Antitrust Law Daily Wrap Up, ADVERTISING—N.D. Cal.: Unfair Competition Law, tort claims barred by economic loss rule, (Mar 4, 2014)

By Jody Coultas, J.D.

Claims that LookSmart Ltd. engaged in “click fraud” in placing ads for WeBoost Media on online publishers’ websites, in violation of the California Unfair Competition Law (UCL), were barred by the economic loss rule, the federal district court in San Francisco has ruled (WeBoost Media S.R.L. v. LookSmart Ltd., February 28, 2014, Conti, S.). WeBoost was granted leave to amend its UCL and tort claims if it could plead facts demonstrating that the claims were not subject to the rule.

WeBoost is an online publisher with its main source of income generated through the placement of ads on its websites. LookSmart acts as an intermediary between online “publishers,” which provide content from which they hope to generate ad revenue, and “advertisers,” which promote products online via ads placed on publishers’ websites. LookSmart agreed to display ads promoting WeBoost’s website network on its own websites, for which WeBoost would pay for the total number of clicks on those ads. After WeBoost became aware that a “significant portion” of the clicks LookSmart billed for were identified by Google as click fraud, it filed UCL and other claims against LookSmart.

WeBoost’s intentional tort claims were barred by the economic loss rule, according to the court. The economic loss rule prevents every breach of a contract from giving rise to tort liability and the threat of punitive damages. Fraud and other intentional tort liability claims that do not arise independently of the breach of contract claims also are barred by the rule.

LookSmart argued that the terms and conditions of the parties’ agreement barred WeBoost’s claims. Specifically, LookSmart contended that the contract established that payments were due on a pay-per-click basis, and such charges would be determined based only on LookSmart’s technology with disputes governed by LookSmart’s reconciliation system. All of the claims arose from LookSmart’s obligations under the contract, and the parties bargained for the possibility of such issues. WeBoost was unable to show that its tort claims were independent of the promises the parties made during the course of their contractual relationship.

The case is No. C 13-5304 SC.

Attorneys: Matthew David Taylor (Holmes Taylor Jones LLP) for WeBoost Media S.R.L. Joseph Marion Rimac (Rimac & Martin) for Looksmart LTD.

Companies: WeBoost Media S.R.L.; LookSmart Ltd.

Cases: Advertising StateUnfairTradePractices CaliforniaNews