Antitrust Law Daily Wrap Up, ADVERTISING—NDCal: California Unfair Competition and False Advertising Claims Proceed Against Google over Online Advertising, (Apr 11, 2013)

By Tobias J. Gillett, J.D., LL.M.

An Arkansas attorney has stated claims under California’s Unfair Competition Law (UCL) and False Advertising Law (FAL) against Google Inc. over its alleged misrepresentations regarding a discount formula for its pay-per-click advertising, and its alleged display of the attorney’s advertising outside of the geographic area the attorney specified when ordering the advertising, the federal district court in San Jose has ruled (Woods v. Google Inc., April 9, 2013, Davila, E.).

Google offers a keyword advertising service called Google AdWords. The service allows advertisers to display advertisements on google.com and Google partner websites in exchange for payments assessed each time their advertisements are "clicked."

Google’s website relating to the AdWords program promotes an "automatic pricing discount feature" called Smart Pricing. Smart Pricing "automatically reduces the price advertisers pay for clicks if [Google’s] data shows that a click from a Display Network page is less likely to result in a conversion." The Display Network consists of Google partner websites, specific Google properties, and mobile apps. The AdWord service also permits AdWord clients to specify geographic locations where they would like their advertisements to appear.

Arkansas attorney Rick Woods employed the AdWords service to promote his law practice. On March 2011, Woods filed suit against Google, alleging that Google had overcharged him by failing to apply the Smart Pricing discount formula to approximately 60% of the Display Network clicks his advertisements received during the time he used AdWords.

The court dismissed the Smart Pricing claims in his original complaint, with leave to amend. In his second amended complaint (SAC), he asserted four claims in relation to the Smart Pricing feature, including breach of contract, breach of the implied covenant of good faith and fair dealing, violation of the UCL, and violation of the FAL. He also alleged that Google displayed his advertisements to users outside of his designated geographic area, in violation of the UCL, a claim not dismissed from his original complaint. Google filed a motion to dismiss.

Unfair Competition Law

The court explained that the UCL proscribes fraudulent, unfair, and unlawful business practices, thus establishing three kinds of UCL violations. Woods contended that Google had violated all three prongs.

Fraudulent practices. Woods contended that certain statements on Google’s website and in its Advertising Program Terms "deceived him into believing that Google would apply Smart Pricing to all clicks from the Display Network." The court explained that a UCL plaintiff "must show an actual and reasonable reliance on the allegedly untrue or misleading statements" to establish standing. In its original order dismissing Woods’ claims, the court had found that Woods had shown that his reliance may have been justified, but that he had not sufficiently alleged "that Google had failed to apply the Smart Pricing formula to clicks from Display Network pages." The court determined that Woods had cured that deficiency in his SAC, and thus had established standing.

The court also rejected Google’s argument that Woods had not pled his claim with the particularity required by Federal Rule of Civil Procedure 9(b). Woods had identified specific claims from Google’s website or representatives that he alleged were false or deceptive, and attached them as exhibits to his complaint.

Unfair practices. To state a claim under the unfair business practices prong, a plaintiff must allege that "the consumer injury is substantial, is not outweighed by any countervailing benefit to consumers or to competition, and is not an injury the consumers themselves could reasonably have avoided." Here, Woods alleged that Google’s practices "caused unavoidable injury to Woods and other AdWords users and offered no countervailing benefit to consumers or competition." Therefore, Woods sufficiently pled a claim under the unfair business practices prong, in the court’s view.

Unlawful practices. The unlawful prong of the UCL permits plaintiffs to assert violations of other laws as unlawful practices under the UCL. Woods claimed that Google’s breaches of contract and of the implied covenant of good faith and fair dealing constituted such unlawful practices. However, the court observed that he had not "identified a statute independent of the UCL which he claims that Google has violated." Therefore, he did not state a claim under the unlawful prong, according to the court.

Location targeting. Since the court had determined in its original order that Woods had sufficiently pled a UCL claim in relation to Google’s alleged display of his advertisement outside of his designated geographic area, and since he reasserted that claim without modification in his SAC, the court again denied Google’s motion to dismiss with respect to that claim.

False Advertising Law. The FAL prohibits a business from making any statement in its advertising "which is untrue or misleading, and which is known, or which by the exercise of reasonable care should be known, to be untrue or misleading" in relation to the sale of "real or personal property" or "services." The court observed that Woods had adequately pled that certain Google statements constituted misrepresentations and that Google had not applied its Smart Pricing formula where it had claimed that it would apply the formula. Therefore, the court found Woods had stated a claim under the FAL.

The court also declined to dismiss Woods’ claims for breach of contract and breach of the covenant of good faith and fair dealing.

The case is No. 5:11-CV-01263-EJD.

Attorneys: Brad Edward Seidel (Nix Patterson and Roach, LLP) for Rick Woods. Edward D. Johnson (Mayer Brown LLP) for Google Inc.

Companies: Google Inc.

Cases: StateUnfairTradePractices Advertising CaliforniaNews