally sufficient claim. Because the claims were grounded in fraud, the proposed complaint had to meet both the ordinary plausibility standard under Rules 8(a) and 12(b)(6), and the more specific pleading requirement under Rule 9(b).

The court held that whether a reasonable advertiser would be misled was generally a factual question not suitable for resolution on a motion to dismiss. It found that dotStrategy plausibly alleged that Facebook’s statement about invalid clicks could lead a reasonable advertiser to believe that Facebook would not charge, or would refund, amounts paid for interactions involving fake accounts. The court also found plausible both the theory that Facebook charged for clicks it determined were invalid and the theory that Facebook should have reviewed activity connected to accounts later identified and removed as fake.

The court rejected Facebook’s argument that its self-serve advertising terms defeated the claim. The terms stated that Facebook was not responsible for click fraud or other invalid click activity, but the court found that language ambiguous. It also explained that contractual language does not automatically defeat a California Unfair Competition Law claim based on allegedly misleading advertising; the question was whether reliance on the advertising remained reasonable despite the disclaimers.

The court found that dotStrategy had adequately alleged economic injury because it claimed it paid for ads it would not have agreed to purchase had it known the truth. The court also found sufficient allegations concerning two additional statements: “On Facebook, you’ll only pay to reach the right people who’ll love your business,” and “Facebook is a community where everyone uses the name they go by in everyday life. This makes it so that you always know who you’re connecting with.”

The court agreed with Facebook that dotStrategy had not adequately shown how several other statements were false, misleading, or actionable rather than non-measurable promotional language. Those statements included claims about reaching the right people, reaching people who matter most to a business, increasing website visits or conversions, building customer relationships, finding new customers, meeting business goals, and meeting people who will love a business.

Disposition

The court granted dotStrategy’s motion for leave to amend to the stated extent. It ordered dotStrategy to file its second amended complaint within seven days, making no changes other than omitting the statements the court found nonactionable. Facebook was ordered to answer within fourteen days, and the court directed that there be no further Rule 12 motions.